LEGISLATURE 2011: Increase in state workers retiring likely

Nevada could face a costly spike in retirees as public employees are being asked to pay more into their retirement funds and take a 5 percent pay cut, officials told a legislative panel Thursday.

A change in rules in 2007 regarding retiree benefit plans prompted an unexpected surge in retirees that cost the Nevada Public Employees Retirement System $266 million. With further digs into their salaries, employees approaching retirement will again be deciding whether it's worth it to keep their jobs, officials said.

"It's an individual decision," said Dana Bilyeu, PERS executive director. "People will be making their own economic calculations based on the salary reductions and the increased contributions."

PERS is asking employers and employees to increase their combined contributions to 23.75 percent starting July 1, up from the current rate of 21.25 percent. The increase will be divided, with employees contributing 11.875 percent of their salary, up from the 10.75 percent now, and employers covering the other half of the increase.

Police and fire employees, who are classified separately, will see an increase of 2.75 percentage points, to 39.75 percent.

The state and public employees will pay about $9 million each over the next biennium to cover the pension cost hike.

The payment hike is meant to chip away at PERS' growing unfunded liability, which stood at $10 billion as of June 30. That figure represents future financial obligations PERS has to its members, without the money to back it up.

The liability will be paid off in about 26 years, Bilyeu said.

Some studies have sounded alarm about the unfunded liability; PERS has funds to cover 70.5 percent of its obligations, and some say the system could run dry within a few decades.

But Bilyeu said those studies assume low or no growth in PERS' investment portfolios, and reflect a "snapshot" in time during the recession. The PERS fund took a hit during the market downturn, bottoming out at $15 billion in March 2009, but has since rebounded to $24.7 billion as the market has improved.

"We've seen a fairly strong recovery," she said.

Since its inception in the early 1980s, PERS has seen an annualized rate of return of 9.5 percent. It serves 103,000 actives employees, 44,000 beneficiaries and 183 employers, the two largest being the Clark County School District and the state of Nevada. The average PERS check for a retiree is $2,486 per month for regular members, or $4,141 for police and fire members.

Bilyeu's testimony about the PERS increases came at a Senate Finance Committee hearing, after State Controller Kim Wallin, a Democrat, testified against a 5 percent pay cut for state employees proposed by Republican Gov. Brian Sandoval.

"Basically you're saying to our employees, 'Because you work for the state, you have to pay a state income tax,'" Wallin said.