Red ink

The bill for the state’s unfunded pension liabilities could come a lot sooner than anyone expected.

Gov. Jim Gibbons will give a speech Monday on the state’s growing revenue shortfall. He’ll call a special session of the Legislature to make budget cuts that total $881 million. Layoffs of state employees and program and facility closures are expected to be part of the governor’s recommended course of action. Salary and benefit reductions for state workers could be part of the mix.

Depending on what lawmakers decide to do, large numbers of state workers might decide to retire in response to the cuts, either to avoid drastic changes in their work environments or to guarantee some income while joining the ranks of the unemployed.

Unlike private-sector workers, most senior public employees have the option of retiring early. They might be a decade or more short of eligibility for Social Security or Medicare, but they can start collecting pension payments — for the rest of their lives — if they have enough years of service under their belts.

Nevada’s Public Employees Retirement System currently has $22 billion in assets to cover pension payments to about 40,000 retirees. Taxpayers pay ever-larger sums into the system each year for the future retirements of 104,000 current government workers.

But governments have promised more benefits than PERS can possibly cover over the long term — only 72.5 percent of PERS payouts are funded. Eventually, taxpayers will be asked to provide a bailout of at least $6 billion to guarantee the retirement income of all former public employees — all while struggling to save for their own retirements.

PERS chief Dana Bilyeu said a sudden wave of unexpected retirements has the potential to hurt PERS assets. That could boost the amount of unfunded liabilities — and force governments to increase their contributions when they’re already scaling back operating expenses.

The Legislature made minor reforms to PERS as part of the 2009 tax-increase compromise, but those tweaks amounted to a thumb in the dike. The state’s pension plan is unsustainable at its core.

In the interest of fairness to taxpayers, who pay for retirement benefits they can’t get themselves, lawmakers must put all future government hires on a 401(k)-style, defined contribution retirement plan. The longer PERS is promised to newly hired public employees, the sooner Nevada governments will face their next great budget crisis.