How PERS Harms Teacher Quality and Retention

Robert Fellner

Note: This is the second in a three-part series examining the Nevada Public Employees’ Retirement System, or PERS.

While both taxpayers and public employees will have to bail out Nevada’s troubled Public Employees’ Retirement System, it’s teachers who may pay the steepest price.

The system, known as PERS, now has a debt of $18.3 billion. Debt costs have grown so large that they now account for half of regular plan members’ total 33.5 percent contribution rate. In other words, only 50 cents of every dollar that employers and current plan members send to PERS is used for the employee’s own benefit.

Forcing current and future workers to pay more to fund the richer benefits received by the previous generation of workers isn’t just unfair, it’s also a terrible way to attract talented new workers.

What does this mean for educators? Consider a Nevada teacher with a $60,000 salary. While the school district will spend an additional $10,000 that is ostensibly labeled as “employee compensation” for this teacher, that money will be spent entirely on PERS’s debt, not the employee’s own future benefit.

Employers without such a broken retirement system could thus offer a significantly more attractive compensation plan — for the same total cost — simply by offering that $10,000 directly to the employee, either in the form of a higher salary or as a contribution to the employee’s own retirement account.

It is for this reason that pension plans like PERS are expected to “negatively affect current teacher quality and retention,” according to a study published by scholars at the federal Bureau of Labor Statistics.

PERS members, particularly teachers, recognize that something is wrong. Back in 2015, when their contribution rate was increased from 25.75 percent to 28 percent of pay, teachers voiced numerous concerns to the PERS Board.

Unfortunately, individual board members dismissed these concerns by either lying about the nature of the rate hike or dismissing the teachers as “idiots, for the most part” who were too “dumb” to understand how the system works.

This was particularly remarkable given that the teachers’ complaints were entirely valid — indeed forcing current members to bail out the richer benefits received by earlier workers violates PERS’s own governing policies, which calls for the costs of benefits to be spread in a fair and equitable manner.

Things got so heated that then-President of the Nevada State Education Association Ruben Murillo told the PERS Board that he was considering petitioning the Nevada Legislature for permission to leave PERS. NSEA never carried through on that threat, however, which is unfortunate for today’s teachers, who find themselves in a much worse position than they were back in 2015.

In most states, pension debt is a cost borne almost entirely by taxpayers, which explains why unions nationwide generally oppose pension reform — as their members are not the ones paying these soaring costs. Nevada, however, is unique in requiring public employees to share in half of the total PERS cost.

This explains why Nevada PERS members have the nation’s highest retirement costs, and this is what makes the plan so bad for public employees, not just taxpayers.

Indeed, it is for this reason that even the left-wing, pro-union Urban Institute gave Nevada PERS failing marks when considering the value provided to new teachers — and that was back when the contribution rates were dramatically lower than they are today.

No version of pension reform would ever affect retirees’ PERS benefits. Unions often suggest otherwise as a part of a reflexive opposition to reform, but that is just a profoundly misguided scare tactic.

Indeed, such a proposal would be unconstitutional, immoral and contrary to Nevada Policy’s mission of protecting individual liberty and private property rights. (Not to mention political suicide.)

In reality, pension reform is forward-looking. It is about designing a retirement plan that will best serve the needs of current and future government workers, while also protecting taxpayers and retirees’ already earned benefits.

The state’s massive, $1 billion budget surplus makes now the perfect time to implement pension reform and, in so doing, finally end the practice of penalizing current and future employees for PERS’s past funding failures.

We will discuss possible solutions to PERS’ problems in Part 3 of this series. Stay tuned!

Robert Fellner

Robert Fellner

Vice President

Robert Fellner joined the Nevada Policy Research Institute in December 2013 and currently serves as the Institute’s Vice President. Robert has written extensively on the issue of transparency in government. He has also developed and directed Nevada Policy’s public-interest litigation strategy, which led to two landmark victories before the Nevada Supreme Court. The first resulted in a decision that expanded the public’s right to access government records, while the second led to expanded taxpayer standing for constitutional challenges in Nevada.

An expert on government compensation and its impact on taxes, Robert has authored multiple studies on public pay and pensions. He has been published in Business Insider, Forbes.com, the Las Vegas Review-Journal, the Los Angeles Times, the Orange County Register, RealClearPolicy.com, the San Diego Union-Tribune, the Wall Street Journal, the Washington Examiner, ZeroHedge.com and elsewhere.

Robert has lived in Las Vegas since 2005 when he moved to Nevada to become a professional poker player. Robert has had a remarkably successfully poker career including two top 10 World Series of Poker finishes and being ranked #1 in the world at 10/20 Pot-Limit Omaha cash games.

Additionally, his economic analysis on the minimum wage won first place in a 2011 George Mason University essay contest. He also independently organized a successful grassroots media and fundraising effort for a 2012 presidential candidate, before joining the campaign in an official capacity.