Something else you don’t see in the private sector: cost-free retirement plans

Local government workers in Nevada have some of the nation’s richest retirement benefits — and they get it all without contributing a single dollar to their own pension plan.

One of the more confusing elements of the Public Employees’ Retirement System of Nevada (PERS) is the mandate that all employees pay half of the retirement cost. It seems simple enough: Employees are supposed to share the cost of Nevada’s gold-plated pension plans equally with taxpayers.

But that’s not how it works out in practice. Local governments are actually paying the entire share for fire and police employees “in lieu of pay increases.”

Local governments allege that paying the employee’s half of the 40.5 percent contribution rate for safety officers is offset by an equivalent reduction in salary — suggesting that police officers are receiving salaries 20.25 percent lower than they otherwise would be.

National pay data from the Bureau of Labor Statistics, however, tells a different story.

According to the BLS May 2015 Occupational Employment and Wage Estimates report, the average Nevada citizen’s annual wage was $42,800 — 11 percent below the national average and 35th highest among the 50 states. Adjusting for cost-of-living differences between the states, using the Bureau of Economic Analysis 2013 Regional Price Parity by State data, that ranking drops down to 46th.

Nevada police officers, however, earn annual wages 16 percent greater than the national average, ranking 5th amongst all police officers nationwide, and 4th after adjusting for cost-of-living. If these wages were 20.25 percent higher, as the statements of equivalent salary reductions made by local governments suggest, Nevada’s police officers would be the highest-paid in the nation.

The same is true for Nevada’s firefighters and corrections officers, as shown in the chart below.

Nevada’s average 2015 wage by occupation, adjusted for cost of living

Occupational Group	Rank among the 50 states
Police and Sheriff’s Patrol Officers	4
Firefighters	4
Correctional Officers	4
All Occupations	46

Combined, this information casts serious doubts on the claim that local governments are paying the employee’s share “in lieu of pay increases.”

But that’s not the worst of it.

In addition to high salaries and cost-free retirement, local fire and safety employees also get an unseen boost to their pension payout, thanks to the way retirements are calculated by PERS.

Because local governments claim they are paying the employee share in lieu of pay increases, this amount is actually added back into the employee’s salary when their pension is calculated.

For example, a Metro officer with a final $79,750 salary would have their pension calculated on a salary of $100,000 — as that was what their salary would have been had they not been exposed to the alleged salary reduction offsetting their half of the 40.5 percent contribution rate paid by their employer.

Consequently, the employee’s future pension is roughly 25 percent higher than if it was based on the actual wages received.

It is not merely police and fire officers who benefit from this arrangement, nearly all of Nevada’s local government workers are under the Employer-Pay plan, while most state government workers pay their half directly.

Nationally, local government workers earned 15 percent less than state government workers. Given that Nevada’s local government workers are allegedly receiving lower wages to offset the employer paying the entire retirement cost, one would think this disparity would be especially true in the Silver State.

But, as it happens, local government workers are actually paid substantially more than their state-level colleagues in Nevada.

Nevada’s local government workers earned 20 and 8 percent more than Nevada’s private and state government workers, respectively — the 2nd largest premium received by local government workers of any state nationwide.

Clearly, if the Nevada Legislature believes all government employees should pay half of their retirement costs, lawmakers must require them to do so directly. Such a change would not only increase transparency, but it would lessen the burden taxpayers currently shoulder for funding the nation’s most expensive public pension system.

 

The above draws on original research found in NPRI’s just-released paper: Footprints: How NVPERS, step by step, made Nevada government employees some of the nation’s richest, where more information, including a complete table of the data points cited in all 50 states, can be found.