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Even as the economy in the Silver State showed slow but marked improvement in 2013, the health of the Nevada Public Employee Retirement System (PERS) deteriorated. The official unfunded liability for the pension plan for retired state and local government workers increased 15% during PERS 2013 fiscal year.
The official Nevada PERS unfunded liability increased from $11.2 billion to $12.9 billion during during FY2013. Fiscal years for PERS, as for Nevada’s state government, run from July 1 through June 30.
The percentage of long-term funding also declined, from 71 percent in Fiscal Year 2012 to 69.3 percent in the year that ended June 30, the actuarial valuation report from Segal Consulting shows. The plan covering about 98,512 active state and local government workers and 49,546 retirees or their beneficiaries was 77.2 percent fully funded in 2007, and hit a high of 85 percent full funding in 2000.
The unfunded liability is the amount the fund is projected to pay out to beneficiaries over and above the amount it is projected to have on hand based upon current contribution rates and an assumed return on its investments. Current law requires Nevada taxpayers to make up any shortfall in PERS. The official unfunded liability is about twice the annual general fund budget for the state.
The reality of PERS may be even worse than the official story suggests.
If PERS were a private-sector retirement plan, everyone would acknowledge that its unfunded liability would be around $41 billion, or $41,550 per Nevada household, with a funding ratio of just 34 percent.
But because PERS is a government-run plan, it is able to use different, and more lax, accounting standards.
Government pension funds are allowed to use such lax accounting standards because taxpayers are required to bail them out if they run short of funds to pay promised benefits. The official unfunded liability of PERS is based upon the fund attaining 8% annual returns on its investments forever. As the NPRI commentary reveals, PERS has achieved less than a 5% return on its investments over the last five years. If this trend continues, it could have serious consequences for PERS, or rather the taxpayers of Nevada who would have to foot the bill for any shortfall.
Last month, PERS released a study it had commissioned that indicated the fund could erase its long-term unfunded liability by 2042, if it were able to achieve 8% return on its investments. But at a 5% return, the current unfunded liability more than triples and only an increase in contributions, by taxpayers and workers, and/or a bailout by Nevada’s taxpayers could allow the fund to honor its commitments.
Tags: Nevada Policy Research Institute, NPRI, PERS, Public Employee Retirement System, unfunded liability
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