EDITORIAL: The PERS pain cometh

Benjamin Franklin once noted, “An ounce of prevention is worth a pound of cure.” The Nevada Public Employees’ Retirement System shows the high cost of ignoring that adage.

Next July, the combined PERS contribution rate for government employers and employees will increase to 36.75 percent. That group includes local government employees such as teachers. For police and fire employees, it will be 58.75 percent. Currently, the contribution rates are 33.5 percent for most employees and 50 percent for police and fire.

A nearly 60 percent retirement contribution rate would be unthinkable in most, if not all, private-sector jobs. It’s a bad deal for taxpayers because it artificially increases the cost of government employees without an increase in services. It’s also a bad deal for most public employees because it artificially lowers their wages.

It wasn’t always like this. Twenty years ago, PERS contribution rates were 20.25 percent for most employees and 28.5 percent for police and fire employees. Even that was high compared with past decades. In late 1960s, the PERS contribution rate was just 6 percent for all employees. Police and fire employees didn’t even have a separate contribution rate until the 1970s.

What happened? The short version is that no one had the courage or foresight to take Mr. Franklin’s advice.

PERS is a defined-benefit plan. That means retirement payouts are determined by a formula that accounts for an employee’s salary and years of service. Other factors include service credit purchases and age at retirement. Those retirement payouts, including inflation adjustments, are guaranteed by taxpayers.

In theory, the contributions made by employers and employees and future investment earnings should be enough to cover those costs.

In practice, that hasn’t worked. Now, taxpayers and current employees have to pay more. In June, PERS had an unfunded liability — a fancy term for debt — of $20.1 billion. For context, Nevada’s general fund is projected to take in $12.6 billion over the next two years. PERS’ funding ratio is under 76 percent.

This is why PERS contribution rates keep growing. It’s trying to pay off its past obligations. Around 45 percent of current PERS payments go to paying down this debt.

That is a scandal. The PERS board and staff have spent years fighting efforts to increase transparency and bring needed reforms. It’s a disgrace that they’ve let this problem fester and grow for decades.

Elected officials have long been afraid to reform PERS. Their inaction has cost the state dearly. Continued delays will make the problem only worse.