Posts Tagged ‘Segal’

Nevada Policy Makers Remain Divided On Future Of Public Employee Pension Plan

By Sean Whaley | 4:12 pm December 20th, 2010

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.

Audio clips:

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:

122010Goicoechea1 :07 a tremendous impact.”

Goicoechea says a change to the system could generate a large number of retirements:

122010Goicoechea2 :09 until July 1.”

Assembly Speaker John Oceguera says lawmakers should work to close the unfunded liability rather than make sweeping changes:

122010Oceguera1 :13 that we have.”

Oceguera says getting the current plan 100 percent funded is a worthwhile goal:

122010Oceguera2 :04 to do that.”

Assemblywoman Debbie Smith says budget problems have delayed legislative action on the unfunded liability:

122010Smith :14 plate every session.”

Report Says Change To Nevada Public Retirement System Would Mean Big Upfront Costs

By Sean Whaley | 2:27 pm December 15th, 2010

(Updated at 4:31 p.m. on Dec. 15, 2010, to include comments from NSEA)

CARSON CITY – The panel that oversees Nevada’s public employee retirement system was told today 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.

The increased costs would come about as the Public Employees’ Retirement System moved to fully fund the existing plan for current state workers and retirees who would remain in the defined benefit plan.

The increased funding would have to continue over the next several years, adding costs to state and local government budgets. While the cost of the current retirement plan is shared between workers and their government employers, Dana Bilyeu, executive officer of PERS, said employers might end up having to bear the entire increased cost.

“Probably the entire cost would be borne by the employer because the employees are going to say, ‘hey, wait a minute, you’ve unilaterally made a decision to change the financing here and I’m now penalized because of that’,” she said.

The report by the Segal Group Inc., the PERS actuary, was prepared for the retirement board at no additional charge. It was accepted by the board and will be forwarded to the Legislature and Gov.-elect Brian Sandoval for their consideration at the 2011 legislative session. The board took no position on the report or the suggestion to switch to a defined contribution plan.

Sandoval and some lawmakers have advocated a change to a defined contribution plan for new hires as a way of containing a long-term unfunded liability for the current defined benefit plan, which hit $10 billion as of June 30.

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 eliminate the unfunded liability for 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.

The unfunded liability number won’t be recalculated until next year, but Bilyeu said today the PERS investment portfolio is up 13.6 percent since July 1, and assets total about $23.7 billion.

Members of the PERS board heard today that making the switch would result in significant upfront costs to the state and local governments as the current plan would be closed to new members and it would have to be fully funded over a shorter period of time.

Bilyeu said the change could be compared to switching from a 30-year mortgage on a home to a 15-year payoff, resulting in higher payments. In the case of PERS, the amortization schedule would shrink from the current 25.5 years to an average of about 10 years, she said.

The Segal Group report cites a number of advantages and disadvantages of defined contribution plans. Defined contribution plans would likely require employees to manage their own investments, and they are frequently drawn down by workers before retirement. They do not include cost-of-living increases to maintain purchasing power.

For government entities and taxpayers, however, eliminating any potential future unfunded liability is a major plus of such plans.

But there is a cost to making such a change. 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.

Gary Peck, incoming executive director of the Nevada State Education Association, said a preliminary review of the Segal report suggests any transition to a defined contribution plan for Nevada public employees in the upcoming legislative session has the potential to become a “train wreck.”

“Based on what we have read so far, it is plainly a red light, not a yellow light, that we hope the governor will pay attention to,” he said.

Craig Stevens, director of government relations for the NSEA, said the costs associated with such a transition make the idea fiscally imprudent right now.

“The price tag is too large at the moment,” he said. “There are philosophical reasons why we advocate for a defined benefit plan for our members, but from a fiscal point of view it makes no sense (to change). We can discuss the merits, but now is not the time.”

Carole Vilardo, president of the Nevada Taxpayer’s Association, has questioned whether state and local governments can afford to make the changeover in the next legislative session because of the costs and the current financial problems facing the state. While advocating for the switch, Vilardo said in an interview on Nevada NewsMakers last week it might have to wait four years.

Audio clips:

PERS Executive Officer Dana Bilyeu says changing to a defined contribution plan would require the current plan to be fully funded more quickly:

121510Bilyeu1 :12 about 10 years.”

Bilyeu says government employers might end up having to pay all of the increased costs of funding the current plan:

121510Bilyeu2 :12 because of that.”