By Sean Whaley, Nevada News Bureau: Nevada’s leading gubernatorial hopefuls all acknowledge the importance of ensuring the long-term health of the public employee pension program, but the three Republican candidates – Gov. Jim Gibbons, former federal judge Brian Sandoval and former North Las Vegas mayor Mike Montandon – each say it is time for significant changes.
The three Republicans all favor a move to a “defined contribution” type of plan seen in the private sector, where employees manage their own retirement funds and no long-term liability exists for the employer.
The major Democratic candidate, Clark County Commission Chairman Rory Reid, said he wants to first determine where the truth lies between two significantly different views on the pension plan: that it is actuarially sound and will be fully funded over time, or that the $9.1 billion long term unfunded liability the plan has now needs immediate attention.
The current system is a defined benefit plan, where employees are guaranteed a certain retirement income based on their salaries and years worked. The plan, which covers virtually all of Nevada’s public employees, allows a retiree to collect 75 percent of his salary for 30 years of service. Those reaching 30 years can retire at any age and begin receiving retirement income.
Nevada state employees and state agencies contribute equally to the plan. Contributions for many local government employees are made entirely by the employer.
A recent study of state and local government pension funds identified Nevada as one of 19 states where “serious concerns” exist about the long-term health of the retirement plan. Nevada’s plan is less than 80 percent fully funded, according to the examination by the Pew Center on the States issued in February 2010. Nevada’s plan is currently only 72.5 percent fully funded.
Gibbons said he wants to take up the issue in the 2011 session because any delay in changing the plan will have costly implications for taxpayers.
“We have to turn this ship around and for new employees, move away from a defined benefit to a defined contribution plan,” he said. “I am willing to work with the Legislature. I want to work with the Legislature to find a solution to this problem.”
Gibbons said he has advocated a change to a defined contribution plan before, and that the proposal actually dates back to the 1990s.
Even if the change must come incrementally, action needs to be taken sooner rather than later, Gibbons said. The $9.1 billion unfunded liability is an obligation of Nevada taxpayers, he said.
Montandon said the Public Employee Retirement System must change to a defined contribution plan because people are living longer and defined benefit plans just don’t work anymore from a financial standpoint. Medical advancements and other factors leading to increased longevity are turning such plans even further upside down, he said.
“There is no chance that $9 billion unfunded liability is going to get smaller,” Montandon said.
Sandoval, who stepped down from a lifetime appointment as a U.S. District judge to run for governor, said the state and local government agencies can no longer afford such retirement benefits. He said Nevada’s plan should mirror those in the private sector and federal government.
“Simply put, the state can’t afford this anymore,” Sandoval said. “We can make an absolutely compelling case that the system has to change.”
Sandoval said the plan’s unfunded liability has gotten worse, not better, over time, increasing by nearly $2.3 billion from 2000 to today, where it stands at about $9.1 billion.
Despite some modest reforms approved by the Legislature in 2009 to the retirement plan for new hires starting Jan. 1 this year, the state and local government retirement plan, “still far exceeds retirement programs in the private sector or federal system,” he said.
Sandoval said he has the political will to push for such a change. But if there isn’t support for the change in the Legislature, then further reforms to the current system should be implemented, from increasing the minimum age for retirement, restricting the ability to “buy” years of retirement credit and dealing with situations where large salaries in the last years of employment drive up the cost of the retirement benefit.
Reid said he would first like to see some consensus emerge on what needs to be done to ensure the long-term financial health of the public employee retirement system. Getting those with divergent views together to find common ground would be a good first step, he said.
“Somebody’s wrong,” Reid said. “It can’t be one or the other. The positions are just so far apart. I think we need to have more opportunity for those with opposing views to (have those views) vetted. I don’t have a proposal as to what should be done tomorrow.”
Reid said he does believe that government personnel costs are unsustainable and must be addressed.
Any changes made to the retirement system would not immediately resolve the long-term unfunded liability because there are legal impediments to making changes to the plan for current public employees and retirees. The Nevada Supreme Court has ruled the retirement benefit is a constitutionally protected property right.
But Sandoval says changes must be made now to address the unfunded liability into the future.
“We need to begin changing from a defined benefit to a defined contribution plan,” he said. “We can’t do it all in one step because of current legal commitments. But you have to begin changing it immediately.
When public employees learn that they would have more control over their retirement funds with such a change, there is less anxiety about making a switch, he said.
“We also have to make it clear there is no hidden agenda,” Montandon said. “The agenda is only to change to a defined contribution plan.”