Posts Tagged ‘SAGE’

Public Employee Retirement Board Authorizes Study to Look at Impact of Reform

By Sean Whaley | 4:25 pm May 28th, 2010

CARSON CITY – Both Democrat and Republican lawmakers agree the 2011 legislative session will likely see a debate about the future of Nevada’s public employee pension program, but differences remain over whether radical change is needed to protect the state from a multi-billion long-term unfunded liability.

The $9 billion question is whether the Public Employees Retirement System should be converted to a “defined contribution” program for new hires, or whether the “defined benefit” plan now in place for state and local government employees, including teachers, should be preserved.

In anticipation that the future of Nevada’s public pension program will be a topic of discussion in 2011, the board that oversees the program voted last week to undertake an analysis of what a conversion to a defined contribution would mean in terms of cost and required regulatory changes, said Tina Leiss, operations officer for PERS.

“It is not something the board is proposing,” she said. “They want to be prepared to provide facts.”

The study is expected to come to the board for review this fall, Leiss said. It is being performed by the system’s current actuary at no additional cost.

PERS officials argue that major changes to the plan are unnecessary because the contributions flowing into the plan from government and public employees, combined with an estimated 8 percent rate of return on investments over time, will see the plan fully funded in the next 30 years. The contribution rates are recommended by an actuary, approved by the seven-member PERS board and the Legislature every two years.

The Nevada Legislature has always endorsed the contribution rate approved by the PERS board, and those contributions have not been diverted to other uses as has occurred in some others states.

The state retirement plan was estimated to have a long-term unfunded liability of $9.1 billion on June 30, 2009. At its high point the state public pension plan was 85 percent fully funded. It now stands at 72.5 percent.

A recent study of state and local government pension funds by the Pew Center on the States identified Nevada as one of 19 states where “serious concerns” exist about the long-term health of the retirement plan.

The question of what state and local governments should do to resolve the long-term financial uncertainty of their public pension plans is a concern nationally. A number of independent reviews have shown that many of the plans are underfunded and not likely to remain solvent over the long term.

A new report suggests the federal government and taxpayers nationally could end up bailing out the underfunded plans.

Assemblyman Pete Goicoechea, R-Eureka, said he believes the time has come to change the plan to defined contribution, which would provide new public employees a contribution to their retirement that they would then invest on their own behalf.

“It’s going to be tough enough to keep it afloat as it is,” he said.

The current plan called defined benefit, where public employees are guaranteed a specified retirement income upon retirement based on salary and number of years of service, cannot be continued, Goicoechea said.

While employee recruitment and retention would likely be a problem going forward, the pension plan needs to change to bring it more into line with what is offered in the private sector, he said.

Assemblywoman Sheila Leslie, D-Reno, said an estimated $3 billion general fund budget shortfall for the next two-year state budget means all issues have to be debated in the session, including the public employee retirement system.

“I think, when you are $3 billion short, you have to look at the basic structure,” she said. “So we have to look at structural changes, both on the expense side and the revenue side. So I am not willing to exclude anything.”

But Leslie said at this point she believes the defined benefit plan should be continued.

Requiring public employees to make their own investment choices could jeopardize their retirement if the stock market suffers downturns as it is doing right now, she said. The result could be retirees with inadequate retirement income, which could then lead the state to deal with the problem, Leslie said.

Senate Majority Leader Steven Horsford, D-Las Vegas, acknowledges that the public pension program, and whether it needs reform, will be one of the top issues in front of lawmakers next session.

But the Legislature has acted to keep the retirement plan funded by adjusting contribution rates paid both by public employers and their employees, he said. There seems to be an assumption by some that if everyone retired today that a $9 billion bill would come due, but that is not how retirement plans work, Horsford said.

The potential for a change to a defined contribution plan is not the only reform proposal on the table. The SAGE Commission has also recommended a number of changes to the current defined benefit plan to bring pension costs down. The Spending and Government Efficiency panel appointed by Gov. Jim Gibbons to review government operations did not recommend a change to a defined contribution plan, however.

SAGE commission recommendations include setting a minimum retirement age of 60 before benefits can be paid out. Regular employees in the plan can now retire at any age with 30 years of service.

Other recommendations include calculating the retirement benefit over five years of pay, not the current three highest pay years and imposing a moratorium on any benefit enhancements until the plan is fully funded.

All three Republican candidates for governor advocate a change to a defined contribution plan, saying such a program would be more in line with what is offered in the private sector.

The expected Democrat candidate, Rory Reid, has not yet come to any conclusion on what changes, if any, are needed to the plan, saying those who hold opposing views need to first come to some consensus on the issue.

