Pension reform


The board of Nevada's 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's been much national discussion of whether public employee pensions should be set up as "defined benefit" or "defined contribution" plans.

Ms. Bilyeu said it makes sense to study what's happening across the country. Board members unanimously agreed to her request, though none indicated whether they'd like to change to a defined contribution plan or not.

The study should be completed in October.

The contribution rate that taxpayers must fund to cover future retirement benefits for government employees has steadily increased because PERS offers a "defined benefit" -- in essence, a promise that we will pay retirees a fixed amount no matter what the economy or our tax receipts look like when the day comes.

And PERS currently has only about 75 percent of the funds needed to cover all future promised payments.

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 in hand for pensions and the $3.35 trillion they will eventually need to pay.

With a defined contribution plan, employers and employees would not constantly be paying more and more to reach the fully funded level, says Geoffrey Lawrence, an analyst with the Nevada Policy Research Institute.

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

Public employee unions can be expected to fight the change, since it would put their members in the same position as a typical private-sector taxpayer dependent on a personal 401(k) plan. The value of such retirement funds -- and thus the monthly disbursements a retiree can expect to draw from them -- can move up and down with the value of the stocks and bonds in which such funds are invested.

The danger, then, is that the report ordered up Wednesday will merely end up sitting on a shelf, like so many others.

Nonetheless, the shift to "defined contributions" is necessary and inevitable, and such a study is a good step.

The main benefit of such a shift is that it will allow municipalities to get a handle on employee pension obligations, instead of assuming taxes can always be raised to meet exorbitant promises made in the past.

But there's also a secondary benefit worth considering. Increasingly, one of the main drags and dangers to appreciation of private-sector stocks and bonds is government taxation and regulation. Once government employee pensions are shifted to a "defined contribution" standard, every government attack on the profitability of private enterprise stands to damage the value of the pension funds of the very government regulators carrying out the attack.

And that's something they ought to have to worry about -- right along with the rest of us.

 

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