How PERS discourages talented teachers from staying in the profession

By Robert Fellner
  • Friday, October 13, 2017

There are undoubtedly a variety of reasons behind Clark County School District Superintendent Pat Skorkowsky’s recent decision to retire. But one factor warrants further scrutiny: He would effectively lose money by continuing to work past the age of 53.

Like all public school employees, Mr. Skorkowsky is a member of the Nevada Public Employees Retirement System (PERS). When first created in 1947, the system operated in a manner similar to Social Security.

Over the years, however, the Legislature has repeatedly increased the benefits provided while lowering the minimum retirement age necessary to begin collecting them.

Today, employees can draw the maximum benefit after 30 years of service, regardless of age. And while state law ostensibly caps pensions at 75 percent of “final average salary,” the way such averages are calculated actually increases that ratio to nearly 90 percent of final salary.

So when Mr. Skorkowsky hits that 30-year mark next year, he would actually lose money by continuing to work.

By working to age 60, for example, Mr. Skorkowsky would forfeit approximately $1.5 million in PERS payments he would have otherwise received for not working.

While the amounts are much smaller, the same formula applies to teachers — which begs the question: Shouldn’t we be encouraging skilled teachers to remain in the classroom rather than forcing them out?

And because PERS relies on partial-career teachers to subsidize their full-career counterparts, young teachers fare even worse.

In fact, multiple studies from scholars at the Bureau of Labor Statistics and numerous universities have found that nearly all new teachers will be “net losers” under PERS — meaning they will receive a future benefit worth less than its total cost.

Obviously, no one ever intended for the system to work in such a counterproductive manner. Unfortunately, the Legislature’s repeated kowtowing to short-sighted lobbyists has created a system that fails nearly everyone but the tiny fraction of employees who retire around the 30-year mark.

An ideal retirement plan — for teachers, employers and students — would appeal to talented prospective teachers while also rewarding those dedicated to the profession for their enduring commitment.

There are several reform options that would accomplish this.

A 401(k)-style retirement plan allows the Nevada System of Higher Education to attract and retain faculty regardless of how long or short their career ambitions are.

Under this approach, the university system deposits funds directly into an employee’s individually owned retirement account. This means an employee’s retirement wealth grows gradually with each incremental year worked, and he is not penalized or rewarded based on arbitrary career thresholds.

So while working until age 60 would require Mr. Skorkowsky to forgo nearly $1.5 million in pension benefits under PERS, the university system model would have resulted in a roughly $250,000 boost to his retirement account.

And by rewarding teachers evenly, regardless of how long they work, the university system model would make the profession much more appealing to prospective talent.

A cash-balance pension plan is another reform option. This approach maintains the same guaranteed lifetime pension structure as PERS but is designed in such a way so that the value of the benefit accrues evenly over a teacher’s career — instead of being concentrated around the 30-year mark.

The savings from this approach would “both increase teacher take-home salaries and offer a more secure retirement” for the majority of teachers, according to a recent study by economist Josh McGee of the Manhattan Institute.

While that might sound too good to be true, it’s actually just a reflection of how bad the current system has become and how much we stand to gain from reform.

If lawmakers are serious about boosting Nevada’s dead-last education ranking, they must first fix the state’s broken retirement system — which simultaneously penalizes exceptional teachers for continuing to teach while discouraging prospective talent from ever joining the profession in the first place.

There are a variety of reform options available, should the Legislature ever choose to act.

Robert Fellner is director of transparency research at the Nevada Policy Research Institute. This commentary was originally published in the Las Vegas Review-Journal. For more on PERS, click here.


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