Contrary to claims by conservative groups including the American Enterprise Institute, managers of Nevada's Public Employee Retirement System say the plan isn't in danger of financial collapse.
Economist Andrew Biggs of AEI issued a research paper recently stating that public pension plans like PERS are not calculating their unfunded liability accurately and, therefore, aren't showing taxpayers the true risk.
In Nevada's case, his paper states that a market analysis shows PERS is $33.5 billion short as of June 30, 2008 - just 42 percent funded for regular employees and 38 percent funded for police and fire retirees. Biggs could not be reached but he told the Nevada News Bureau annual returns can have large fluctuations.
PERS Executive Officer Dana Bilyeu said news reports detailing Biggs' conclusions resulted in numerous calls from concerned public employees worried about the stability of the retirement system.
She said latest calculations using the industry standard actuarial method of analysis shows the plan is more than 70 percent funded - a significant improvement from
25 years ago when plan assets were $1.6 billion and it was just 45 percent funded with an estimated $2 billion unfunded liability in 1985.
She said the plan currently has a significant unfunded liability - about $9 billion - but that it's a manageable problem since the only way that debt would come due is if everybody retired at once.
She and Investment Officer Ken Lambert compared the unfunded liability to a homeowner's mortgage - a large debt that the homeowner makes payments on every month.
"If you had 70 percent of your mortgage paid off, would you be bankrupt?" she asked.
"They're saying you're insolvent because you can't pay your mortgage off today," Lambert said. "No one's going to call in five years and say you owe me $9 billion. There's no balloon payment looming over anyone."
Both said they aren't focused on short term fluctuations in investment earnings because PERS manages contributions over the long haul - a 25-30 year period. Over the past 20 years, they said the system has had a 9.4 percent rate of return.
Lambert said as a result, 80 percent of the monthly benefits check paid to a retired public worker is interest earnings.
"Of the $1 billion we pay out in benefits each year, $800 million of that is investment return," he said.
Bilyeu also pointed out that the study uses June 2008 figures. She said the plan's fund fell sharply in the recession, losing billions in value. But the past year has been a different story.
"We've made $7 billion in the last 10 months," she said. "We're up
19 percent."
Lambert said total PERS assets are back to $22.5 billion - about
$200 million less than the fund's peak before the recession hit. And he said the value of those investments is still growing as the markets recover.
"That doesn't make us geniuses," he said. "We're one of the top performing funds in the country because we're conservative."
He said the conservative, long-term approach to investing helps PERS "ride through" economic cycles without suffering sharp ups and downs.
PERS serves 173 public employers in Nevada and has a total of more than 120,000 members. Employers and employees split the monthly contributions which, for regular employees, total 21.5 percent of pay. Contribution rates are higher for police and fire employees.
Bilyeu has already cautioned lawmakers that the rate may have to be increased slightly in the upcoming legislative session.