Nevada Policy has written extensively on the hidden risk associated with Nevada’s public pension system (PERS).
A new tool from the Reason Foundation allows users to get a sense of the magnitude of the risks associated with current funding practices. According to their projections, if Nevada PERS records a 5 percent investment loss this year — a distinct possibility given their current status — the system’s debt will explode from $14 billion to nearly $20 billion.
This would require a significant increase in the costs imposed on taxpayers and public workers, continuing the decade-long trend of requiring both groups to pay more, while getting less in return.
This outcome reflects a system which intentionally pushes costs onto future generations. The most prominent example of this approach, and most dangerous, is the treatment of assumed future investment returns as certain. Consequently, when investments do underperform, like in the current economic recession, the resulting cost increase only appears after the fact — precisely when taxpayers and government employers can least afford it.
A proper funding approach would recognize the impact of investment returns after they had been realized, rather than before. Such an approach is mandated for private U.S. pension plans as well as public and private pension plans in most of Canada and Europe.
To get a sense of the full range of possibilities, and thus the range of risk being imposed on public workers and taxpayers, whether they like it or not, be sure to explore the new interactive tool from the Reason Foundation: Previewing the COVID-19 Impact on State Pension Plans.