Public employee pension funding not likely to be addressed this session either

In 2008 the Las Vegas Chamber of Commerce called on the Legislature to change public employee retirement benefits from the current direct benefit plan to a direct contribution plan, similar to a 401(k), because the expenditures were growing at an unsustainable pace.

In 2011 a report drafted for the Nevada Policy Research Institute by Andrew Biggs, an economist with the American Enterprise Institute, concluded the Nevada Public Employees’ Retirement System is vastly unfunded. Using market accounting standards instead of government standards, Biggs estimated PERS was not underfunded by $10 billion as PERS itself reported, but by more than $40 billion.

 

At the time, according Biggs, Nevadans should have been spending nearly $6 billion a year to fully cover the cost of pension — that was equal to the total state general fund budget for two years.

“What people don’t realize,” Biggs said to a luncheon audience back then, “is your typical public sector pension plan is a lot more generous than what a typical person is going to get in the private sector. Let’s just take a person and run their wages through what they would get from PERS versus what they could get from a typical 401(k) plan combined with Social Security, because public employees here don’t participate in Social Security.

“They both pay the same amount on average. The total contribution is about the same, but the benefits for someone under PERS — for a full career employee — is somewhere around 50 percent higher.”

Lawmakers did nothing.

In 2012, Thom Reilly, director of the School of Social Work at San Diego State University and former Clark County manager, came out with his book, “Rethinking Public Sector Compensation: What Ever Happened to the Public Interest?”

“To no surprise,” Reilly said, “the premise of the book is: Because we have not managed it well, we have created a system that is not only unsustainable but creates serious challenges for service delivery and efficiency, is rife with conflict. Basically, it’s created in the public system an ethically troublesome personnel system.”

In the book, he writes, “Difficulty raising or generating taxes to cover these unfunded liabilities has already surfaced. In states and local jurisdictions, payments to cover these liabilities are crowding out revenues for parks, road repairs, schools, universities, and safety net programs for the poor and elderly.”

Lawmakers did nothing.

Also in 2012, Biggs and Jason Richwine reported in The Wall Street Journal that public employees don’t work as hard as those in the private sector — following on their previous discoveries that public employees are overpaid in general, and teachers in particular, and their pensions are far richer than those in the private sector and they can retire decades sooner — which was especially true in Nevada.

In 2014 a researcher at the American Enterprise Institute did the calculations and found Nevada’s public pensions are the richest in the nation — $64,000 a year or more than $1.3 million in lifetime benefits. That doesn’t include public-safety workers, such as firefighters and police, who can retire earlier and generally have higher salaries, especially in Nevada.

Lawmakers did nothing.

In a 2015 editorial in Battle Born Media newspapers called for pension reform. It backed Reno Republican Assemblyman Randy Kirner’s Assembly Bill 190, which called for reforming PERS, which was costing at the time  nearly $15,000 per Nevadan per year and growing.

The changes Kirner proposed would have applied to state and local government workers hired after July 1, 2016, leaving unchanged the benefits promised to current employees and retirees. “The bill protects people that are in PERS today,” Kirner told reporters. “A promise made is a promise kept.”

AB190 would have introduced a hybrid — part defined benefit, part defined contribution. A defined contribution plan is similar to the 401(k) programs used primarily by the private sector.

Kirner’s bill also would have ended the practice of allowing government workers to purchase up to five years of retirement credit and retire at 70 percent of highest pay after only 25 years on the job.

The bill also tied the minimum retirement age for receiving full benefits to that allowed under Social Security, though police officers and firefighters would be able to retire with full benefits 10 years earlier.

Lawmakers did nothing.

This past summer NPRI published “Footprints: How NVPERS, step by step, made Nevada government employees some of the nation’s richest.”

Written by NPRI’s Director of Transparency Research Robert Fellner, the 36-page report warned that “should today’s international no-growth economy stumble into the deep financial crisis that many forecasters fear, NVPERS’ fantasy economic forecasts will be replaced by immediate bankruptcy — leaving every Silver State household with a sudden, implicit, $50,000-plus tax liability.”

The report detailed how NVPERS benefits have ratcheted up over the decades by virtue of incremental benefit increases, collective bargaining gains, earlier retirement age, allowing the purchase of years of service, padding base pay with add-ons such as callback, standby, holiday, shift differential, extra duty, hazard and longevity pay, and simple compound interest.

Fellner noted that local government employees have taken advantage of their collective bargaining union contracts and negotiated to have their employers actually pay the employees’ pension contribution, claiming this is done in lieu of a salary increase or in conjunction with a salary decrease — even though local government pay checks rank eighth highest in the nation.

This week Gov. Brian Sandoval delivered his State of the State speech. In it he said, “This session, my budget includes a four percent cost of living adjustment and increased funding for health benefits to recognize the shared sacrifice and dedication of our state employees.”

That means pensions will increase accordingly.

Sandoval said not one word about pensions.

The Las Vegas newspaper made note of that this morning in an editorial:

Also notable in the budget proposal is what’s missing.

“Even after overcoming the effects of the recession,” noted a 2016 report by the Pew Charitable Trusts, “states face financial pressures that will shape budgets now and for years to come. A major issue for a number of states is how to cope with an accumulation of unfunded public pension and health-care liabilities.”

Yet the governor’s budget contains no plan to reform the state retirement system or to address its massive unfunded liability, one of the highest in the country, per capita.

Perhaps a few lawmakers will pick up the cause. But if inertia on this looming issue remains the preferred course of action among those in Carson City, there soon will come a time when there won’t be enough money in the entire state to dig taxpayers out of the abyss.

If you are making book on what the lawmakers will do, just note the history of shrugging off this looming crisis.

 

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3 comments on “Public employee pension funding not likely to be addressed this session either

  1. Athos says:

    Just kick the can down the road. Somebody else pick it up sooner or later.
    On a brighter note, in 24 hours Pinocchio will be out!

  2. Barbara says:

    Many of the cities in Texas are members of the Texas Municipal Retirement System. Under TMRS, Police officers contribute a percentage of their monthly pay into their retirement account. The percentage is set by the local government. My city mandated a 7 percent contribution. The retirement account was then accredited increases based on investment returns, guaranteed to not be less than 5 percent. On retirement, the local government matches the balance in the account on a 2 to 1 basis. Not all cities are members of this system. Dallas for one is not and their pensions are bankrupt.

    I think this is a fair system for the taxpayer and the officer, and it seems to work just fine. I’m not familiar with Randy Kirner’s bill, but it sounds like it would be similar to the Texas Municipal Retirement System (TMRS) and would be a better way to go.

    Unfortunately, I don’t see either party, given their penchant for raising taxes and spending, ever tackling this problem until it blows sky high.

  3. […] to hit another bump, Nevada taxpayers would be on the hook for writing pension checks that are the richest in the nation, according to the American Enterprise […]

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