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January 8, 2009 / jimnv

401 (k) Instead of PERS?

The Nevada Policy Research Institute in Las Vegas proposes to replace PERS with a 401 (k) plan “like private industry”.  The Nevada Policy Research Institute speaks before it thinks.  401(k) plans for government employees were adopted in other states such as West Virginia, Nebraska and Alaska. They were failures, costing more than expected and they are switching back.

“Private industry” pays into the Social Security system for every employee and in addition provides a 401(k) sometimes with a contributing match. State employees already have a 401(k) but there is no match. Nevada PERS participants  pay about 10 percent of their income into their plan while Social Security participants pay only 7 percent. State employee contribution rates go up to help meet obligations such as the un-funded liability which is about 22 percent down from 53 percent 20 plus years ago. 

As background, in 1984 PERS decided to deal with the un-funded liability problem of the system and it is now 78 percent funded and the overall rate of return of  over 10 percent. This happened because of careful oversight and implementing actuarially determined contributions which rise to meet plan requirements. The unfunded liability will be eliminated in less than 30 years.

Why is it wrong for State employees to have a well managed retirement system?  When Social Security was adopted, government employees were excluded and in Nevada, state employees did not have a pension plan until the late 1940s when PERS was created by the “Nevada Retirement Act”.  This was signed into law on March 27, 1947, by Governor Vail Pittman. Up to that time, Nevada was one of the few states which did not provide any retirement benefit for government employees.

State employees generally do not get Social Security unless they worked for a private company and were able to accrue the necessary quarters. Almost always their PERS benefit is the only retirement they receive. If they have paid into Social Security their social security benefit is reduced by two thirds as a penalty for being a government worker. Therefore many government employees subsidize Social Security recipients! The Nevada Policy Research Institute, the Las Vegas Chamber of Commerce and the Las Vegas Review Journal are silent on that because it doesn’t fit with their argument that State emplyees must get less.

Government pension plans such as PERS are structured to invest in the future and employers (i.e. state governments) only contribute about 25 percent of the overall funds in the plans. The rest of the money comes from earnings on contributions and contributions by government employees.  PERS is  professionally managed and prudently run, even the Las Vegas Chamber of Commerce, no friend to state employees, concedes this. Then why fix something that isn’t broken?

The Social Security system simply collects money at a specified rate without investment or management. The system “Lives for today” instead of planing for the future and that’s why is is always in trouble financially. The System does not care about the future but PERS does.

The Social Security system should be replaced by a plan similar to Nevada’s Public Employees Retirement System. It would take the money out of government hands and placed into well run and managed plans with an eye toward the future. The money would be invested for the benefit of every worker which would help with the overall economy. Currently, government pension plans contribute about 2 percent of the nation’s GDP, can you imagine what impact there would be if all workers participated in a PERS type plan? 

Think about it!

REF: Letter from PERS to LV Review Journal-September 10, 2008, PERS website and NRS.
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