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National group provides “How to” guide to reform public pension plans

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By Sean Whaley, Nevada News Bureau: As Nevada policy makers get set to examine the state’s public employee pension plan in advance of the 2013 legislative session, a new report from the Center for State and Local Government Excellence offers some timely advice on how other government agencies have accomplished the difficult task.

The study highlights how three states, one county and one city have reformed pension plans to make them more fiscally sustainable while still providing retirement security to their employees.

Questions about whether the nation’s public pension plans are properly funded are being raised because of concerns taxpayers will ultimately be on the hook to pay retirement benefits if the plans run out of money.

A 2010 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.

“Strengthening State and Local Government Finances: Lessons for Negotiating Public Pension Plan Reforms” covers reforms implemented in Iowa, Oregon, Vermont, Gwinnett County, Ga., and Houston, Texas. It offers lessons for other reform-minded governments on plan funding and governance, the importance of using good data from experts, communication, and employee financial education.

Elizabeth Kellar, president and CEO of the center, said in a Wednesday telephone conference that states are making reforms to their retirement plans. According to the National Conference of State Legislatures, 25 states made significant revisions to at least one pension plan in the first six months of 2011. Thirty-nine states have made significant revisions to their pension plans in the past 18 months, she said.

Elizabeth Kellar, president and CEO of the Center for State and Local Government Excellence.

The Nevada Legislature made several modest reforms to PERS in the 2009 session, raising the retirement age from 60 to 62 for 10 years of service and reducing the amount of retirement credit per year of service, for new employees hired starting Jan. 1, 2010.

Despite the major reforms, the nation’s 126 largest public pension plans in the organization’s database have $2.7 trillion in assets, but $800 billion in unfunded liabilities as of 2010, Kellar said.

“This report gives some important lessons learned for places that are looking at significant reforms,” she said.

Gov. Brian Sandoval proposed major changes to the Public Employees Retirement System early on in the 2011 legislative session, recommending a switch from a full defined benefit plan where retirees are guaranteed a level of retirement income based on wages and years of service, to a hybrid that included a defined contribution element as well. The proposal, aimed only at new government employee hires, did not get introduced, however.

Instead, Sandoval and lawmakers agreed to conduct a complete analysis of PERS to generate the information they need to consider changes to the plan to reduce the $10 billion long-term unfunded liability. The study must include recommendations with actuarially-sound alternatives.

Sandoval has advocated for major changes to the retirement plan. Defenders of the current system, which covers virtually all state and local government workers, say it is well managed and no major changes are necessary.

Key findings in the Center for State and Local Government Excellence report include:

  • Pensions should be viewed as part of a broader human resources strategy that can affect recruitment and retention.
  • Policy makers need high quality data and analyses as they consider benefit changes.
  • Strong communication with all stakeholders helps employees, elected officials, and the public understand the need for change.
  • Discipline in funding a plan’s annual required contribution is important to achieve full funding.
  • Workplace financial education will help public employees learn how to build their retirement savings.

Nevada’s required contributions, paid half by the government agency employer and half by the employee, have been fully paid into the system for the past many years. The rates are set by an independent consulting actuary and are required to be followed by the state Legislature.

Dana Bilyeu, executive officer of Nevada PERS, said she is encouraged by the key findings in the report, two of which she has been advocating for some time: that pensions should be viewed as part of a broader human resources strategy that can affect recruitment and retention and that it is important to fully fund a plan’s annual required contributions.

“NVPERS continues to see commitment to long term financing on the part of the employers and employees to fund the plan over the funding time horizon,” she said.

The Center for State and Local Government Excellence is a non-partisan, non-profit organization engaging in research to shed light on issues such as competitive employment practices, workforce development, pensions, retiree health security and financial planning.

Audio clips:

Elizabeth Kellar, president and CEO of the Center for State and Local Government Excellence says the 126 largest public pension plans have an $800 billion long-term unfunded liability:

091411Kellar1 :17 0.8 trillion dollars.”

Kellar says the report has important lessons for policy makers who are looking at significant reforms to their public pension plans:

091411Kellar2 :05 at significant reforms.”

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