Is PERS a Ponzi scheme? Based on the testimony of the state pension system’s defenders, who oppose reforming retirement benefits for future government hires, it certainly appears so.
The Public Employees Retirement System of Nevada provides guaranteed-for-life pensions to the state’s government retirees. Those benefits, which have been promised to almost all current public employees, as well, are paid from a fund that invests employer and employee contributions. That fund doesn’t have enough money, and can’t be expected to generate enough return on its investments, to pay all the benefits that have been promised. Depending on how you measure the risk of those investments, PERS has an unfunded liability of between $12.5 billion and $40 billion.
Rather than continue to make overly generous promises the public can’t afford to keep, taxpayer advocates want to phase out PERS and transition new generations of Nevada government employees into a different retirement system, one that’s more affordable for the public and more portable for the government workforce. Assembly Bill 190, which had a hearing before the Government Affairs Committee on Tuesday, would do that by adopting a Utah-style retirement system: part guaranteed pension, part 401(k)-style savings.
The pension benefit would be greatly reduced from today’s standards. Government workers would see the state contribute 6 percent of their salary toward a pension, down from today’s 25.75 percent for regular employees and 40.5 percent for police and fire. For the defined-contribution plan, regular government employees would receive a 6 percent government match and police and fire employees would get a 9 percent match.
In the private sector, few companies offer retirement benefits so generous. But public employee unions, accustomed to having members retire before Social Security eligibility at nearly full income replacement, have no interest in seeing future members get less. So they’re making a curious argument against reforming PERS: They say the system is so sound and so well-managed that diverting future hires out of PERS could cause it to collapse.
Ruben Murillo Jr., president of the Nevada State Education Association, testified that shifting future hires to the hybrid could jeopardize pensions for current employees by increasing their costs and unfunded liabilities.
In other words, PERS needs new members to pay in to keep the checks flowing to members who will cash out ahead of them.
Bernie Madoff would be proud.
Mr. Murillo and other PERS defenders actually make a strong case for passing AB190. If the state’s pension is so underfunded it can’t be cut off, imagine the burdens that will be put on taxpayers, current government workers and retirees alike if the Nevada Legislature waits three, five or 15 years to reform PERS. The only way to fully fund the system is to cut government services, raise taxes or do both. Nevadans who care barely afford to save for their own retirements can’t be expected to make such sacrifices for benefits they’ll never have for themselves.
Here’s an idea: If promised PERS benefits can’t be provided, maybe career public employees should actually have to work until they’re 65 or 67, like everyone else, before they can collect pension benefits. A solution as simple as this would erase billions and billions of dollars from the state’s unfunded liability. But public employee unions are opposed to that, too.
It’s one more reason to reform PERS now. The Legislature should pass AB190.