A recent editorial in Las Vegas’ RJ was headlined, “PERS still $9 billion in hole.” The piece was spot on. Except its authors inadvertently omitted the second half of the headline: “And . . . THE OPTIONS FOR FIXING IT ARE LIMITED.” Nevada PERS is a very leaky ship.
As the editorial points out, CIO Steve Edmundson turned in a stellar performance in FY2021: a 27.3% return on AUM (assets under management). AUM increased to $58.5 billion, up $11.7 billion from the previous year. During my first year (2015) as State Treasurer, total AUM was $34.6 billion. Wow.
The funded ratio has also steadily increased over the past 5 years. In 2021, it stood at $75.4%, up from 73.2% in 2015. Still unfunded liabilities stood at $9.1 billion, not an insignificant sum.
PERS problem is very simple: In 2012, the difference between total contributions and benefit payments was $100 million. In 2021, the difference had soared to $800 million. Despite Edmundson’s pyrotechnics, PERS can’t overcome a basic rule of math: with benefits continuing to exceed contributions over an extended period, PERS is hemorrhaging cash.
What accounts for the increase in this deficit? Most significantly, the number of active members paying into PERS has decreased by 20%. Another issue is that PERS beneficiaries are paid defined benefits not benefits tied to contributions. Finally, members are living longer as Nevadans continue to benefit from healthier life styles. None of these factors are likely to change in the near future.
Perhaps, the best and only solution is to sell assets in the portfolio to reduce the unfunded liability. With Edmundson on a tear, this solution seems viable. The others are politically unpalatable (at the moment): increase the percentage regular members pay into PERS (already a substantial 29.75% of salaries); hold steady the defined benefit (which has increased 11% since 2015) paid to retirees; increase the average retirement age, now 69 for regular members.
Does Governor Sisolak know about this? He should. His wife, the very capable (former) Kathy Ong, was a member of the PERS Board for 8 years (2011-2019). Does the Legislature or PERS Board have a clue? Check out their CV’s.
Nevada’s public employees deserve better. Otherwise, man the lifeboats.
Dan Schwartz served as Nevada State Treasurer (2015-2019) and is currently a candidate for LT Governor in 2022.