The 2009 Legislature did make some modest changes to the retirement plan for new hires starting Jan. 1, 2010, including increasing the retirement age after 10 years of service to age 62 from 60.

Any changes to the plan would affect only new hires. The pension plan has been determined to be a vested property right for current employees that cannot be changed.

Audio files:

052810Goicoechea1 :16 is defined contribution.”

052810Leslie1 :10 the current system.”

052810Horsford1 :23 it’s an issue.”

Governor Cites Progress in Implementing SAGE Commission Recommendations but Many Proposals Still Await Action

By Sean Whaley | 2:54 pm May 5th, 2010

CARSON CITY – Gov. Jim Gibbons is touting his successes in implementing recommendations from his SAGE Commission on ways to improve efficiencies and save money in state government, but many of the proposals remain in progress or will require action by the 2011 Legislature.

In a press release issued first by his office and then his campaign, Gibbons says eight of 44 recommendations from the panel of private business people he appointed in May 2008 have been fully implemented.

Another 19 are in progress or planned for implementation following the 2011 legislative session, assuming lawmakers are supportive of the proposals.

Gibbons praised the privately-funded commission, saying its work, “is invaluable to my staff as we continue to work on ways to make Nevada government smaller, smarter and more efficient. My daily goals are to get Nevadans back to work and to make government less burdensome on our economic recovery,” he said.

Gibbons is facing a tough re-election campaign, with two GOP opponents on the ballot in the June primary. Polls show him trailing former federal judge Brian Sandoval.

The 14-member bipartisan Spending and Government Efficiency Commission first met in June 2008, issuing reports and recommendations every 90 days. The final report of the panel was released in January.

Some of the recommendations already implemented or in progress will save millions of dollars, based on the commission’s analysis, although the actual savings may be different depending on when they are finalized.

They include:

-          Centralized billing for the Division of Mental Health and Developmental Services, with an estimated savings of $12 million by the Sage Commission. This was accomplished in the 2009 budget.

-          Setting staffing ratios at state run psychiatric facilities based on private sector and national norms. This too was accomplished in the 2009 budget with a SAGE savings estimate of $36 million.

-          Implementing managed care for the aged, blind and disabled populations being served by Medicaid in Clark and Washoe Counties, and expanding managed care to women and children in four rural counties, for an estimated savings of $36.5 million. This effort is in progress.

But many of the most sweeping proposals, including major changes to both the state employee health insurance plan and public employee retirement system, have yet to be accomplished. The proposals did not get support from a majority of lawmakers in the 2009 session.

A recommendation to close the Nevada State Prison at a savings of $19 million a year has also been rejected by lawmakers.

Lynn Hettrick, deputy chief of staff to Gibbons, said the closure remains on the table because of the $29 million cost to repair the outdated facility and because there are empty beds in other correctional facilities that could accommodate the approximately 700 inmates housed there.

The Gibbons release on the SAGE implementation process notes that it could be closed by executive order, bypassing the Legislature, if the state economy does not recover.

Bruce James, chairman of the panel and a former U.S. Public Printer, praised Gibbons for his ongoing efforts to implement the recommendations.

“He’s doing all he can to move forward,” he said. “We have to give him credit.”

James said some of the cost-saving and efficiency ideas may be better received in the 2011 session because of the serious budget shortfall facing lawmakers.

“Without question we’re going to be in tougher times next legislative session,” he said. “Everyone will be looking at ways to reduce expenditures without reducing citizen services. We want to make sure we do not diminish the quality of services.”

James said he has also heard the SAGE report mentioned by a number of candidates seeking legislative seats, another sign the report won’t gather dust on a shelf.

The report was the result of hundreds of hours of work by the panel members, and even more time from a small privately supported staff, he said. Hundreds of people testified before the commission and the final recommendations were carefully evaluated before being moved forward, he said.

All but two of the recommendations involving the state health insurance program received unanimous support from the commission, James said.

The SAGE Commission issued 90-day reports starting in the fall of 2008 but many of the recommendations did not get favorable attention in the 2009 legislative session.

James said he had hoped lawmakers in 2009 would have made more progress on the recommendations.

“I think the Legislature could have done a better job, but it is fair to say they probably didn’t understand a lot of the recommendations,” he said. “Perhaps the governor and the Sage Commission could have done a better job of engaging the Legislature.”

James said he would especially like to see more progress from the Legislature on the proposals for the public employee health insurance and retirement systems.

They include requiring state employees to pay more of the cost of their health care, similar to what is offered in the private sector. This change would save $322.7 million according to the SAGE Commission if it had been implemented on July 1, 2009.

