Rule would alter public employee pensions - News

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Sep. 20, 2008
Copyright © Las Vegas Review-Journal

Rule would alter public employee pensions

IRS plan, which could eliminate early retirement options, is set to be implemented in 2010

By SEAN WHALEY
©REVIEW-JOURNAL

CARSON CITY -- A major change proposed by the IRS for public pension plans, including Nevada's public employee retirement system, could eliminate early retirement pay for government employees in less than two years.

A new regulation the agency is pursuing would prohibit most public pension plans from allowing participants to retire and collect benefits earlier than age 55, with a preferred retirement age of 62. This would cover everyone from teachers to police to city and state workers in Nevada and across the country.

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The Nevada Public Employees' Retirement System, for example, allows most participants to retire and receive benefits at any age after 30 years of service. Police and firefighters can retire even earlier.

The IRS regulation, which public pension systems have been fighting since it was first proposed, would end such a practice. The IRS has the ability to implement the rule because public pensions have tax deferral status given to them by the federal agency.

Labor unions and pension officials across the country, including Nevada, are fighting implementation of the rule. They are taking their case to Congress but are not sounding the alarm to their members just yet.

Others are welcoming the proposal as a modest but necessary reform.

A briefing paper on the proposed regulation prepared by officials with the city of Henderson says the impetus for the regulation is that the IRS believes a normal retirement age younger than 55 is not reasonable.

Workers covered under the Social Security program cannot receive full benefits now until they reach the age of 67.

The IRS regulation is set to take effect June 30, 2010, although a large number of national groups, from the Fraternal Order of Police to the National Education Association, asked in April for a delay in its implementation.

The IRS has not responded to the request, according to the Henderson briefing paper dated Aug. 11.

The state retirement system is questioning the new regulation as well.

Tina Leiss, operations officer for Nevada PERS, said the agency is waiting for more direction from the IRS on how this regulation would affect the Nevada retirement system before it reacts to the proposed regulation.

Employees in the state's retirement system are believed to have constitutional rights under the contracts clause to the benefits as they currently exist, she said. Any changes to the benefits for current participants could provoke lawsuits from employees or their associations, Leiss said.

"It's just not clear yet how this would affect any of the public pension plans," Leiss said.

The IRS regulation would apply to public pension plans such as PERS because they are tax qualified plans under the agency's regulations, she said. Such a designation provides tax benefits to participants who might otherwise have to pay taxes on their retirement contributions, Leiss said.

Dave Kallas, an official with the Las Vegas Police Protective Association, said he is fielding a number of calls from concerned police officers about the rule but suggested there is no immediate cause for alarm.

Public pension officials and other stakeholders are working with the IRS to come to an agreement on the issue, which was never intended to apply to public pensions in the first place, the union official said.

Kallas said it is his understanding that the legislation that prompted the IRS rule, a pension reform bill sponsored by Rep. Sam Johnson, R-Texas, was aimed at private pensions and not intended to apply to public pension plans.

"I'm not worrying about this issue quite yet," Kallas said. "We have to wait and see what transpires over the next few months."

Public awareness of the potential IRS change to the nation's public pension systems has come at the same time as calls for reforms to the plans.

A study released earlier this month by the Las Vegas Chamber of Commerce concludes that the government support of the public retirement system has become a drain on state and local government resources, leading to the underfunding of important programs such as education and transportation.

Hugh Anderson, vice president of the ABD&F Group at Merrill Lynch in Las Vegas and chairman of the chamber's government affairs committee, said the proposed IRS change is the right move.

A retirement age should better reflect today's demographic reality that people are living much longer, he said.

It is conceivable that a public employee could retire at age 55 with 30 years of service under today's rules and end up receiving retirement benefits for longer than the years worked, Anderson said.

"This whole demographic shift is here," he said. "It is no longer in the future. The baby boom generation is here and they are living a long time."

Withdrawals from personal retirement accounts are not permitted before age 59.5, so why should public employees be immediately entitled to retirement benefits at age 50 or 55, Anderson asked.

While there might be legitimate reasons why public pension rules should not be changed for those approaching retirement, ignoring the longevity issue puts the long-term viability of the public pensions at risk, he said.

A decision by the IRS to move forward could take the politically difficult decision out of the hands of elected officials, some of whom may be reluctant to implement such a reform, he said.

The development of the IRS regulation began about three years ago following passage of the pension reform legislation in Congress.

Those opposed to the new regulation are seeking help from Congress, circulating letters in both the House and Senate to get the IRS to hold off on the change.

Letters are also being sent to the Treasury secretary and the head of IRS suggesting the IRS overstepped its bounds and indicating that Congress never intended to give the agency such authority.

The Henderson memo states a public pension plan would completely comply with IRS regulations if the retirement age is set at 62.

But if a plan wants participants to receive benefits before they reach age 62, and no earlier than age 55, the plan administrator must prove to the IRS that such an age range is reasonably representative of the industry in which the covered workforce is employed.

A delay is being sought in the regulations in part because of concerns about the rights of those participating in the pension plans.

The memo states that when the Nevada Legislature made changes to the retirement system in 1989, a lawsuit arose and the state lost. The finding was that once an employee joins the PERS system, a contract is established and benefit levels, such as retirement after 30 years, cannot be taken away.

With the potential effective date of the IRS regulation nearly two years away, those now in public pension plans will have the opportunity to determine whether to pursue retirement to avoid the mandatory retirement age policy.

PERS has a $6.3 billion unfunded liability and $22 billion in assets. Nearly 104,000 state and local government workers and teachers and school staffers are PERS members.

An additional 37,000 retired workers are receiving benefits.

