It is long past time to patch the broken public employee retirement system

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“You know my rule, Andy,” says a grifter in an O. Henry tale, “that in all my illegitimate inroads against the legal letter of the law the article sold must be existent, visible, producible. In that way and by a careful study of city ordinances and train schedules I have kept out of all trouble with the police that a five dollar bill and a cigar could not square.”

This high-minded adherence to such strictures so as to avoid any comeuppance or accountability might very well be ascribed to our Carson City grifters who for the past 40 years have played a confidence game — otherwise known as the Public Employees’ Retirement System of Nevada, NVPERS to the initiated — and slipped it under the noses of the taxpaying rubes by nickel-and-diming until they can sneak out of town and leave their marks holding the empty bag.

NVPERS was created in 1947. According to statute its purpose is to provide: “A reasonable base income to qualified employees who have been employed by a public employer and whose earning capacity has been removed or has been substantially reduced by age or disability.”

From this safety net for public employees “whose earning capacity has been removed or has been substantially reduced,” NVPERS has gradually, and almost imperceptibly, grown into the richest public employee pension program in the nation, according to the American Enterprise Institute.

By AEI’s calculations Nevada’s public pensions have reached $64,000 a year or more than $1.3 million in lifetime benefits. That doesn’t include public-safety workers, such as firefighters and police, who can retire earlier and generally have higher salaries. Compare this to the average annual Social Security benefit of $14,220.

For years there have been warnings that the system is unsustainable and could collapse, leaving taxpayers on the hook. Lawmakers have utterly ignored the warnings and have even raised the ante and the risk.

The latest jeremiad on this topic comes curtesy of the Nevada Policy Research Institute, a libertarian-leaning think tank, which recently released “Footprints: How NVPERS, step by step, made Nevada government employees some of the nation’s richest.”

Written by NPRI’s Director of Transparency Research Robert Fellner, the 36-page report warns that “should today’s international no-growth economy stumble into the deep financial crisis that many forecasters fear, NVPERS’ fantasy economic forecasts will be replaced by immediate bankruptcy — leaving every Silver State household with a sudden, implicit, $50,000-plus tax liability.”

The report details how NVPERS benefits have ratcheted up over the decades by virtue of incremental benefit increases, collective bargaining gains, earlier retirement age, allowing the purchase of years of service, padding base pay with add-ons such as callback, standby, holiday, shift differential, extra duty, hazard and longevity pay, and simple compound interest.

Fellner notes that local government employees have taken advantage of their collective bargaining union contracts and negotiated to have their employers actually pay the employees’ pension contribution, claiming this is done in lieu of a salary increase or in conjunction with a salary decrease — even though local government pay checks rank eighth highest in the nation.

As examples of how the system is being gamed, Fellner points to two former fire chiefs from Southern Nevada who retired in their mid-40s and began collecting $100,000-plus annual pensions while working full-time in fire departments in other states.

The major problem with NVPERS — as NPRI and others have pointed out for years, only to be ignored in Carson City — is that it is a defined benefit system. Public employees are contractually guaranteed a percentage of their highest three years of salary, depending on the number of years of employment. Thus many may retire in their 40s and 50s at 75 percent of their working salary — and a few at more than 100 percent of their working salary due to the spiking of those add-ons in later years — and live into their 80s or longer, drawing pensions for more years than they worked.

This means taxpayers decades from now will be paying for benefits approved by current and past lawmakers. Fellner bluntly calls this “intergenerational theft.”

The solution is for Nevada to change to a defined contribution plan — comparable to 401(k) plans used in private industry — for future hires. The employer and employee would each contribute to a fund that would be invested, leaving the taxpayers off the hook should the economy turn sour. This has been offered and rejected.

“Footprints” can be downloaded at http://npri.org.

Thomas Mitchell is a longtime Nevada newspaper columnist. You may email him at thomasmnv@yahoo.com. He also blogs at http://4thst8.wordpress.com/.

 

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