While the 2009 Legislature did make a few changes to the retirement plan for new hires starting Jan. 1, 2010, James said more must be done to bring the public employee benefits into line with those offered in the private sector.

Assemblywoman Sheila Leslie, D-Reno, said many of the SAGE Commission recommendations will be under discussion in 2011 because they are ongoing issues of concern to lawmakers, whether it is the cost of state employee health care or ideas for reforming the public pension system.

While many of the issues likely will be under discussion, there are differing views on what should be done, she said.

Some SAGE recommendations, such as closing Nevada State Prison, were just not feasible, Leslie said. The actual savings were not as large as suggested, and the plan for relocating the inmates was not well thought out, she said.

“Some ideas sound good in theory but when we go to implement them another picture emerges,” Leslie said.

While the efforts of the SAGE Commission are welcome, the Legislature’s own Audit Division reviews all state programs and agencies on a rotating basis and in a methodical way that removes any element of politics from the process, she said.

This ongoing review process is likely to be a more valuable way to come up with ways to make state government more efficient, Leslie said.

Nevada’s Public Employee Pension Plan Has $9.1 Billion Unfunded Liability

By Sean Whaley | 2:49 pm March 17th, 2010

CARSON CITY – Nevada’s political leaders have emphasized repeatedly in recent months that the state faces a huge funding shortfall in 2011, perhaps as much as a $3 billion hole that will make the recent special session battle over cuts and new revenues pale by comparison.

But the state faces another financial challenge that some suggest may be even more difficult to address: a public employee pension system that has an unfunded liability of $9.1 billion as of June 30, 2009.

A recent study of state and local government pension funds identified Nevada as one of 19 states where “serious concerns” exist about the long-term health of the retirement plan. Nevada’s plan, where annual contributions by the state, local governments and public employees are invested in stocks, bonds and other instruments, is less than 80 percent fully funded, according to the examination by the Pew Center on the States issued in February 2010.

The study concluded in part: “In the midst of a severe budget crisis – with record-setting revenue declines, high unemployment, rising health care costs and fragile housing markets – state policy makers may be tempted to ignore this challenge. But they would do so at their peril. In many states, the bill for public sector retirement benefits already threatens strained budgets. It will continue to rise significantly if states do not bring down costs or set aside enough money to pay for them.”

The analysis by the Pew Center on the States found that as of Dec. 31, 2008, Nevada’s pension liability totaled $30.6 billion for current employees and retirees, with $7.3 billion of that amount unfunded for a 76 percent funded rate.

Dana Bilyeu, executive officer of the Public Employees Retirement System (PERS), said that unfunded liability is now at $9.1 billion. At its high point the plan was 85 percent funded in 2000. It now stands at 72.5 percent.

Bilyeu says the long-term liability will be funded over the next three decades and that major changes to the plan are not needed. The plan is being funded annually to the tune of $1.3 billion in contributions from all participating state and local governments and their employees, and those contribution rates are reset every two years to ensure it remains on strong financial footing, she said.

“To me, when you talk about public pension plans being in jeopardy, you need to focus on places where they are ignoring their responsibilities,” Bilyeu said.

Both Illinois and Washington state, for example, take contribution “holidays” where money that is supposed to go into the retirement plans is diverted to other uses, she said.

While the recent downturn in the market had a significant negative effect on the plan, people must remember that it is managed on a 60-year basis, not on a five- or 10-year time frame, she said.

“You either believe in the long-term financing approach or you don’t,” she said. “Nevada has embraced the long-term financing approach.”

Not everybody agrees with Bilyeu’s optimistic assessment. The Las Vegas Chamber of Commerce and the SAGE Commission, a panel established by Gov. Jim Gibbons to find efficiencies and save money in state government, have both recommended reforms to reduce the cost of the public pension system.

Cara Roberts, director of public relations for the Chamber, said regardless of state funding or the current economic climate, the state and local governments are providing benefits not found in the private sector.

“These promises we make do indeed have a real long term cost,” she said. “I suppose if there is a silver lining to the budget crisis, it is that fact we’re finally coming to the realization of where our taxes are actually going and whether those decisions truly reflect our priorities.”

The Pew report says there is a risk to states as they work to fully fund their plans due to market downturns such as the 2008 meltdown. Another issue is whether the generous retirement benefits provided by many of the plans, including Nevada’s, is siphoning limited tax revenues away from programs and services including public education.

While many Nevada officials and others believe there is a need to reform Nevada’s pension plan, they also acknowledge such reforms will be difficult to achieve. There has been a general consensus among many policy makers that changing the plan for current employees would not be fair since they entered the public sector workforce with certain expectations about retirement. Any changes made going forward for new employees only will take decades to bring about any definitive results.

