EDITORIAL: The cost of being No. 1 in pension generosity

Now we know why the Public Employees Retirement System of Nevada worked so hard for so long to keep pension data hidden from state taxpayers. A new study has determined that Nevada provides its government workers with the most generous retirement benefits in America.

This year, after losing a years-long court battle, PERS finally released the names of every government retiree and their monthly pension benefit amounts. It was the public’s first official confirmation that thousands of former government employees are collecting generous lifetime pensions, many of them after retiring in their 40s or 50s, even as the taxpayers who guarantee those payments are struggling to save for the day they must stop working.

Andrew Biggs, a resident scholar at the American Enterprise Institute and government pension expert, has put this data in a startling new context. His study, “Not so modest: Pension benefits for full-career state employees,” counters the disingenuous arguments put forward by pension systems and government unions that taxpayer-funded pensions merely provide retirees with a dignified living. To back up that claim, they cite average benefit payments, which lump those who retired decades ago — before elected officials significantly sweetened benefits — with retirees who logged less than 10 years in the public sector and receive very small benefits as a result. Indeed, PERS officials love to point out that the average monthly benefit of a regular retiree is $2,654. AFSCME says the average national state retiree pension is about $1,500 per month.

So Mr. Biggs set about determining what a state worker with 30 years of service (public safety workers excluded) could expect to collect upon retirement today. He says a hypothetical new public-sector retiree in Nevada would receive a pension of $64,000 per year, well above the state’s median household income of about $54,000. Roll in cost of living adjustments, and that retiree will collect about $1.3 million in lifetime benefits, making Nevada’s plan the richest in the nation — without even considering retiree health care benefits.

The average full-career government worker in seven other states can expect to retire a “pension millionaire,” Mr. Biggs found, and 23 other states will pay average new retirees at least $750,000 in lifetime benefits.

“Data from the Bureau of Labor Statistics’ Occupational Employment Statistics survey show that the average retired state-government employee has an income higher than 72 percent of full-time workers in his state,” Mr. Biggs wrote for The Wall Street Journal in previewing his study. “According to the Social Security Administration, financial advisers recommend a retirement income equal to 70 percent of pre-retirement pay. But 30 states pay replacement rates above 85 percent.”

As noted above, Mr. Biggs’ study did not include public safety workers. If it had, Nevada would have been even further ahead of the rest of the country. Southern Nevada police and fire departments offer some of the highest salaries in America, which turn into six-figure pensions upon retirement.

Mr. Biggs’ work is important because state and local governments across the country are struggling to fully fund their public pension plans. They’re pouring more than twice as much money into the funds as they did at the turn of the century, yet they’re still on the hook for between $3 trillion and $4 trillion worth of promised benefits they haven’t paid for. Nevada’s share of that liability is between $10 billion and $40 billion, depending upon how you measure risk. When this bubble bursts, it won’t be pretty.

These pension liabilities are squeezing out essential services, limiting the ability of state and local governments to fund education, mental health care and police. Yet the calls for more and higher taxes drown out arguments for pension reforms that, ultimately, could save enough money to stave off tax increases. Why should taxpayers continue providing such rich, early retirements for the public sector when similar, less-generous plans have disappeared from the private sector because of cost? Most Americans rely heavily on Social Security for retirement, which provides an average annual benefit of less than $15,000, and that entitlement program is streaking toward insolvency, too.

Mr. Biggs’ study highlights the need for major pension reforms in Nevada. The best alternative is to phase out the defined-benefit pension in favor of a defined-contribution, 401(k)-style plan for future hires. Absent that action, or the institution of a hybrid plan that includes both kinds of benefits, the Legislature could greatly limit costs and reduce Nevada’s unfunded liability simply by establishing a minimum retirement age. No one should be able to collect full benefits, which are tax-deferred compensation, before they’re 60. Allowing workers to “retire” in their 40s and 50s only encourages productive workers to move into new careers while collecting a taxpayer subsidy. Service purchases, which allow workers to “buy” years of work credit at a steep discount to move up their retirement date and boost their pension benefits, also must end.

Nevada’s pension system is more than unaffordable. It’s unfair.