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Nevada tax expert questions if public pension plan reform can move forward in short term


By Sean Whaley, Nevada News Bureau: Long-time Nevada tax expert Carole Vilardo said says she does not see how the state can move Nevada’s public employee retirement system to a defined contribution plan in the upcoming legislative session.

The change, which would eliminate any future unfunded liability for new state and local government hires, is favored by Gov.-elect Brian Sandoval and some lawmakers.

Others argue changes made by the Legislature in 2009 need time to work, and that a radical change to the public retirement plan is unnecessary.

Vilardo, president of the Nevada Taxpayers Association, said in order to create a defined contribution plan for newly hired public employees, the existing defined benefit plan has to be fully funded at an accelerated rate. When she looked at the idea a few years ago, Vilardo said the time frame was seven years.

“The first thing that has to be determined is whether we can afford, at this point in time, to go to defined contribution,” she said during an interview on the Nevada NewsMakers television program that aired Thursday. “Given the current economy, if that has not changed, if those requirements have not changed of government, then I don’t see how we look at that for at least another four years or so.”

Vilardo said she does not believe the change can be made now because of the costs to the state and local governments associated with fully funding the current plan over the much shorter time span. The state’s current budget problems make such a transition unfeasible right now, she said.

“Sooner or later we’re going to have to go there,” Vilardo said of a switch to a defined contribution plan.

Nevada’s Public Employees Retirement System covers 103,000 active public employees, including state workers, teachers and local government employees.

The plan had a long-term unfunded liability at $10 billion as of the end of the 2010 fiscal year on June 30.

The plan was 70.5 percent fully funded as of June 30, 2010, down from 72.5 percent in the previous year. At its high point in 2000 the plan was 85 percent funded. Public employees and government agencies contribute to the plan based on rates recommended by an independent consulting actuary with a goal of having the plan fully funded over the next 30 years.

An increase in contribution rates is being submitted to the 2011 Legislature to ensure the long-term financial health of the retirement plan. The hit to the state general fund will be just under $9 million a year in the next two years. State employees will have to make a similar contribution.

But the long-term unfunded liabilities of the PERS plan and for public employee pension plans nationwide are generating concern from policy makers.

Sandoval favors a change from a “defined benefit” plan where retirement payments are guaranteed based on salary and years worked, to a “defined contribution plan” where public employers contribute to employee retirement without any guarantees of pension amounts upon retirement.

The PERS board next week will review information on the financial cost of making such a change so that the information is available to the 2011 Legislature.

A change to a defined contribution plan would eliminate the unfunded liability for future hires. There is a legal prohibition for changing the plan for workers currently in the system.

Audio clips:

Taxpayers Association President Carole Vilardo says Nevada may not be able to afford to change the public pension plan in the 2011 legislative session:

120910Vilardo1 :25 within seven years.”

Vilardo says the plan needs to be changed, but that it probably can’t happen for at least four years:

120910Vilardo2 :14 years or so.”

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