Nevada Legislature: No action on PERS bill to alter pension fund, tackle liability
Assemblyman Randy Kirner, R-Reno, told the Nevada Ways and Means Committee on Wednesday putting new public workers into a hybrid 401k style plan, instead of the current PERS system, would benefit employees and government.
He charged the unfunded liability of the PERS system is five times what it was 15 years ago — $12.5 billion — and growing. He said the system’s assumption it can make 8 percent on investments each year to pay off the unfunded liability in 22 years is “nuts.”
But board member Rusty McAllister testified during Monday’s hearing during the past 30 years, PERS has averaged a return of 9.5 percent a year on investments despite three recessions.
PERS Director Tina Leiss told the committee many of Kirner’s claims are incorrect. She pointed out the state Constitution requires PERS hire and follow recommendations of that actuary who has said the plan would cost millions.
She said one major issue is putting all new hires in the hybrid plan would effectively end payments toward the unfunded liability in the existing system. She said as the number of workers in the existing system falls — through retirements and other staff departures — that total unfunded liability would fall on fewer and fewer workers, sharply increasing their individual costs.
“If people are not coming into the plan and not paying their share, the cost is going to go up,” for the remaining members, said PERS Actuary Brad Ramirez.
That, Leiss said, would result in a cost for just the coming two-year budget cycle equal to 15 percent of total payroll — more than $700 million a year.
She said the system has no choice but to pay that unfunded liability because those workers in the current plan have contract rights to the benefits they were promised.
“Whether you like that result or not, that’s just the way it is,” she said.
The PERS estimate of costs wasn’t the only projected hit AB190 would cause since PERS represents more employee groups than just state workers In fact, there are more than 150,000 active and retired PERS members statewide in state and local governments, school districts and other groups.
The State Department of Administration estimated the cost at about $160 million per biennium and the City of Reno at $11.7 million a biennium for its workers.
Kirner said that unfunded liability would be paid down by a 6 percent salary contribution from existing employers. But Leiss and Ramirez said PERS currently collects 11 percent toward that unfunded liability — the amount actually needed to retire the debt.
Leiss said under AB190, the employer would be capped at 6 percent but the employee in the current plan would be on the hook for any and all added contributions to reduce that liability — at least another 5 percent that would be taken out of their paychecks.
“If we don’t continue to get the same money to pay that, it (the liability) will grow,” she said.
Ramirez said he has been an actuary for the PERS system for 10 years.
“So I was surprised when I walk into the room and hear the plan is going under, which is something I was not aware of.”
He said current projections have PERS on course to eliminate that unfunded liability by 2034. And, while the contribution rate has grown to nearly 28 percent over time, he said the rate would go down as the liability goes down.
While Kirner said the liability has increased dramatically over the past 15 years and continues to grow, Leiss said the market value of that liability has actually fallen from $13.1 billion a year ago to $10.4 billion now.
She said the Actuarial liability is calculated over a rolling five year average and, therefore, remains above $12 billion but the dollar amount PERS is short is $10 billion.
She said that means PERS is funded for a total of 76 percent of its total future obligations and the system’s total assets have grown from $12.6 billion 10 years ago to $34.4 billion now.
Kirner said his defined contribution hybrid plan meets federal requirements but Leiss said in discussions with her actuary and legal counsel, she has been told it actually doesn’t meet those requirements and, so, would be at risk as not qualifying as a valid alternative to Social Security. That could result in a federal takeover.
She also objected to Kirner’s referring to his technical analyst Anthony Randazzo as an actuary, saying he’s an economist. Ramirez, she said, is a certified actuary and has done that work for PERS for a decade.
Kirner said his plan would also provide portability for workers who leave public service for the private sector. They could take their contributions with them.
Leiss said in an earlier interview PERS members who leave can, at any time, cash out and take their money with them.
She also objected to comparisons with the hybrid plan adopted by Utah Kirner’s witnesses said has a much lower contribution rate than PERS. She said Utah’s plan includes Social Security as its base and, when all contributions including that are added in, Utah’s contribution rate is 24 percent.
Several union and other employee groups also testified against AB190 as did former state Treasurer Kim Wallin who said the bill doesn’t pay for the unfunded liability and could actually cost the state and other governmental employers money.
The committee took no action on the bill.