Public Pension Reform Will Be Issue in 2011 Legislative Session

By Sean Whaley / Nevada News Bureau
CARSON CITY – Newly named state Senate Minority Leader Mike McGinness is adding his name to the list of Nevada policy makers who believe the state retirement system needs major change to head off a growing unfunded liability.
McGinness, R-Fallon, said he agrees with GOP Gov.-elect Brian Sandoval that the retirement plan now covering 103,000 active public employees across the state needs to switch to a “defined contribution� plan for future hires.
McGinness said the switch would at least keep the long-term unfunded liability of the retirement system from growing larger.
“I pretty much agree with that idea,� he said. “Otherwise we will continue to build on the problem we have now.�
McGinness said his views are his own. The possibility of reforms to the Public Employees Retirement System in the upcoming legislative session have not yet been discussed by the Republican Senate Caucus as a whole, he said.
State Sen.-elect Sheila Leslie, D-Reno, said the unfunded liability is clearly an issue that needs to be discussed in the upcoming session, but that it is more of a long-term policy question than one requiring immediate action.
There is no suggestion that the retirement plan be changed for people already in the system, she said.
“We’re not going to take away benefits that have been promised to people,� Leslie said. ‘It’s more of a conversation we need to have as we hire new employees, whenever that’s going to happen. It is a topic that needs to be considered for the long-term fiscal stability of the state.�
Senate Democrats have not yet discussed the issue as a caucus either, she said.
At a meeting of the PERS board on Wednesday, it was announced that the system’s long-term unfunded liability hit $10 billion as of June 30, 2010, up from $9.1 billion as of June 30, 2009. The plan was 70.5 percent fully funded on June 30, 2010, down from 72.5 percent in the previous year. At its high point in 2000 the plan was 85 percent funded.
The PERS board recommended increases in the contribution rates paid by public employers and their employees to maintain adequate funding for the retirement system
While there is interest in considering a major change to PERS, no bill drafts calling for reforms have yet been requested by lawmakers.
The PERS board did authorize an analysis of what a conversion to a defined contribution would mean in terms of cost and required regulatory changes because of the interest in the issue. The report is expected to be discussed by the board next month.
There are court rulings saying that public employees already in the retirement plan have a legal right to the benefit that cannot be taken away, so any changes would have to be applied to future employees.
Some changes were made to the retirement system by the 2009 Legislature, including raising the retirement age to 62 from 60 for an employee with 10 years of service. An employee can still retire at any age with 30 years of service.
It is expected to be a topic of discussion, however, given Sandoval’s views on the need for more fundamental change. The existing “defined benefit� retirement plan provides a guaranteed pension to a retiree based on salary and years of service. A defined contribution plan would provide no such guarantee, and would not create an unfunded long-term liability.
Las Vegas Chamber of Commerce President Matt Crosson said in an interview in August that the organization wants retirement system reforms to be part of a package of changes to be considered by the 2011 Legislature. He did not specify what changes are needed to the retirement system.
“We have to take advantage of the crisis that we are in right now to set the state on the right course into the future,� Crosson said. “And in part that requires reform.�
The SAGE Commission, a panel created by outgoing Gov. Jim Gibbons to look for efficiencies in state government, also recommended changes to the retirement system but did not advocate a change to a defined contribution plan.
Recommendations from the Spending and Government Efficiency panel include setting a minimum retirement age of 60 before benefits can be paid out. Other recommendations include calculating the retirement benefit over five years of pay, not the current three highest pay years, and imposing a moratorium on any benefit enhancements until the plan is fully funded.

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