Nevada Legislature: PERS ‘hybrid’ plan supported, criticized

Assemblyman Randy Kirner, R-Reno, told the Assembly Government Affairs Committee that Nevada’s Public Employee Retirement System has upward of $12 billion in unfunded liability and has been on a downward spiral for years.

He said Tuesday the answer is AB190 that creates a hybrid plan for new public employees which would split each worker’s retirement benefits between a more modest defined benefit similar to the current plan and a defined contribution plan that looks similar to a 401K account.

Kirner said that would allow workers to take about two-thirds of their retirement contributions with them if they move to the private sector.

He said PERS has that huge unfunded liability despite having among the highest contribution rates in the nation. He said that liability is growing, not shrinking, the percentage of benefits that’s funded is going to continue to drop from its current 71 percent and, over time, is going to doom the system.

But PERS Executive Officer Tina Leiss said there are several problems with the bill including that it may not comply with federal law or the state constitution.

Supporters of the bill charged PERS has failed to come close to the 8 percent investment income needed to reduce that liability in recent years.

But Leiss said at the end of the hearing, their investments earned 17.6 percent this past year and 9.6 percent annually over the past 30 years.

Kirner said the legislation will completely protect those already in PERS — their benefits will not be changed. He said the hybrid plan would apply only to new hires who join a PERS entity on or after July 1, 2016.

He also said the proposal would allow retirees to accrue benefits of up to 80 percent of their salary upon retirement compared to 75 percent now.

Kirner said the hybrid plan recognizes no longer do people get a job and stay with one company for their entire career, that they are much more mobile with several careers.

But Teresa Ghilarducci, an economist who specializes in retirement plans, said the assumption is incorrect, that the average length of time a person keeps a job has actually increased over the past 50 years.

She said the federal Bureau of Labor Statistics has posted a note on its website pointing out that fact.

Leiss said the proposed plan would cut the percentage public workers vest each year from 2.5 percent to 1 percent.

“This multiplier is not sufficient to qualify the defined benefit portion of the hybrid plan as a Social Security alternative,” she said.

She said AB190 would not provide the money needed to eliminate the unfunded liability,

“We have serious concerns we would be adequately funded under the new plan,” she said. “You cannot put less money in and pay the liability off.”

She said the bill doesn’t say whether members in the hybrid program would be eligible for disability retirement or survivor benefits.

She said Kirner’s plan allowing existing plan members to transfer to the new hybrid plan is problematic because it may be barred by the Internal Revenue Service code.

She said it also sets up a contribution rate that moves away from the current 50-50 split between employer and employee since the employer would pay 6 percent for the defined benefit portion and the employee would be required to make up the rest of the premium which could be larger.

Also breaking from that 50-50 contribution rate, she said, is the provision requiring local governments to contribute an additional 6 percent of hybrid plan employee salaries toward reducing the unfunded liability in the current plan. With that addition to the 6 percent for the defined benefit contribution and 6 percent for the defined contribution portion, she said the total local government contribution would be 18 percent while the total state contribution would be 12 percent.

In addition, she said the added 6 percent wouldn’t adequately pay down that liability

“This provision appears to require some employers to subsidize the state’s contribution requirements,” she said adding that could violate the spirit of the Nevada Constitution as it could be interpreted as a loan to the state in violation of the provision barring any loans from the PERS fund.

Leiss said the reporting and auditing requirements in the bill would also greatly increase administrative costs for the plan.

Government Affairs Chairman John Ellison, R-Elko, was criticized by PERS retiree Warren Wish who pointed out supporters of AB190 got two hours to make their case while opponents were left with just 20 minutes and Leiss, head of PERS, got less than 5 minutes at the microphone.

Ellison said all those issues would be dealt with in much greater detail when the bill is referred to the Assembly Ways and Means Committee for review of its financial impacts.