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Nevada public employee pension plan sees record investment return in 2011


By Sean Whaley, Nevada News Bureau: Nevada’s public employee retirement system saw a whopping 21 percent return on its investments in the fiscal year ending June 30, the executive officer of the agency said today.

“I believe this is the best performance we’ve had in at least 25 years with the fund,” said Dana Bilyeu, executive officer of the Public Employees’ Retirement System (PERS).

The value of the retirement plan stood at $25.2 billion as of June 30, up from $20.9 billion on June 30, 2010, she said.

Dana Bilyeu, executive officer of the Public Employees’ Retirement System

But the PERS investments, just like those of millions of Americans saving for retirement, could suffer in a big market sell off if Congress does not resolve the debt ceiling dispute by Aug. 2.

Bilyeu said a failure to extend the federal government’s debt ceiling limit would indirectly affect the plan the same as it would other investors.

“Because we’re always fully invested, the impact is going to be what that does to the markets themselves,” she said. “It’s really not about the default but really what that ripple effect is throughout the investment markets.”

If Congress fails to approve an extension of the debt limit, the markets will react and they won’t react very well, Bilyeu said. So the likely result would be a second vote by Congress, as happened with the TARP bailout legislation in 2008, to reach agreement and extend the limit, she said.

“I think the end result is going to be they are going to vote to lift the debt ceiling, to some level, we don’t know what that is,” Bilyeu said. “But I think they will get there. I think everyone at this point is trying to work as much into it as they can.”

PERS had over 102,000 active members in 2010, covering virtually all Nevada public employees, from school teachers and city workers to state employees. The plan is a defined benefit pension, where employees earn a guaranteed amount at retirement based on years of service and salary.

The 21 percent return for the just-ended fiscal year comes on the heels of a 10.8 percent return in fiscal year 2010. The plan saw a 15.8 percent loss in 2009.

Bilyeu said the high rate of return in 2011 was due in part to the plan’s significant investments in the S&P 500 and the EAFE stock indexes, both of which were among the top performers in fiscal year 2011.

The annualized rate of return on its investments is 9.6 percent over 28 years, ahead of the 8 percent return assumption over the long term.

The healthy return on the system’s mix of stocks, bonds and other investments will have a positive effect on the long-term financial health of the plan, which was 70.5 percent fully funded as of June 30, 2010, Bilyeu said. But the long-term unfunded liability will not be recalculated until this fall.

The unfunded liability as of June 30, 2010, totaled $10 billion. At its high point in 2000 the plan was 85 percent fully funded.

This long-term unfunded liability, which supporters of the current system say will be funded over time, is one reason Gov. Brian Sandoval in the 2011 session advocated for fundamental changes to the retirement plan. Others have advocated for a change as well, suggesting a switch to a “defined contribution” plan modeled after the 401(k) retirement plans commonly offered in the private sector.

A defined contribution plan is one where the employer contributes a set amount to an employee’s retirement. The employee makes the investment decisions. The employer has no long-term liability with such a plan.

In his state of the state address in January, Sandoval said: “We must also admit that Nevada’s Public Employee Retirement System cannot sustain its current level of liability. Future employees must join PERS under some form of a defined contribution plan.”

No action was taken to alter PERS in the just ended session. Instead, the Legislature passed a bill providing for a study of the plan to assess what, if any changes should be recommended to the 2013 Legislature.

Sandoval said through a spokeswoman today that he looks forward to the results of the independent analysis of PERS required as part of the 2011 budget agreement.

Supporters of the current plan say it is well managed and that no major changes are necessary.

The financial health of public employee retirement plans has become a concern nationally.

A review of these pension plans by the Pew Center on the States in February 2010 identified Nevada as one of 19 states where “serious concerns” exist about the long-term health of the retirement plan because of the size of its long-term unfunded liability.

Audio clips:

Dana Bilyeu, executive officer of PERS, says the 21 percent return was the best in 25 years:

072511Bilyeu1 :08 with the fund.”

Bilyeu says the PERS fund could suffer if Congress does not reach a deal on raising the debt ceiling:

072511Bilyeu2 :12 the investment markets.”

Bilyeu says she believes Congress will reach agreement on the debt ceiling:

072511Bilyeu3 :11 as they can.”

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