Sandoval’s proposed retirement plan examined

By Cy Ryan

Wednesday, Dec. 15, 2010 | 1:25 p.m.

CARSON CITY – Governments in Nevada and current public employees would get hit with a big increase in their monthly retirement premiums under a plan by Gov.-elect Brian Sandoval to change the state pension system.

A study by the Segal Group, Inc. was presented Wednesday to the state Public Employees Retirement Board outlining the pros and cons of switching the retirement system for all future government workers.

“It’s not the silver bullet,” said Kim Nicholl, the retirement practice leader for Segal, referring to the Sandoval plan. And public employee groups praised the present system, calling it one of the best managed in the nation.

Dana Bilyeu, director of the current system, said the switch would be a “very expensive proponent.” But the board and staff didn't take a position. They said the study would be presented to the Legislature, which would make the decision.

The system has $23.7 billion invested and has an unfunded liability of $10 billion to be paid off over 25 years.

Segal estimated the current premium of 24.5 percent, split equally between the government and workers, would have to go up to 34.9 percent of salary over the next two years to start to pay off the unfunded liability under the Sandoval plan.

Sandoval’s “defined contribution plan” would have premiums contribute to the new retirement system without any guarantees of pension amounts.

When an employee leaves or retires from public service in the defined contribution plan, the worker could take the account balance and roll it over to an IRA, or possibly into a new employer’s defined contribution plan. And under the defined contribution plan, the employees choose how to invest the money.

Some of the disadvantages, said Segal, are there are no post-retirement benefit increases, little protection in death or disability, and benefits could be lowered. And the defined contribution plan may not provide employees with adequate pension benefits, Nicholl said.

Bilyeu said a recommendation is being made to the Legislature to increase the current premium rate from 21.5 percent to 23.75 percent to be shared equally by employer and worker.

Under the current system, Nicholl said the benefit for the retiree is guaranteed for life, there are disability and survivor benefits and there is protection against inflation. The system can increase the pension check annually by up to the cost of living.

The present system that includes school teachers, and state and local government workers has 103,000 members with about 40,000 pensioners.

In the last six months, the investments of the system have realized a 13.6 percent return, Bilyeu said.

Nicholl said studies have shown that public employees earn 7 percent less than workers in the private sector when education and training are taken into account.