Editorial: Window on government employee pensions is eye-opening

The Nevada Policy Research Institute has updated its popular transparentnevada.com website, which reports the names and salaries of state and local government employees, with 2015 data.

While the salary data is significant information for taxpayers who want to make sure we are getting our money’s worth, it may be the benefits, particularly retirement benefits, that warrant greatest scrutiny.

Yes, according to Nevada’s own employment records state and local government employees are paid about $10,000 more a year in wages than those in the private sector, but taxpayer-funded pensions for those workers in the Nevada Public Employees’ Retirement System known as PERS, are the richest in the nation, according to research conducted by the American Enterprise Institute.

Robert Fellner, director of transparency research at NPRI, points out in a press release announcing the update at transparentnevada.com that, while the median private employer spends 3 percent of pay on their employees’ retirement accounts, Nevada taxpayers contribute 28 percent of each state and local government employee’s salary toward pensions and 40 percent for police and fire.

“Nevadans can expect higher taxes or service cuts if they are forced to continue paying for retirement benefits that are nearly ten times richer than what they themselves are likely to receive,” Fellner writes. “In 2013 — the most recent year data was available — Nevada’s local governments spent a national-high 9.6 percent of direct general expenditures on retirement costs, nearly quadruple the 2.5 percent national average.”

The government pension program has an unfunded liability of $40 billion.

Fellner’s research turned up one example of just how daunting it is for the average taxpayer to unravel the lucrative pension formula.

A Clark County police officer who retired in 2015 with 30 years on the job was eligible to receive 78 percent of his salary as an annual pension, which would have been $92,000 since his salary was $118,000. Instead, he is scheduled to receive $172,000 a year for life.

This is because PERS, as Fellner explains, counts as salary a variety of additional pay, such as call-back pay, as well as part of the government’s pension contribution, which seems like double dipping.

According to transparentnevada.com, in 2014 there were more than 1,000 Nevada state and local retirees receiving annual pensions in excess of $100,000.

American Enterprise Institute found Nevada full-career PERS retirees fetch the most generous retirement checks of any state in the union — $64,000 a year on average or more than $1.3 million in lifetime benefits. That doesn’t include police and firefighters, who can retire earlier and generally have higher salaries.

In comparison, the average Social Security recipient gets $15,500 a year after being on the job decades longer.

In a report published during the 2015 legislative session, NPRI’s Fellner wrote, “Over the past 20 years, the amount Nevada taxpayers contribute toward public employee retirements has skyrocketed — from $384 million in 1995 to $1.4 billion today. That’s an increase of more than 50 percent after adjusting for both inflation and membership growth.”

During that session there was a bill pending to rein in this growth in public employee pension cost.

The bill — Assembly Bill 190 — would have changed the current system from a 100 percent defined-benefit program, in which the retirement benefit is calculated based on years of service and level of pay of the employee at retirement, to 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 in which a portion of the salary is invested in something like a mutual fund. The amount of the pension depends on how well the investment does and relieves the taxpayer from having to cover any shortfall.

It would not have affected the pensions of current employees and only applied to those hired in the future.

Of course, it died in committee without ever being voted on.

Transparency is good, even when what you are seeing is so eye-opening.

A version of this editorial appeared this past week in many of the Battle Born Media newspapers — The Ely Times, the Mesquite Local News, the Mineral County Independent-News, the Eureka Sentinel,  Sparks Tribune and the Lincoln County Record. It ran as a column in the Elko Daily Free Press.

Another report says Nevada underfunding public pensions

CORRECTION: I’ve been informed that the author of the study below failed to include local revenue in calculating the underfunding of the PERS contributions. Once local tax revenues are added, the 40 percent required tax revenue drops to 22 percent. Still in the top 10 of states, but not No. 1.

According to an analysis published this week by the Hoover Institution, Nevada is the worst in the nation by far in failing to adequately fund its state and local government public employee pensions.

The study reports that Nevada contributed 15.9 percent of its own revenues to pensions in 2014, but under a risk-neutral approach to balance the pension budget Nevada would have had to contribute 39.5 percent of revenues, more than twice its actual contribution.

Nationally, the study by Joshua Rauh found state and local government pension systems are underwater by $3.4 trillion. It says that in order to prevent unfunded liabilites from rising governments would need to contribute 17.5 percent of their budgets to pensions instead of the 7.3 percent currently being contributed.

“Even contributions of this magnitude would not begin to pay down the trillions of dollars of unfunded legacy liabilities,” Rauh concludes.

Hoover Institution chart showing state-by-state shortfall in public pension contributions.

Hoover Institution chart showing state-by-state shortfall in public pension contributions. http://www.hoover.org/research/hidden-debt-hidden-deficits-how-pension-promises-are-consuming-state-and-local-budgets

Also out this month is a report by Stephen Eide, a senior fellow at the Manhattan Institute, which states that state and local public employee pension costs, according to Census Bureau data,  grew 175.6 percent since 2002, a period during which state and local general revenues grew by only 59.7 percent.

Lawmakers listen to Gov. Brian Sandoval’s State of the State speech in 2015. (RGJ photo)

“’Pension reform,’ by most all definitions, would do little in the short term to reduce pension-related volatility,” Eide concludes. “Even if all 19 million state and local employees were enrolled next year in a defined-contribution plan — a change considered political anathema even in many red states — pension debt would remain. States’ and localities’ most immediate need is a far more conservative approach to funding pension promises. But that would require increasing contributions beyond the current actuarially recommended amount, which is already too burdensome for most governments.”

A bill in the 2015 Nevada Legislature to reform public employee pensions was put off till next session, by when the unfunded liability will have grown even higher. The bill would have maintained a smaller defined benefit along with a defined contribution plan that would be similar to a 401(k) type plan used in the private sector, and would have began trimming the pension plan’s $40 billion unfunded liability.

(Hint: Look for a newspaper editorial to be posted here on this topic by the end of the week. It was written days before these reports came out but reaches the same conclusion.)