Las Vegas Sun

April 19, 2014

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EMPLOYEE PAY:

Some of Nevada’s public workers sitting pretty

Afloat on overtime and generous retirement benefits, some state and local workers in Nevada belie the state’s reputation for government parsimony

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Nevada has fewer public employees than nearly every state in the union, but government workers here are among the nation’s most handsomely rewarded, according to a Sun analysis of census data.

Nevada public employees make 16 percent above the national average, trailing only California, New York and a few other places where the cost of living is much higher than in Nevada.

Due in large part to those generous salaries, Nevada’s government workers also have some of the best retirement benefits of any public employees in the country.

The Nevada numbers, however, are not entirely what they seem.

Total pay and benefits for government employees in the state are driven sharply higher by a small class of workers whose pay is far above national averages — police, firefighters and other local government employees.

When those workers are stripped from the calculation, the numbers show that state employees earn a bit more than the national average. Teachers, however, earn 3 percent less than the national average, according to the Sun analysis, and they will be falling further behind after pay cuts expected this year.

At the other end of the pay spectrum, the average firefighter in Nevada makes nearly $95,000, or 48 percent more than the national average. Local police officers make nearly $79,000, or 30 percent more than the national average.

Often the well-paid workers push up Nevada’s average by earning extraordinary amounts of overtime.

The overtime hours are the result of an odd policy choice by local government officials. They have decided paying the overtime is cheaper than hiring and training new employees.

The Sun analysis comports with most of the findings of a much-discussed study commissioned by the Las Vegas Chamber of Commerce. The findings are important at the moment because the Democratic-controlled Legislature, trying to close a yawning budget gap, is considering changes in the Public Employees Retirement System and the Public Employee Benefits Program, as well as the statute governing collective bargaining for local employees.

Republicans in the Legislature, prodded on by the list of demands of the Las Vegas Chamber, have made any tax increase to fill the state’s $3 billion budget hole contingent on at least some changes in these pay and benefit policies.

The chamber says the retirement system and health benefits program, which have an $11.25 billion unfunded liability, must be changed to avoid long-term fiscal problems. The liabilities break down to $7.25 billion for the retirement system, which is 76 percent funded, and $4 billion for health benefits.

For comparison, the budget being considered by the Legislature to run the entire state government for the next two years is about $7 billion.

Detective David Kallas, director of government affairs for the Police Protective Association, said the targeting of public employees by the Las Vegas Chamber of Commerce is outrageous. He said police, firefighters and teachers have not driven the state into its current crisis.

Public employees never made subprime loans to those who could not afford to repay, did not develop a glut of homes with borrowed money, and did not leverage to the hilt to build lavish Strip casinos, Kallas said.

He called the chamber’s and Republicans’ attack on public employees opportunistic and disingenuous. Kallas criticized the Republican insistence on supporting taxes only if cuts are made in government pay and benefits.

Local government unions have made concessions or are in negotiations to do so, even though they were not contractually obligated to do so. Firefighters, police, teacher and nurses unions are running radio ads to this effect.

Kallas also said police overtime is often the result of private functions, such as corporate events or concerts on the Strip, for which Metro is reimbursed by the private party. Moreover, police officers do not earn retirement credit for these hours.

He said police officers would like to see the force expanded and a reduction of mandatory overtime because they are concerned fatigue is a threat to their safety.

Rusty McAllister, president of the Professional Firefighters of Nevada, said firefighters work overtime because local governments in Southern Nevada have made the calculation that it is cheaper than hiring more firefighters, thereby forcing him to defend a policy that is not the firefighters’ doing.

McAllister and Kallas asserted that state and local government fiscal problems cannot be solved by layoffs or cutting public employee pay because they don’t make up a big enough slice of the pie.

Still, no one disputes that police and firefighters are paid well, and their retirement benefits outstrip those of many private sector workers.

Employees who work 28 years earn enough credit for retirement pay that equals 75 percent of the average of their pay — an average calculated based on highest earnings during 36 consecutive months. That 75 percent, which is 2.67 percent per year for 28 years, is the maximum.

For workers who earn overtime in those 36 consecutive months, however, 75 percent of their pay can be significant. (The overtime is only credited toward retirement if it is “call back” overtime, wherein the employee is summoned from off-duty status. A recent change requires the “call back” to be an emergency, according to Kallas, who sits on the PERS board.)

Many retirement systems in the United States specify a minimum age at which you can retire, regardless of how many years have been worked. But public employees in Nevada can retire at any age as long as they have worked for 30 years — 25 years for members of the police and fire services.