Contact Capital Bureau reporter Sean Whaley at swhaley@reviewjournal.com or 775-687-3900.

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Please enter your name Name: Please enter your email Email: Please enter a comment COMMENTS : (word count limit is 300) You have reached the maximum number of words allowed Current Word Count: Note: Comments made by reporters and editors of the Las Vegas Review-Journal are presented with a yellow background. Tom Zavist wrote on September 30, 2008 12:37 PM: Dan is right. The article is wrong when it says this "could eliminate early retirement pay for government employees in less than two years." You cannot begin a pension in service before the earlier of age 62 or normal retirement. There is no legal limit to how young you can be and begin a pension if you are not working any more (early retirement). Normal retirement is not the same as early retirement. These are technical terms in the Internal Revenue Code, and they mean specific things. Luke wrote on September 24, 2008 04:33 PM: I wonder if the IRS is going to apply this same logic to the military??? I'll bet dollars to doughnuts that the US Govt will be discluding themselves from this little endeavor....otherwise they will have to recruit from prisons, or re-instate the draft. 1FatKat wrote on September 24, 2008 07:31 AM: Personaly I think this is outrageous for the Feds to dictate to us when we can retire. I will not be able to retire when I'm 55, but to those who can, why should they be required to work until when the IRS dictates? This sounds like the Feds are desperate to balance the budget/trade deficate and are trying to force us to work like drones to compensate. Civil Servant wrote on September 23, 2008 02:59 PM: So Bull you want to pay for services yet not pay for any benefits?? Ok, so if I go where ever you work and wanted to buy whatever your company sells, say a $50 item. By your beliefs I should tell them I'm only going to pay $35 because I refuse to pay for your lazy employees benefits. I'm sure you'd start screaming your own name with another word behind it!! Luke wrote on September 23, 2008 02:58 PM: Bull, I understand your frustrations, but calling ALL civil servants pigs because we had the foresight to take a lower paying job to go to the public sector (13.00/hr cut here) so that in the long run, our retirement future is secured, is not only humorous, but ignorant. You sound as if all us taxpayers were goated into this set up. The railroads are not public servants, or even quasi public servants. They are not on the PERS. They are not funded directly by taxpayers anymore. Finally, 5-10 times the average? Where do you pull these numbers from (the RJ?)? If that was the case, there would be no one in the private sector. Keep perpetuating ignorance and ignorance will perpetuate. Not rocket science...I notice you capitalized TAXPAYER. We also pay taxes like everyone else does, we do not however, pay social security. Maybe thats the real reason you are so irritated and are convoluting the facts. You weren't one of the ones that planned for social security being a farce? Again, the higher moral ground will always prevail.... Bull wrote on September 23, 2008 02:34 PM: Luke, We NEED Civil Servants, we just DO NOT have to give them pensions & benefits worth 5-10 TIMES what the TAXPAYING Private Sector gets. Just YESTERDAY it came out that over 90% of Long Island Railroad Workers retire on DISABILITY ....... Is it a wonder I call Civil Servants (OK, In this case quasi Civil Servants) PIGS ??? Dan wrote on September 23, 2008 01:45 PM: Sounds like this is about IRS Notice 2007-69. It's written in IRS-speak; therefore it's misleading. 2 key points - 1. the notice provides no relief from the anti-cutback rule; this means the plan sponsor can't raise the normal retirement age (i.e., age for unreduced benefits) 2. 'normal retirement age' in the notice is really the age that the plan can be amended to provide for in-service distributions (i.e., you don't have to retire in order to start benefits). In other words, much ado about nothing. (Plans don't have to allow in-service distributions, by the way.) Luke wrote on September 23, 2008 01:18 PM: I love all the civil servant haters out there. The people you should really be mad at is yourselves. You voted for the politicians that enact these laws. Shame on you. Without public servants, excluding politicians and other appointed criminals, there would be NO infrastructure, No police, no fire,no maintained roads, sewers, waters, etc. Ignorance runs rampant amongst us. How would you like it if you engaged in a contract with someone, only to be told later that the contract was not going to be honored? You would be on this forum complaining about how YOU were wronged. As a side note, to all you genius types that have all of this figured out, my current position at the State compared to the County or City yields an average of 30-34% lower wages, contrary to what the papers are shoveling. The benefits are why I joined public service. Also, there is definately room to cut "fat" at ALL government entities. Until the taxpayers (including us awful public employees) put an end to lobbying and constituancy, these issues will always be here. BTW Maureen, you are inacurate on your synopsis of the PERS. We are taxed on our drawn retirement. That type of ignorance spreads like wildfire, and the sheep love it! So take your frustrations out on public employees, and the next time you need sewer, or roads, or welfare, or medicare, or any other crucial service that is funded and operated by taxpayers dollars, dont expect welcoming arms. I personally will continue to do my duties for the taxpayers ( as I am one) and serve the public until such time the public no longer requires my service. Take the higher moral ground and responsibility in your decisions and statements, and life wont be a someone else's fault. Bull wrote on September 23, 2008 01:11 PM: Dear (Un)Civil Servant: Have you seen how UNFUNDED your retiree health care fund is (ZERO in most cases)? Do you REALLY think TAXPAYERS (who have to pay FOR THEIR OWN retiree health benefits) are going to fund all of yours ??? Better start saving now. I'm doing MY PART (via these posts) to educate the Private Sector as to the extent of the ripoff and HASTEN the day we stop paying! Civil Servant wrote on September 23, 2008 11:17 AM: Bull: We need the money to deal with all you frakheads who are jerks, think people are only here to serve YOU and it better be right frakking NOW, and think civil servants are your doormats!!! Here is some news for you: WE HATE ALL OF YOU!!!!! Read All Comments