The Power of the PERS
Feb6In light of recent turbulence within the economy, many Nevadans now have serious concerns about their future. Unless they are paid with tax dollars, that is.
The Nevada Public Employees’ Retirement System is a wondrous institution—one wonders why policymakers have allowed it to continue so long as currently structured. No retirement system of its kind could ever exist in the private sector, able, as it is, to shift all of its investment risk onto other people.
The central problem with NV PERS is that it is a defined-benefits retirement system. This means that retired government workers are guaranteed to receive defined retirement payments whether or not NV PERS actually has the resources with which to make those payments. Any shortfall would have to be made up by higher taxes on private-sector workers.
Private-sector retirement packages such as 401K, on the other hand, are defined-contribution systems. Workers pay into the retirement fund a given amount, which is often matched to some extent by the employer, and the fund manager invests the moneys over a range of financial assets. When the worker reaches retirement, the value of the assets he has acquired through his retirement account is the amount that is available to him through his retirement years, whether or not the investments have gained or lost market value. Hence, workers in the private sector bear their own investment risk—in addition to bearing the risk for government employees’ investments.
This subsidized risk is particularly significant given recent market turmoil. NV PERS’ financial reports at the end of FY08 show that the unfunded taxpayer liability for PERS benefits approached $7.3 billion. Since then, PERS officials have testified before the legislature that the retirement system’s assets have lost over $4 billion in value—bringing the total unfunded liability to $11.5 billion. For comparison, the state’s entire general fund revenue for 2008 was only $3.05 billion.
NV PERS differs in another important way from private retirement funds. While private retirement funds require contributions from the employee, which may be matched by the employer, public employees in Nevada typically have to contribute very little to their own retirement. The very contributions upon which their retirement savings are based are paid mostly by taxpayers. According to NV PERS financial reports, taxpayers provided $963 million of the $1.06 billion in contributions in FY08—meaning that public employees only made 9.5 percent of the contributions toward their own retirement fund.
Comments
Frank Tussing says:
February 18, 2009 at 10:53 amSince Nevada taxpayers foot more than 90% of PERS ‘contributions’ and shortfalls, I expect many taxpayers would be interested in knowing how PERS invests its money….for example, any investments in Nevada business and industry?
Geoffrey Lawrence says:
February 18, 2009 at 12:11 pmPERS largest equity assets as of June 30, 2008 are as follows:
1. Exxon Mobil
2. General Electric
3. Microsoft
4. Chevron
5. AT&T
6. Apple
7. Schlumberger
8. Proctor & Gamble
9. Cisco Systems
10. Google
PERS assets are held through large asset management firms such as, among others, JP Morgan, Goldman Sachs, and the now defunct Lehman Brothers.
In addition, 29.5 percent of PERS assets are held in US Treasury bonds. Considering that the Fed is now only 2 percent solvent due to the recent assumption of bad private debt, there is significant risk involved even in these assets – even though I’ve just violated one of the more despotic elements of the Fourteenth Amendment by questioning the federal government’s ability to pay its debt.
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