Bilyeu said besides the fairness issue, there is a legal prohibition on making changes to the plan for current employees. Contributions made by employees are a form of deferred compensation, and altering the agreement with them would violate the contracts clause of both the U.S. and state constitutions, she said. The Nevada Supreme Court has issued an opinion on this issue, Bilyeu said.

Lynn Hettrick, deputy chief of staff to Gibbons, said one solution would be to change the plan from a “defined benefit” plan, where a specific pension amount is guaranteed on retirement, to a “defined contribution” plan, where set amounts of funds are contributed. This is the way most private companies operate, he said.

Usually in such plans the employee is responsible for making investment choices and so there would be no long-term liability on behalf of the state or local government.

But that is unlikely to occur in the short term because of the economy, he said.

“I don’t think we can get there right now,” Hettrick said.

Shifting to a defined contribution plan for new employees would require the state to cover the current unfunded liability in the defined benefit plan, which would then be closed to new participants and phased out over time.

“Given the current financial situation, that is not going to occur,” he said.

Hettrick said Gibbons does want to address the unfunded liability issue, but in the 2011 session, it may be a situation where some less sweeping changes are proposed, such as setting a minimum retirement age at 62 for all retirees. But if such changes are made on a going-forward only basis, such as those approved in 2009, there won’t be any short-term fix to the unfunded liability, he added.

“We need to bare bones the program and still provide a reasonable retirement,” Hettrick said. “People are living longer and working longer.”

Hettrick said also the Pew Study makes it clear the unfunded liability issue must be addressed by the governor and Legislature.

Assemblyman Ty Cobb, R-Reno, is one lawmaker who is skeptical of Bilyeu’s optimistic view of the health of the plan. He proposed the creation of a defined contribution plan in the 2009 session as some states have already done, but his bill did not get a hearing in the Democrat-controlled Assembly.

“The director of the system keeps saying, no matter what the outlook, that we’re doing fine, don’t worry about it,” he said. “But we have a huge unfunded liability, and we have to account for it.”

As to the Pew study, Cobb said most lawmakers and policy makers have known for some time the unfunded liability is a concern that needs attention.

But there is too much focus on partisan politics in the Nevada Legislature and not enough on major policy issues, he said. A change in the current climate would have to come from the grassroots level, Cobb said.

This is the first in a series of stories about Nevada’s public employee pension system.

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Audio files from this story

[Audio][3 files]: Bilyeu on long-term financing; Hettrick on Government Action; Hettrick on Pew Study

Sandoval Offers Budget Plan for Nevada

By Elizabeth Crum | 3:05 pm January 13th, 2010

LAS VEGAS — Gubernatorial candidate Brian Sandoval today announced his plan to address the state’s current budget shortfall.

Sandoval’s plan proposes temporary 4% salary reductions for all state employees including K-12 education personnel, state health plan modifications, privatizing selected state services and targeted budget cuts.  Sandoval’s plan aims to realize a savings of between $200 and $500 million.

Sandoval’s plan for the Public Employee Benefits Program (PEBS) would implement the four proposed SAGE Commission recommended 2009 PEBS reforms which are:

1) Immediately change employer contribution to 75% from 95%,

2) Eliminate subsidy for Medicare retirees beginning July 1, 2010,

3) Eliminate the entire subsidy for anyone who retires after July 1, 2010,

4) Reduce subsidy for non-Medicare retirees by 25% on July 1, 2010, and by 25% more on July 1, 2011

The proposal for privatization of selected state services would occur through a public bidding process.  Sandoval’s plan assumes an average savings of 10 percent for services including prison medical services, building and grounds maintenance, the state motor pool, mail services, and the state personnel and purchasing departments.

In addition, Sandoval’s proposal would divert $110 million from the Clark County School District portion of the state class size reduction program to the state general fund.  The temporary diversion would be offset by seeking statutory changes necessary to allow, on a temporary basis, the district to utilize its capital account reserves for operating expenses, salaries and program integrity.

“All Nevadans are facing tough times and our state budget is experiencing unprecedented deficits,” Sandoval said. “Revenues are down significantly, caseloads are up, and tough decisions will have to be made to keep our state solvent.”

“I understand the impact of these proposed salary and benefit reductions on our state employees, but I believe these reductions are a better alternative than mass layoffs, tax increases, or deficit spending,” he said.

“Make no mistake, there is a difficult road ahead and none of the choices to address this problem are easy or painless,” Sandoval said.

“Given the importance of this issue, I have studied the problem for months, enlisted the best and brightest minds in our state to aid me, and offer this plan as means to help our current leaders in their efforts to shore up our ailing state budget,” he said.