Moreover, public employees are also entitled to a health care subsidy. Workers who retire before they are eligible for Medicare at age 65 have 57 percent of their health program paid for when they purchase from the state’s benefit plan. This can be significant.

In the private market, the average annual premium for someone at age 60 is $5,090, according to a study by America’s Health Insurance Plans. By contrast, a Nevada government retiree who had 15 years on the job can buy a plan for $2,160 a year.

Compared with other states, Nevada’s plan falls in the middle range of generosity. Some states, including California and Texas, cover 100 percent.

In their defense, Nevada public employees note that they are among the 28 percent of public sector workers nationwide who do not participate in Social Security. This means they do not pay the

6.2 percent payroll tax, and the state does not to have to pay a 6.2 percent share, either.

The unions say this saves the state money. Alicia Munnell and Mauricio Soto, of Boston College’s Center for Retirement Research, say Nevada governments save between 5 percent and 6 percent of payroll by keeping their workers outside Social Security.

The unions also say that being one of the retirement systems not participating in Social Security distorts the comparison of PERS with other states. In states where workers participate in Social Security, they receive their pensions, but also a monthly Social Security check. Not so in Nevada, which means retirees are not as far above the national average as the charts would otherwise indicate.

But Gary Burtless, a labor economist at the centrist Brookings Institution, said that not being part of Social Security is most likely an advantage for Nevada government workers. They enjoy the tax break, but also, if at any time in their lives they worked a Social Security covered job — including any job in the private sector — they would still receive benefits. And, because Social Security’s benefit structure is very progressive, their benefits could be substantial even if they contributed little in the way of taxes to the system.

That is partially true, although as Munnell and Soto note in a report titled “State and Local Pensions are Different from Private Plans,” Congress created two rules to significantly reduce this kind of double-dipping.

What’s absolutely clear is that like most public sector workers, Nevada’s public employees who stick it out earn a pension that is far better than those of most Americans in the private sector. In one sense, that’s not surprising. They tend to make more money and are more highly skilled than the population as a whole, so it is not surprising they would have better pensions.

But it also reflects the vastly changed pension landscape nationwide. Government pensions remain mostly what’s called “defined benefit,” meaning that after retiring, the worker gets a guaranteed regular check in a predetermined amount.

According to the Bureau of Labor Statistics, 83 percent of state and local government employees have access to a defined benefit plan.

The private sector has greatly curtailed defined benefit plans. Just 21 percent of private sector employees have them today.

“Private plans are mostly 401(k)s,” Munnell and Soto wrote in their report. A 401(k) is what’s known as a “defined contribution” plan, meaning the worker sets aside a portion of earnings every paycheck into an investment account, sometimes with his employer contributing a portion. The worker receives tax benefits, but must make his own investment decisions and shoulders the risk inherent in those investments.

Munnell and Soto continue: “Less than half of the workforce is covered (by private pension plans), and everyone participates in Social Security.” Finally, Public defined benefit plans, “tend to provide larger benefits than their private sector counterparts, and most offer post-retirement cost-of-living adjustments, which are virtually unheard of in the private sector.”

The obvious questions are: Why should taxpayers support a pension system that they likely lack access to if they are in the private sector? And, should public sector workers be forced into the same defined contribution program as most of the rest of us?

For defenders of public employee retirement systems, the response is an emphatic no.

Beth Almeida is executive director of the National Institute on Retirement Security, a group that advocates for defined benefit plans.

Just because many private sector employers no longer offer retirement security doesn’t mean public sector employees should also be deprived of dignity in their later years, she said.

Almeida noted that of companies with 500 employees or more, employers spend an average of 6.2 percent of their payroll on pension costs, plus another 6.2 percent for Social Security contributions.

In other words, big private sector employers are often paying more in retirement costs than governments. Munnell and Soto generally agree with that conclusion.

Almeida said data show that defined benefit plans earn a better return because of actuarial advantages: The pension trustee only has to plan for the lifetime of the average pensioner; workers with 401(k) plans have no idea how long they will live, so each one has to plan for living the longest life.

Also, professional pension managers tend to be better stock pickers than the average person. The difference is between 1 percent and 2 percent a year, Almeida said.

This may be true, but it doesn’t change the fact that policymakers of Nevada and its local governments have made a significant, and quite curious, policy choice: Nevada has very few public employees, but a small subset of them are extremely well paid, and will be until they die.

Alex Richards reported from Las Vegas.

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