It’s time to rethink benefit plans for government employees
For the Appeal
In the latest round of budget cuts, it was decided to take $17.5 million out of a fund that had been set aside to cover an expected $3 billion-plus “unfunded liability” Nevada taxpayers face in the state’s retirement benefits account for government employees in the future. It’s sort of like what the federal government does when it takes money from the Social Security trust fund for ongoing operations.
When asked why the government was taking money set aside for the future to cover a budget shortfall today rather than cutting present-day spending, state Sen. Bob Beers put it bluntly: “Our grandchildren don’t vote.” That’s true. But it’s wrong to be kicking the can down the road and pawning off politically difficult decisions to the next generation.
The problem is we’ve promised government employees future pension benefits we simply cannot afford. And the longer we wait to address the problem, the harder – and more painful – it will be solve. Just like Social Security. So the first step is to acknowledge that it’s time to completely rethink exactly what kinds of retirement benefits, including health care, we can provide government workers and how to best do so.
Currently, Nevada state employees are provided what it known as a “defined benefit” plan for retirement. This means the government puts money into a common pool and invests it. If the expected income generated from the investments won’t cover the amount of money needed to provide the benefits promised, that’s known as an unfunded liability. And that means taxpayers must put more money into the “pool” to cover the expected future shortfall. But unless the way we provide retirement benefits to government employees changes, taxpayers will constantly be hit up to pump more and more money into the system until it finally bankrupts the state.
The key is to recognize this financial fact and take concrete steps to fix it now, not later.
The whole concept of “defined benefits” needs to be reassessed. The private sector moved away from “defined benefit” plans long ago because such plans were bankrupting firms. Instead, private companies moved to 401(k) plans where the company and the employee contribute set amounts into a retirement fund, which the employee chooses and controls and can take with him or her if he or she changes jobs. Similar plans can and should be established for government workers.
Known as “defined contribution” plans, both the employer and the employee contribute to a personal plan set up by and for the employee. A chief benefit for the worker is that he doesn’t have to be “vested” – meaning working for the employer for a long number of years – in order to get the benefits. Also, government workers will no longer have to fear losing their retirement entirely if the system goes belly-up or if politicians decide to change the benefits.
The chief benefit for taxpayers is that they would no longer be on the hook to cover “unfunded liabilities” if the investments government makes don’t pan out. The taxpayers’ liability under “defined contribution” plans is fixed and certain. In addition, it will be far easier to recruit quality workers on a short-term basis when appropriate if those workers don’t have to wait to become “vested” in order to benefit from the retirement program. Plus, without the expense of the government overseeing an extensive investment fund, taxpayers will save a significant amount of money.
A number of states have already offered some of their government workers, at the state and/or local levels, the option of moving from “defined benefit” programs to “defined contributions” programs, including such large states as California, Florida, Texas, Colorado and Michigan. It’s long past time for Nevada to do the same.
• Sue Lowden is Chairman of the Nevada Republican Party and a former state Senator. She resides in Las Vegas.