The Public Employees Retirement System of Nevada requires major reforms because the state’s pension plan, for too many people, is not a retirement program — it is a wealth generation system. PERS provides former government employees with benefits that are unavailable to the taxpayers who fund the system at great expense. And some PERS perks are immune to IRS rules that sock it to citizens who attempt to access retirement funds.
Over the past few days, we’ve outlined a few pension reform recommendations for Gov. Brian Sandoval and the 2015 Legislature, which convenes Feb. 2. Shifting future government hires into a new, 401(k)-style defined contribution retirement plan. Denying pension benefits to public employees who commit felonies in the course of their duties. Eliminating service purchase credits for current public employees. Reforming disability awards.
But several more adjustments must be made to PERS to rein in its long-term costs and to spare the public from ever-higher pension contributions, which are cutting into budgets for essential public services. By some estimates, Nevadans are on the hook for up to $40 billion in pension benefits that have been promised to government employees but haven’t been funded.
The Review-Journal’s 14th of 25 policy recommendations in 25 days: a broad pension system “cleanup” bill that addresses structural problems with PERS — both fiscal and political — that contribute to the plan’s massive unfunded liabilities.
— First, make PERS a retirement benefit, not an income stream to supplement new positions and careers. Because public employees can “retire” after 20 to 30 years of service and draw a full pension, many government workers start collecting benefits in their 40s and 50s, and keep right on working. PERS is supposed to provide income to people who don’t work, not taxpayer-funded gravy to people in the prime of their careers. PERS benefits actually provide an incentive for productive government workers to quit and take jobs elsewhere. The benefits should not be paid to people who continue to work. If you want retirement benefits, you should have to retire. Establishing a minimum retirement age of at least 62 — the earliest retirement age for Social Security benefits — for future hires would help as well.
— Eliminate cost of living increases. PERS benefits are guaranteed for life and can be transferred to a surviving spouse, so it’s not unusual for a government “retiree” to draw benefits for more years than he or she actually worked. Benefit increases beyond what a retiree is entitled to collect unnecessarily strain the system. Thirty years of COLAs can have the effect of nearly doubling a retirement benefit.
— Calculate retirement benefits on more years of service. Currently, an annual pension benefit is based on an employee’s three highest consecutive years of earnings, a practice that inflates payments and contributes to the plan’s insolvency. Benefits should be calculated on a career average of earnings. Lower-earning years should have as much influence as higher-earning years.
— Calculate pension benefits only on base salary. The inclusion of callback and other forms of compensation allow government workers to “spike” their benefits and ultimately take home pensions that are larger than their final base salaries.
— Penalize anyone who retires at a young age with reduced benefits. PERS benefits are tax-deferred. That is, public employees do not pay federal income taxes on contributions to the pension system — they are taxed only on the benefits they collect. Taxpayers who draw from their tax-deferred retirement plans, such as IRAs and 401(k)s, before age 59½ pay the IRS a 10 percent penalty. But PERS beneficiaries face no such penalty when they retire before age 59½. Lawmakers should level the playing field. If the IRS won’t collect the penalty, PERS should to shore up its finances.
— End double-dipping. PERS beneficiaries should not be able to work in Nevada public-sector jobs, even if a labor shortage has been declared for those jobs. That’s not retirement.
— Mandate PERS transparency. For decades, PERS fought efforts to make pension benefits public records by wrongly declaring them confidential. When the Reno Gazette-Journal won a court order to make PERS records public, PERS dragged its feet and, to this day, still hasn’t fully complied with the ruling and provided all the records the newspaper requested. PERS should be required to put all benefit records (absent legitimately confidential records, such as beneficiaries’ addresses and dates of birth) in a searchable database so the public can see what it’s paying for.
— Restructure the PERS board. PERS members and beneficiaries should not be allowed to serve as stewards of the pension. It’s an obvious conflict of interest that invites abuses.
Calls for pension reform are not rooted in a desire to punish hard-working, dedicated government employees. They are grounded in a desire to preserve existing government service levels without enacting economically harmful tax increases, and to preserve promised pension benefits. And make no mistake, the longer lawmakers wait to reform PERS, the harsher those reforms will have to be.
25 ideas in 25 days
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