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EDITORIAL: Reform state’s pension system now, or face pain later

If Nevada isn’t careful, it could end up like Rhode Island. By 2010, the Ocean State had put about $9 billion in unfunded pension liabilities on the shoulders of just more than 1 million residents. Nevada has almost three times that population, but its governments have unfunded, promised retirement benefits approaching $40 billion by some estimates — more than four times what Rhode Island faced.

Today, Rhode Island’s pension system is in dramatically better shape. Nevada’s could be too, if Gov. Brian Sandoval and the 2015 Legislature approve the Review-Journal’s 11th of 25 policy recommendations in 25 days: pension reform.

Rhode Island was at the end of its fiscal rope. It had no choice but to adopt dramatic, painful pension reforms. Treasurer Gina Raimondo, a Democrat, made her arguments with math. Unless everybody — government retirees, current public employees and new hires — accepted reform, all of them would face dire consequences: a dry pension fund within 25 years. Ultimately, the Legislature pushed through whopping reforms that, as reported by The Washington Post, suspended annual cost-of-living increases for retirees and shifted all workers — current and future — to a hybrid system combining traditional pensions with 401(k)-style accounts.

State employees no longer can retire in their 40s or 50s. They cannot collect retirement benefits until age 67, and benefits are calculated from the worker’s average career income, rather than just the employee’s highest-earning years. Rhode Island’s unfunded liability has been cut nearly in half, to around $5 billion, and it should continue to shrink. The state has a retirement system it can afford, a system that more closely resembles the retirement plans of the taxpayers who fund it.

Nevada won’t need to follow the Rhode Island route if it takes the lead of a neighbor. Utah reformed its public-employee pension system in 2010. As Reason.org reported, the reforms closed off the state’s existing defined-benefit pension to new entrants and created a 401(k)-style, defined-contribution plan for new government employees. Further, it ended the practice of retiree double-dipping — something all too familiar to Nevada taxpayers, who have seen many public employees retire and begin collecting a pension while drawing salary from another government job.

Utah’s fixed contribution is a generous 10 percent for rank-and-file workers, 12 percent for public safety workers — still far better than what the overwhelming number of private-sector employees receive right now, if they’re getting any employer contribution at all. Nevada has a combined contribution rate of 25.75 percent for regular government employees, and an eye-popping 40.5 percent rate for public safety workers.

And those rates are not high enough to fully fund the Public Employees Retirement System of Nevada. Absent reform, they’ll continue to climb and consume limited government resources, squeezing schools, cities and counties — and creating pressure for ever more rounds of tax increases. Nevada will become 2010 Rhode Island, or worse.

When the Nevada Legislature convenes Feb. 2, it must get moving on a Utah-style bill that creates a separate retirement plan for future hires. It’s urgent, not just because promised pension benefits are unaffordable — six-figure benefits are common — but because they’re unfair. Why should taxpayers fund early, guaranteed retirements for government employees when they can barely save for retirement themselves?

Nevada governments don’t need to offer pensions to attract workers. Good jobs are good enough. Besides, younger generations have little interest in anchoring themselves to one employer for decades to collect deferred compensation. Defined-contribution benefits are portable.

The governor and the Legislature should pass pension reform, preferably starting July 1, the start of the new fiscal year and biennium. The state can’t afford to promise pensions for even one more year.

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