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Analysis concludes PERS is underfunded
LAS VEGAS REVIEW-JOURNAL CAPITAL BUREAU
Updated: Nov. 3, 2011 | 7:56 a.m.
CARSON CITY -- A new analysis by a conservative think tank concludes that the long-term liability facing the Public Employees Retirement System is four times greater than what taxpayers have been told.
The Nevada Policy Research Institute, based in Las Vegas, said the retirement system for more than 140,000 current and retired public employees is $41 billion short of what it needs to pay for future pensions, far greater than the $10.4 billion estimated by the agency.
"The true funding health of Nevada PERS is far poorer than most realize, due to accounting standards that are far more lax than those required for private-sector plans," said Andrew G. Biggs in his report, "Reforming Nevada's Public Employees Pension Plan."
Biggs cited different estimates for the retirement system's investment earnings, because of the economic slump, as the biggest reason for the discrepancy.
His analysis, released today , is important to taxpayers because if he is right, they may pay more to cover their share of retirement benefits.
He contends annual contributions to fund public employee retirements in Nevada are $1.6 billion but must be increased to $5.8 billion to cover the real liabilities.
Retirement system Executive Officer Dana Bilyeu does not dispute the number given by Biggs but maintains her agency and similar ones across the country are bound to follow federal Governments Standards Accounting Board rules in how they calculate liabilities.
"This is all financial theory," she said. "I can't say it is right or wrong. This is a fight between accountants and actuaries. We are trying to do the best we can for our beneficiaries."
Bilyeu said Biggs and others who do not like how the government standards board works are showing their criticism through reports like this one. In response to questions, Biggs said his main concern is that "we get the accounting right."
He said that the "contingent liability" facing public pension plans "is simply ignored under the current accounting standards" and that his method is a better way of calculating the debt.
"All around the country, you can see that it's not some anthropomorphized government that bears the risk, it's people, be they taxpayers, bondholders, government employees or beneficiaries of other government programs that are being squeezed so we can make our pension contributions," he said.
The primary reason for the differences in the debt calculation is because the retirement system anticipates earning an 8 percent annual return on investments, while Biggs contends it will be much less, maybe as low as 4 percent, although in an interview he said he is not necessarily saying it will be 4 percent going forward.
The retirement system has been operating for the past few years under a plan to clear the debt. The Legislature, which reviews its investment returns every other year, has been increasing the contributions paid by employees and their agencies to cover the liability with the goal of wiping it out in 26 years.
If the retirement system wants to end the ongoing increases in costs to taxpayers, then Biggs proposes it switch to a "defined contribution" pension plan in which what public employees and employers pay for retirement does not change when investment returns fall.
Under the current "defined benefit" system, pensions received by public employees are guaranteed, regardless if the plan earned enough on investments to cover the cost.
What employees receive in pensions is based on their final salaries and years of service. The pensions are 55 percent greater than what is earned in Social Security and 401(k) pensions by private employees receiving the same salaries, Biggs said.
Legislators, however, have ignored pleas to switch to defined contribution plans, contending that offering good pensions attracts better employees.
A Segal Co. study commissioned by the retirement system in December found switching to a defined contribution plan would add $1.2 billion to pension costs over the next two years and remain more expensive than the current defined benefit plan for the next 20 years.
Despite his objections, Biggs, a former deputy commissioner of the Social Security Administration and now an American Enterprise Institute resident scholar, praises the Nevada retirement system as "one of the better-funded, public-sector pensions due to sound management and consistent government contributions."
The Nevada Public Research Institute, however, has been a consistent critic of the retirement system at the Legislature.
Unlike private pension plans, public pension plans anticipate higher future returns "before the returns have actually been earned," Biggs said.
When the expected return does not materialize, taxpayers are stuck with a "contingent liability to bail out the fund," he said.
Contact Capital Bureau Chief Ed Vogel at evogel@ reviewjournal.com or 775-687-3901.
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enuff702... Some states allow that, but Nevada does not. It is figured on ones base pay.
Ed Vogel, Are you running out of original material or what? You wrote a nearly idenitical article on Sep. 9th, 2008, and then several similiar hit pieces dating back to 2002.
Write something original and honest.
I am so glad that the LVRJ continues to post these very informative articles about PERS. Now if only they had a shred of merit to them they might actually be useful.