View or download a PDF of Sandoval’s plan here.

Government Efficiency Panel Calls for Reform to State Employee Pay and Benefit Package

By Sean Whaley | 7:07 pm January 7th, 2010

CARSON CITY – A final report from a panel of private citizens charged with finding efficiencies in state government says the generous salary and benefit package provided to the state workforce is “unaffordable in the short run and unsustainable in the long run.”

“The sooner Nevada addresses this, and the sooner total government employee compensation is brought into parity with the private sector, the sooner the state will achieve a balanced budget allowing it to provide needed citizen services at desired levels,” says the final report from the Nevada Spending and Government Efficiency Commission (SAGE) in a report delivered today to Gov. Jim Gibbons.

“Dealing with this issue alone will save half of all the money contained in the Sage Commission’s recommendations,” said SAGE Chairman Bruce James.

Other findings in the report include:

- The state budgeting process is archaic and in need of revision. The process itself distracts everyone from agency personnel to members of the Legislature from focusing on the big picture by being forced to deal with minutia. We saw example after example of the same basic public services being provided by multiple agencies in a duplicative fashion without any coordination.

- Operating with 200 different units and agencies is unmanageable. In the government sector it seems that once an entity or program is established it seldom goes away regardless of efficacy. The result is a waste of public resources. AS a result, the SAGE Commission has recommended establishing the Nevada Sunset Commission to ensure periodic review of every state government entity and program to make certain it is still doing what it was established to do, is still necessary, and is cost efficient.

- The state needs to address its real estate portfolio. Nevada does not have a real estate plan and it lacks a complete inventory, in one place, of its raw land, improved real estate, leased real estate, and water and mineral rights.

- Nevada state officials lose out on millions of dollars in federal grants because there is no strategic, managed focus on this opportunity as other states do. This should be a full-out, statewide effort involving all jurisdictions eligible for such grants.

James said the SAGE Commissioners spent a lot of their own time and money to provide the 44 money saving and efficiency creating recommendations.

“Just as SAGE commissioners did in their work, we hope our elected public officials can now set aside their partisan differences to put the public’s interest first,” he said.

Gibbons established the SAGE Commission in 2008 as a non-partisan group of professionals who have volunteered their time to seek ways for Nevada government to save money, work more effectively, and perform more efficiently.

“I am delighted with the work of the SAGE Commission, and I am anxious to examine their newest recommendations and work to implement them,” he said after receiving the final report.

Gibbons said he has supported the vast majority of the SAGE Commission’s recommendations over the last year-and-a-half, but that most of the ideas have not been embraced by the Legislature.

“I will continue to pursue implementation of the SAGE Commission recommendations,” Gibbons said. “This Legislature simply must realize that they cannot continue to crush working families by raising taxes and increasing spending.”

Assemblywoman Sheila Leslie, D-Reno, said the Legislature has examined and given careful consideration to the SAGE Commission recommendations. The Legislature did enact some changes to the state retirement system and health benefit plans for new hires this past session, she said.

“But there was a pretty strong bipartisan feeling that it would be unfair to go back on agreements we have made in the past where state employees gave up salary increases to have better health care, for example,” Leslie said.

There seems to be a sense from the commission that the Legislature is not taking its recommendations seriously, which is not the case, she said.

The idea of reorganizing the many units of state government to improve efficiency is worth looking at, Leslie said. But some of Gibbons’ proposed reorganizations, such as combining the Commissions on Tourism and Economic Development, were not well thought out, she said.

Leslie said there are always efficiencies to be found in state government. That is why the Legislature‘s Audit Subcommittee constantly reviews state agency operations.

But absent some big reorganization or cutting a big chunk of money out of the budget, cost savings from such efficiencies are likely to be minimal, she said.

Assemblyman James Settelmeyer, R-Gardnerville, said many of the SAGE recommendations have been ignored by the Legislature, just as past recommendations from previous reviews were ignored. Any changes that are adopted are usually modest, he said.

If some of the recommendations of past reviews had been accepted, Nevada might not be in such dire financial circumstances right now, he said.

But Settelmeyer said he does not believe state employees are excessively compensated. Settelmeyer said he would support a change to the state benefit program for new hires, but not current workers.

“On new hires, we have to change the system,” he said. “We need to change from a defined benefit to a defined contribution system.”

Rather than look at current state employee pay and benefits, Settelmeyer said he would like to see a comprehensive review of programs created over the past several sessions when times were good to see if some can be eliminated. Eliminating new programs the state can’t afford could help get the budget back in balance, he said.