EDITORIAL: State must end pension-boosting service credit option

It’s not enough for the Nevada Legislature to change retirement benefits for future public employees. The state’s pension plan provides perks and payouts so absurdly generous that some of them need to be dialed back right away.

Taxpayers are on the hook for billions of dollars worth of unfunded pension benefits, when they can barely afford to save for retirement themselves. It’s bad enough that they must subsidize benefits they’ll never have. But it’s outrageous that taxpayers subsidize the cost of providing government workers, who already retire far earlier than their private-sector peers, with even earlier retirements.

In Sunday’s Review-Journal, this page advocated sweeping pension reform. Those reforms focused primarily on moving future government hires out of the state’s existing defined-benefit pension plan and into a defined-contribution, 401(k)-style retirement plan. But Gov. Brian Sandoval and lawmakers can reduce the state’s pension liabilities for current government workers by making them actually work until they qualify for pension benefits.

The Review-Journal’s 12th of 25 policy recommendations to the 2015 Legislature in 25 days: Abolishing public employee service purchase credits, a practice also known as “buying air time,” effective July 1.

Nevada’s state and local government employees can retire at any age and collect their full pension after 30 years of service. Public safety workers can call it quits and draw a full pension from the Public Employees Retirement System after 25 years of service. But that doesn’t mean public employees have to be on the job that long. At a cost of roughly one-third their current yearly salary, government workers can buy a year of service credit. And they can buy up to five years of credit. That means police officers and firefighters can reach the 25 years of service required for a full pension by working just 20 years.

Recent public employee “retirements” reveal what a great deal this is for the public sector — and what a ripoff it is for the public.

A few years ago, Clark County District Attorney David Roger retired at age 50, after 25 years with his office. Because he was short of the 30-year service threshold, he should have had to wait until age 60 to collect a reduced pension. However, he bought five years of service to reach the 30-year mark and start collecting his full pension immediately. Mr. Roger’s $330,000 purchase will allow him to collect 10 years of benefits worth some $1.5 million he otherwise wouldn’t be entitled to.

In private investment markets, it is impossible to turn $330,000 into $1.5 million over 10 years without substantial risk. Mr. Roger assumed no such risk. His return was guaranteed because all the risk was assumed by taxpayers. Regardless of how his $330,000 service purchase performs in the PERS investment portfolio, his benefits are guaranteed — by you.

Nevada is one of about 20 states that allow government workers to purchase service toward pension benefits. But Nevada’s plan is among the least friendly to taxpayers because workers can purchase service credits cheap, early in their careers, for benefits based on their highest-earning years at the end of their careers.

It’s not enough for lawmakers to make service credit purchases more expensive to reduce taxpayer risk. The Legislature should ban the practice, as New Hampshire and other states have. A year of work must be worked, not bought.