Study: Switching PERS funding would be costly

(AP) - Changing how Nevada's Public Employees Retirement plan is funded would be expensive in the short-term but save money down the road, according to a new study.

The report from a Chicago consulting firm estimated that changing from a defined benefit to a defined contribution system would cost public employers and employees an additional $1.2 billion over the next two years alone because existing employees and retirees have a contract right to the pensions.

Savings of switching to a defined contribution plan would take about 20 years to be realized, the Las Vegas Review-Journal reported.

Under defined contribution plans, employers pay a fixed percentage of an employee's income into an account, such as a 401(k) plan. Retirement benefits depend on investment performance. Defined benefit plans guarantee set payments for life after retirement.

The study, released Wednesday, was commissioned in May by the PERS board because of talk that state legislators next year might want to switch to a defined-contribution method of funding retirement rather than the current defined-benefit method.

In a 2008 study, the Las Vegas Chamber of Commerce called Nevada's public pensions "among the nation's most favorable public employee pensions." It found a 30-year employee retiring with an annual salary of $50,000 would receive a $37,380-a-year pension for the rest of his life.

The report said the added costs to change the system when PERS is $10 billion short of what it eventually will need to cover those pensions would require both public employers and employees to pay much higher contribution rates.

Those rates, now 10.75 percent of employee's wages, would increase to 17 percent next year if PERS changed to a defined-contribution system, according to the Segal Co. study.

The contribution rates are paid both by employers and employees, although employers make the entire contribution under collective bargaining agreements in some counties.

"We wanted to make sure the Legislature had the information on hand before they make changes," PERS Executive Officer Dana Bilyeu said during a board meeting Wednesday.

State Senate Minority Leader Mike McGinness, R-Fallon, said in November that he intends to introduce legislation to change PERS funding methods when the 2011 session opens Feb. 7.

McGinness on Wednesday reiterated that he wants only to look at changing the retirement funding plan for employees hired after July 1 and not to change how benefits are funded for current retirees and employees.

"They are talking about changing it for everyone," he said. "I don't think anyone would consider that with a price tag that big."