PERS board to look at other ways to pay retirement benefits

CARSON CITY -- The board of the Public Employees Retirement System authorized its staff Wednesday to hire a firm to study the benefits of switching to other ways of paying retirement benefits.

Dana Bilyeu, PERS executive officer, said there has been much national discussion about whether public employees' pensions should be covered through "defined benefit" or "defined contribution" plans.

In anticipation of questions from legislators next year about how PERS should be operated, Bilyeu said it makes sense to study what is happening across the country so informed answers can be made.

Board members unanimously agreed to her request, but none indicated whether they would like to change to a defined contribution plan or not.

The study should be completed in October.

"We need to take a look at it," said Bilyeu, adding she believe PERS' current defined benefit system is more efficient than a defined contribution plan.

Under PERS' defined benefit plan, employees know in advance how much they will receive in retirement pay, regardless of the value of PERS investments. The agency even has an estimator for employees to calculate their retirement benefits on its Web site,

But the contribution rate that public employers and their employees pay to cover future retirement benefits steadily has increased, particularly because PERS has only about 75 percent of the funds needed to cover all future payments.

To reach 100 percent, the contribution rate paid by current employees and their employers has been increasing under a long-term plan designed to allow PERS to become fully funded in 26 years.

The Pew Center for the States found in February that only five states have fully funded retirement plans and there now exists a $1 trillion gap between the $2.35 trillion states presently have to pay for pensions and the $3.35 trillion they eventually will need to pay.

Geoffrey Lawrence, an analyst with the Nevada Policy Research Institute, said the study is a good idea.

"Even if they support the current system, the study might be a way to vet out criticism," said Lawrence, whose Las Vegas-based think tank has called for switching to a defined contribution plan.

With a defined contribution plan, employers and employees would not constantly be paying more and more to reach the fully funded level, he said.

The rates paid by employers and employees would not change, and the amounts that employees receive in pensions would depend on how well they invest funds set aside for their retirements, he said.

Many private companies offer their employees these "401(k)" retirement plans where employees can select their types of investments.

Investment officer Ken Lambert told board members that PERS investments gained 17.7 percent in the January-through-March quarter, but have lost slightly in recent days because of the declining value of the Euro, the official currency of the European Union.

"The dollar has strengthened in value against the Euro," he said. "That makes it cheaper to buy a cup of coffee in Europe. But the rising dollar is bad for investors."

PERS' investments are valued about $22 billion.

Bilyeu said the PERS contribution rates will increase again in 2011, but that she does not know by what percentage.

Now, the employer and employee each pay 10.75 percent of the employee's earnings into the retirement fund.

In some counties, however, employers have agreed to cover all of the employee's costs as the result of collective bargaining.

Last month, Bilyeu said the most recent increase cost state and local government employers an additional $44 million a year.

Bilyeu said Wednesday that the Alaska Legislature is considering switching back to a defined benefit plan for its employees.

Alaska switched its new public employees to a 401(k) defined contribution plan in July 2006 following a report that the traditional pension plan faced a $7.5 billion unfunded liability.

But employee organization leaders have been pushing for a return to the defined benefit plan because the 401(k) system has made it more difficult to recruit and retain public employees.

Lawrence doubts Nevada would have a hard time recruiting employees under a defined contribution plan since it has a 13 percent unemployment rate. He also noted a Las Vegas Chamber of Commerce study in June 2008 found state and local government employees on the average earn 28 percent more than those in private industry.

But that study also found classroom teachers in Nevada receive annualized pay of $44,354, about 6 percent less than the national average. Higher education instructors, or professors, in Nevada earn $63,883, about 5 percent less than the national norm.

Contact Capital Bureau Chief Ed Vogel at evogel@ or 775-687-3901.