This is a system that allows public servants to work a ton of OT in their last few years before retirement, so they can collect bigger checks for the rest of their lives.
Let these clowns think that it is funded, I don't care. Just don't ask for any taxpayer assistance or any bailouts in a few years when its empty.
You guys can believe it is well funded if you want to. Denial...ain't just a river in Egypt.
Blah, blah, yada,yada, enough dumping on the State employees already.Most of us are just trying to keep our heads above water just like everybody else.I contribute to my pension fund. What am I supposed to do, give all the money back? Here's a little piece of reality, I've worked for the tax payers of this state for over 23 years. When I retire, I'll be replaced by a younger person that has a family to take care of just like everybody else.I have also raised 4 kids that are now productive members of sociaty. I feel I have done my part to make Nevada a better place to live. Thank you Nevada tax payers, now just let me draw my pension, and ride off into the sunset.
Biggs .. praises the Nevada retirement system .. due to .. consistent government contributions.
More taxpayer contributions to public pensions. More government. Higher taxes.
These public pension obligations put a HUGE floor under the size of government. Gibbons, Sandoval, and their successors can't afford to cut taxes and give us small government (even if they wanted to) because they need to keep the money coming in to pay pension costs -- especially THEIR OWN.
The illegals cost the state of Nevada approximately $1.5 billion per year. NPRI doesn't mention any study done that informs the public of this injustice. NPRI payed for the results they wanted. Now lets have a truthful and accurate study of the effects of the illegals to the citizens of the state of Nevada. OH NO, we need cheap labor.
Not surprising. Yet another "conservative think tank" trying to blame public employees for the messes not only in this state but nationwide. Here's a thought for all you "think tank" members, get a life and leave us alone!! We pay for our PERS contributions contrary to what you and the RJ like to report to everyone. Find another subject to ponder. The days of anyone listening and believing the "conservative think tanks" is over. The conservative think tanks created the mess in this country not us.
Defined Benefit Pension actuarial accounting is a dark art.
Private sectors plans -- frequently sponsored by small businesses as a way to defer current taxable income, intentionally UNDERESTIMATE the investment returns they're likely to generate. By doing so, it allows the sponsors to shovel as much money into the Plan as they can afford -- often in amounts much GREATER than the limits imposed by standard, IRS-approved defined contribution plans.
You with me so far? Here's where it gets interesting.
Public sector plans intentionally OVERESTIMATE long-term investment returns. This allows the government (the sponsor) to defer its current financial obligation (to fund the plan) well into the future. The massive tax increases necessary to fund it (a LT liability) comes long after incumbents have term-limited out.
Buy now, pay later.
This is also very advantageous to public employees. It doesn't really matter to them when the money comes into the Plan, so long as it's there when they cash their pension checks. As time goes by their vested benefits grow (especially from late-career salary spiking) under the radar. Then, WAMMO! Our children MUST pay higher taxes to make the checks good.
The real facts about PERS have been presented in an in-depth analysis, which is available on-line at: http://www.nvpers.org/public/documentation/The%20Economic%20Impact%20of%20Nevada%20PERS.jsp
The artificially concocted "private vs. public worker" debate promoted by the Koch's Tea Party is nothing but an obvious attempt to further degrade wages and benefits for middle-class workers.
Any middle-class person who buys into the Republican/Tea Party nonsense calling for "deregulation" and "bash the middle class" deserves what they get; the rest of us middle-class Americans don't. Deregulation caused our financial meltdown, so how will more deregulation be the "solution" (quick answer, it won't).
• Nevada PERS paid more than $981 million in pension benefits last year.
• Expenditures resulting from Nevada PERS pension payments supported more than $390 million in income for state residents other than Nevada PERS retirees.
• More than 5,700 jobs statewide can be attributed to Nevada PERS pension payments.
• Nevada PERS pension payments supported more than $1 billion in total economic output in the state and more than $433 million in value added.
• Payments made to Nevada PERS retirees supported more than $196 million in federal, state, and local tax revenue.
• Each dollar paid out in pension benefits to Nevada PERS retirees residing in the state supports $1.28 in total economic output in Nevada.
• Each dollar in taxpayer contributions to Nevada PERS supported $6.21 in total economic output in Nevada.