“You know my rule, Andy,” says a grifter in an O. Henry tale, “that in all my illegitimate inroads against the legal letter of the law the article sold must be existent, visible, producible. In that way and by a careful study of city ordinances and train schedules I have kept out of all trouble with the police that a five dollar bill and a cigar could not square.”
This high-minded adherence to such strictures so as to avoid any comeuppance or accountability might very well be ascribed to our Carson City grifters who for the past 40 years have played a confidence game — otherwise known as the Public Employees’ Retirement System of Nevada, NVPERS to the initiated — and slipped it under the noses of the taxpaying rubes by nickel-and-diming until they can sneak out of town and leave their marks holding the empty bag.
NVPERS was created in 1947. According to statute its purpose is to provide: “A reasonable base income to qualified employees who have been employed by a public employer and whose earning capacity has been removed or has been substantially reduced by age or disability.”
From this safety net for public employees “whose earning capacity has been removed or has been substantially reduced,” NVPERS has gradually, and almost imperceptibly, grown into the richest public employee pension program in the nation, according to the American Enterprise Institute.
By AEI’s calculations Nevada’s public pensions have reached $64,000 a year or more than $1.3 million in lifetime benefits. That doesn’t include public-safety workers, such as firefighters and police, who can retire earlier and generally have higher salaries. Compare this to the average annual Social Security benefit of $14,220.
For years there have been warnings that the system is unsustainable and could collapse, leaving taxpayers on the hook. Lawmakers have utterly ignored the warnings and have even raised the ante and the risk.
The latest jeremiad on this topic comes curtesy of the Nevada Policy Research Institute, a libertarian-leaning think tank, which recently released “Footprints: How NVPERS, step by step, made Nevada government employees some of the nation’s richest.”
Written by NPRI’s Director of Transparency Research Robert Fellner, the 36-page report warns that “should today’s international no-growth economy stumble into the deep financial crisis that many forecasters fear, NVPERS’ fantasy economic forecasts will be replaced by immediate bankruptcy — leaving every Silver State household with a sudden, implicit, $50,000-plus tax liability.”
The report details how NVPERS benefits have ratcheted up over the decades by virtue of incremental benefit increases, collective bargaining gains, earlier retirement age, allowing the purchase of years of service, padding base pay with add-ons such as callback, standby, holiday, shift differential, extra duty, hazard and longevity pay, and simple compound interest.
Fellner notes that local government employees have taken advantage of their collective bargaining union contracts and negotiated to have their employers actually pay the employees’ pension contribution, claiming this is done in lieu of a salary increase or in conjunction with a salary decrease — even though local government pay checks rank eighth highest in the nation.
As examples of how the system is being gamed, Fellner points to two former fire chiefs from Southern Nevada who retired in their mid-40s and began collecting $100,000-plus annual pensions while working full-time in fire departments in other states.
The major problem with NVPERS — as NPRI and others have pointed out for years, only to be ignored in Carson City — is that it is a defined benefit system. Public employees are contractually guaranteed a percentage of their highest three years of salary, depending on the number of years of employment. Thus many may retire in their 40s and 50s at 75 percent of their working salary — and a few at more than 100 percent of their working salary due to the spiking of those add-ons in later years — and live into their 80s or longer, drawing pensions for more years than they worked.
This means taxpayers decades from now will be paying for benefits approved by current and past lawmakers. Fellner bluntly calls this “intergenerational theft.”
The solution is for Nevada to change to a defined contribution plan — comparable to 401(k) plans used in private industry — for future hires. The employer and employee would each contribute to a fund that would be invested, leaving the taxpayers off the hook should the economy turn sour. This has been offered and rejected.
“Footprints” can be downloaded at http://npri.org.
Thomas Mitchell is a longtime Nevada newspaper columnist. You may email him at thomasmnv@yahoo.com. He also blogs at http://4thst8.wordpress.com/.
I am surprised Nevada has dragged their feet on changing their public employee system benefits for new hires. The following from the Footprints article uses Utah as an example (Utah changed the system for new hires so new employees know what they are getting into):
The State of Nevada should follow the model for reform set by the federal government in 1986, which faced many of the same problems today plaguing state-based DB systems, and was compelled to abandon the DB model. Today, the Federal Employees’ Retirement System places all employees in Social Security, provides a generous DC plan and even has a modest DB component.
At the state level, successful reform has many examples. Utah closed its existing DB plan to new hires and now offer employees a choice between a reduced DB plan with structural changes to limit taxpayer costs and a DC plan.
Arizona recently enacted groundbreaking reforms for the state’s police and fire pension plan. Similarly to the reforms in Utah and at the federal level, new employees may now choose between either a DC or hybrid DB plan. The DC plan offers employees a professional managed,
tax-deferred 401(a) plan with an 18 percent contribution rate split equally by employee and employer. The hybrid DB plan adopts a reduced, graduated multiplier formula (similar to the formula originally used by NVPERS), a 2 percent cap on COLAs and a cap on an employee’s
FAS (pensionable compensation) of $110,000.
The specific reform chosen by Nevada is much less important than acknowledging what the federal government, Utah, Arizona, Michigan, Alaska and others have realized: Maintaining the status quo is simply not an option.
http://www.npri.org/docLib/20160726_Footprints.pdf
Surly there are other ways of solving these problems that include all expense paid trips to foreign countries ‘for the taxpayers’
In the mean time, “This (alternate solution) has been offered and rejected”,
Of course it has. Gaming the system is easy when you’re running the game.
There is nothing broken about NV PERS. As an active State employee, I contribute 14% of my salary to my NV PERS pension and my employer matches that same 14%. My salary is also about a third less than what I would be making if I worked in the private sector. Don’t forget, we do not pay into Social Security, which both Arizona and Utah government employees do pay into. There is no reason to have added administrative costs that would result if we added a DC plan into the mix. The savings that some people think NV would see by bringing in a DC plan, would only be eaten up by the costs it would take to now run that DC plan. We are currently funded at 74.2%, which is up from 71.5% in 2014. Just like everything else that nose-dived during the recession, NV PERS is moving upwards. The housing market is now moving up, as well as the economy, so let’s give NV PERS the same chance to keep moving in a positive direction. NV PERS is not failing, it is one of the best in the country and to keep on with these scare tactics to Nevada taxpayers is ridiculous. If I were to break down all the taxes that I pay, there are plenty of funds that are ear-marked for things that I just don’t think I should be funding. Right now, taxpayers are not funding NV PERS, I am funding my own pension by having 14% of my salary taken directly from each one of my paychecks. My employer matches the other 14%. And, I do not have a lick of Social Security to fall back on either because I do not pay into Social Security.