PERS funding shortfall, despite strong investment returns, highlights need for reform

Robert Fellner

Kudos to Steve Edmundson’s low-cost investment approach that has helped the Nevada Public Employees’ Retirement System (PERS) outperform their peers in recent years (“Nevada goes passive to beat peers,” Oct. 19).

But exclusively focusing on investments overlooks PERS ultimate objective: to have enough money to make good on its promises. With a funded ratio of only 71 percent, the system is below average nationwide and far short of the 100 percent target the American Academy of Actuaries recommends.

Because U.S. public pensions discount liabilities by assumed investment returns — for PERS it’s 8 percent — anything less than that creates a funding shortfall. Consequently, PERS has fallen further into debt over the past decade, despite outperforming peers with a 6.2 percent annualized investment return.

But investment markets are inherently risky, which is why the best any fund manager can do is target an average return. In other words, even a portfolio perfectly built to hit PERS 8 percent expected target will underperform 50 percent of the time!

This is why pension systems in the private sector, the federal government and internationally use discount rates that reflect the strength of the promise made to retirees — who expect to get paid 100 percent of the time and not just during periods of strong investment returns.

The PERS Board should follow suit.

Alternatively, the Legislature could create a new PERS tier — similar to the reforms in neighboring Arizona and Utah — that would fund members’ promised benefits with the same level of certainty as their expectation of receiving them.

While this system would still benefit from above-average investment returns, it wouldn’t depend on them — which is far too great a burden to impose on any investment manager, no matter how talented.

Robert Fellner is the director of transparency research at the Nevada Policy Research Institute. A condensed version of this letter to the editor was originally published in the Wall Street Journal.

Robert Fellner

Robert Fellner

Policy Director

Robert Fellner joined the Nevada Policy in December 2013 and currently serves as Policy Director. 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,, the Las Vegas Review-Journal, the Los Angeles Times, the Orange County Register,, the San Diego Union-Tribune, the Wall Street Journal, the Washington Examiner, 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.