Reforming Nevada’s public employees pension plan

Reforming Nevada’s Public Employees Pension Plan

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While a defined-contribution (DC) approach is not perfect, experience with reformed 401(k) plans and the Thrift
Savings Plan for federal government employees shows that a DC pension plan can be managed cost-effectively for employees and taxpayers alike.

The Public Employees’ Retirement System of Nevada provides retirement, survivors and disability benefits for Nevada state and local government employees. It is currently one of the better-funded public-sector pensions, due to sound management and consistent government contributions.

However, the true funding health of Nevada PERS is far poorer than most realize, due to accounting standards that are far more lax than those required for private-sector plans. Using fair-market valuation, which is endorsed by the vast majority of professional economists, is used by financial markets to value liabilities and which is required of private-sector plans, Nevada PERS’ funding ratio falls from 70 percent to around 34 percent and its unfunded liabilities would rise from about $10 billion to almost $41 billion.

Annual contributions to cover accruing pension costs and amortization of unfunded liabilities would rise from $1.6 billion to an estimated $5.8 billion.

As alarming as these figures may be, they are the figures that economists and financial markets believe are the most
revealing of the true financial health of the Nevada pension program.

Shifting PERS to a defined-contribution, 401(k)-type structure would not make these unfunded liabilities go away. However, it would ensure that benefit obligations are fully funded going forward, ensuring that lawmakers, taxpayers and public employees are clear regarding the pensions promises the government has made and its ability to fulfill them.

Andrew G. Biggs is a resident scholar at AEI

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About the Author

 

Andrew G.
Biggs
  • Andrew G. Biggs is a resident scholar at the American Enterprise Institute (AEI), where he studies Social Security reform, state and local government pensions, and public sector pay and benefits.

    Before joining AEI, Biggs was the principal deputy commissioner of the Social Security Administration (SSA), where he oversaw SSA’s policy research efforts. In 2005, as an associate director of the White House National Economic Council, he worked on Social Security reform. In 2001, he joined the staff of the President's Commission to Strengthen Social Security. Biggs has been interviewed on radio and television as an expert on retirement issues and on public vs. private sector compensation. He has published widely in academic publications as well as in daily newspapers such as The New York Times, The Wall Street Journal, and The Washington Post. He has also testified before Congress on numerous occasions. In 2013, the Society of Actuaries appointed Biggs co-vice chair of a blue ribbon panel tasked with analyzing the causes of underfunding in public pension plans and how governments can securely fund plans in the future.

    Biggs holds a bachelor’s degree from Queen's University Belfast in Northern Ireland, master’s degrees from Cambridge University and the University of London, and a Ph.D. from the London School of Economics.

  • Phone: 202-862-5841
    Email: andrew.biggs@aei.org
  • Assistant Info

    Name: Kelly Funderburk
    Phone: 202-862-5920
    Email: kelly.funderburk@aei.org

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