CARSON CITY – Nevada policy makers remain divided over the need to make a fundamental change to the public employees’ retirement system following the release last week of a report showing significant costs to move to a defined contribution plan.
Some lawmakers say they have not yet read the report by the Segal Group Inc. which says it would cost about $1.2 billion over the next two years to change from the current defined benefit plan to a defined contribution plan for new state and local government workers. These additional costs would continue for several years.
Lawmakers on both sides of the issue say they need more information and expect to hear more details of what such a shift would entail in the upcoming legislative session.
Gov.-elect Brian Sandoval continues to favor a change to a defined contribution plan for new government hires, but has not yet reviewed the study in-depth, said spokeswoman Mary-Sarah Kinner.
She said Sandoval expects to meet with the staff of the Public Employees’ Retirement System after taking office in January.
“Gov.-elect Sandoval remains committed to the concept of defined contribution as discussed in the campaign,” Kinner said.
Assembly Minority Leader Pete Goicoechea, R-Eureka, said he believes the retirement system will have to be changed over to a defined contribution plan, but that he needs more details on how such a change would be accomplished.
The price tag just for the next two years gives him concerns as well.
Goicoechea said if the contribution rates have to be increased significantly for current public employees to fully fund the current pension plan within about a decade, it could be a big hit to workers as well.
Contribution rates, which now are shared by employers and employees, are set to increase over the next two fiscal years to keep the current defined benefit plan financially healthy. Rates will go up to 23.75 percent from 21.5 percent now for regular employees.
But to fund the plan more quickly, the rate would have to increase to 34 percent instead, according to the Segal report.
For police and firefighters, who are analyzed separately, the increase would go from the proposed 40 percent contribution rate over the next two years to 52 percent.
The cost of these increases would total $1.2 billion for the coming two years, and would continue until the closed defined benefit plan was fully funded.
If these increases are shared by workers, it would mean a significant pay cut, Goicoechea said. It could also lead to a mass exodus of current employees who are eligible for retirement, he said.
Goicoechea says he does favor changing to a defined contribution for new hires.
“But I want to see some more on the plan before I really step out there,” he said.
Assembly Speaker John Oceguera, D-Las Vegas, said he does not believe a major change to a defined contribution plan is necessary. But there is no question that the long-term unfunded liability of the current plan, which hit $10 billion as of June 30, needs to be paid down, he said.
“If we can reduce that unfunded liability portion by whatever method, then I think we ought to look at that,” he said. “I don’t think we ought to change the way we do it though, the system we have.
“Getting to 100 percent funded is a good cause, and I think we should try to do that,” Oceguera said.
Senate Majority Leader Steven Horsford, D-Las Vegas, said he could not comment because he has not yet read the report.
Senate Minority Leader Mike McGinness, R-Fallon, favors a change to a defined contribution plan for new hires but said he has not read the Segal report and so could not yet comment on the findings.
Assemblywoman Debbie Smith, D-Sparks, chairwoman of the Ways and Means Committee, said the report indicates what other such studies have said previously, that it would not be fiscally prudent to change the pension plan from a defined benefit to a defined contribution plan.
The Legislature has been attempting to address the unfunded liability, although budget problems in recent years have made that more difficult to accomplish, she said. It will be up for discussion at every legislative session, Smith said.
“I think the public employee benefit plans will certainly be under scrutiny; and making sure we have plans to fund them,” she said.
The 2009 Legislature did make some changes to the retirement plan for new hires in an effort to reduce costs, including increasing the retirement age to 62 for some workers.
The report released Dec. 15 says that to change to a defined contribution plan for new hires, the existing defined benefit plan will have to be fully funded over a shorter time frame, requiring increased contribution rates from the state and local governments and possibly employees as well.
A change from a “defined benefit” plan where retirement payments are guaranteed based on salary and years worked, to a “defined contribution plan” where public employers contribute to employee retirement without any guarantees of pension amounts upon retirement, is being pushed for public employee retirement plans nationwide.
Such a change would affect only future hires. There is a current legal prohibition for changing the plan for workers currently in the system.
Advocates for the current system say Nevada’s plan is well managed, is being funded appropriately and will be fully funded over time. Supporters of a change to defined contribution say it would eliminate any future unfunded liability and so benefit taxpayers.
Assembly Minority Leader Pete Goicoechea says changing the public employee retirement system could have a big financial impact on state and local governments and employees:
Goicoechea says a change to the system could generate a large number of retirements:
Assembly Speaker John Oceguera says lawmakers should work to close the unfunded liability rather than make sweeping changes:
Oceguera says getting the current plan 100 percent funded is a worthwhile goal:
Assemblywoman Debbie Smith says budget problems have delayed legislative action on the unfunded liability: