the STAT PACK

Data & Dialogue About the Nevada Economy

VIEWPOINTS

What is the Health of Nevada’s Public Employee Retirement Plan?

The health and sustainability of Nevada’s Public Employee Retirement Plan (PERS) has been the subject of numerous news stories since public pension plans across the country have been increasingly scrutinized by government watchdog groups and fiscal experts alike. State pension plans are being managed with varying degrees of competence; some are predicted to eventually bankrupt their states if not reformed. Some states are leveraging greater and greater proportions of their funds to meet certain assumptions and goals, sometimes putting funds at risk in the process. While Nevada’s PERS plan has returned 9.5% annually for the last 29 years, some critics claim that the plan remains only about 70% funded. Here are a few facts about Nevada’s PERS:

  • Contributions to PERS are computed under an actuarial cost method known as Entry Age Normal (EAN), which is commonly used in both private and public sector pension plans. 
  • Inherent in the EAN method is an “unfunded liability” (often called “past service liability”), which is essentially the difference between the present value of all future expected benefits and the plan’s current assets. 
  • The existence of this type of liability, alone, does not mean the plan is “underfunded”, so long as the liability is recognized and is being amortized on a regular basis.
  • Even so, it is of growing concern by some pension experts that the rate of decrease in the funded portion of Nevada’s PERS liability has rapidly and steadily grown over the past 10 years. 
  • Plan costs are computed as a percentage of active payroll. Nevada’s PERS assumes that the total payrolls will increase at the rate of 6.5% per year. However, much lower percent increases have actually occurred for the last 10 years, recent years have shown decreases, and the 6.5% rate has only appeared in one instance. 

Nevada’s PERS plan’s investment performance has been impressive as a whole. 

The plan’s benefit levels are high relative to private sector plans. A PERS-paid retirement income of up to 90% of (highest years’) average annual compensation is possible, plus generous “cost of living” increases. It is the general consensus that a “replacement ratio” of around 70% from all sources is sufficient for a retiree to maintain the same pre-retirement standard of living. 

The generosity of benefits may be leading to a high rate of actual retirements, especially among those workers, which are at premature ages. Not only does this situation potentially take productive workers out of Nevada’s workforce, but it contributes to the stagnation in the size of total active payroll noted above. 

Factual information contained herein was obtained from the PERS 2013 Comprehensive Annual Financial Report. You may request a copy of this report at https://nvpers.org.

The views expressed in this opinion piece do not necessarily reflect the views of HTLV or RCG. Our thanks to Robert Lebenson for his contribution to this article.


We welcome guest columnist, Mike Kazmiersky, President/CEO of the Economic Development Authority of Western Nevada (EDAWN).

Our World Has Just Changed With Tesla!

Rarely in the world of economic development does a single event change a community so much, so quickly, but in the last week we experienced what could be that “once in a lifetime” event – “Tesla picked Northern Nevada!”  The magnitude of this announcement will take years to understand and play out. Regardless of the final outcome, our world here in Reno-Sparks has just changed – dramatically.

So what does this announcement really mean for our region?  First and foremost, we are not a "little city" or small region anymore.  This single event will likely move Reno–Sparks, as a metropolitan area, into the list of the top 100. We are currently ranked at, or near, 117. 

Additionally, we will no longer be the "best kept secret" as a place to live, work and play. Getting on the radar of site selectors as a great place for business has been challenging, yet we win nearly all the projects that consider us – once we get a company to look past the less then flattering image of Reno-Sparks. These companies visit our region and experience the reality of what we are:  a growing and diversified business community that is special.  Many more projects will follow Tesla as new or growing companies come to see the real Reno-Sparks. 

The new Reno-Sparks image 

We are becoming educated, smart, and a growing hub of activity in technology, advanced manufacturing, logistics, entrepreneurship and the arts.  The Apple announcement last year, the unmanned aerial vehicle state designation this year, the many recent advancements at our Tier 1 University, and now the Tesla announcement are changing our image. It won't happen overnight, but at some point the "new Reno-Sparks" image will be pervasive.

On the positive side of the ledger 

If you own a home, it is now worth more – maybe much more. The tax revenue associated with growth of this magnitude will help our local governments (the thousands of employees, construction workers, suppliers and secondary businesses will pay plenty of taxes). Air service will improve; with more demand comes better air service. The construction industry, already on the rise, will rebound. Average wages will increase, and the 16,000 currently unemployed will have the ability to find work – and not just with Tesla, as everyone will experience growth and there will be job opportunities in nearly every sector.

On the negative side of the ledger 

Traffic will increase, not as much as most cities but more than the minimal traffic we now have. Prices will go up with increases in demand, so the cost of living here will move up. Employers will have difficulty keeping their employees if they are not paying above the industry average. Our population will increase, putting pressure on our school infrastructure. Other government services may also be impacted, and there will be some who lament the growth, forgetting how painful the recession and several years of no growth have been.

The coming change will happen if the Tesla deal comes even close to expectations. So hang on to your hat, focus on the positives and manage the negatives. Our world has changed – enjoy the exciting times ahead.