Sacrifice with results

January 30, 2012

Here are some notes of the Nevada Legislature's “Interim Retirement and Benefits Committee”.

PERS

NV PERS is in lieu of Social Security and was designed in 1947, and it is one of the best retirement plans in the nation. In Nevada, no Social Security benefits accrue during public service and it is one of 13 states with this kind of retirement plan. PERS is well-funded, properly managed and makes money at a rate higher than most expect. The 27 year return on investments is an incredible 9.5 percent. This is despite several recessions including the Great Recession and wild market fluctuations during that time.

Public employees are penalized by many laws, specifically the Windfall Elimination Program (WEP) started in 2006 and the “pension offset rule” which started in 1983 for those vested after time. For example, if a state employee has 40 quarters  they would likely receive no social security benefit though they earned those quarters and if they do get some benefits, the WEP can reduce them by as much as a two-thirds.

The IRS’ “normal retirement age” standards are being reworked by the IRS and they might provide a proposal this year. The changes must be proposed by the IRS and considered by Congress. So, this will be a lengthy process. Existing employees do not have to be concerned about the impact of the IRS rules because they cannot amend existing retirements plans.

About 9,000 PERS members are now classified as “lower tier benefits” employees which is a result of actions by the legislature 2009. The reforms now require a higher retirement age, increased early retirement penalties and an increased in contribution rates over all.

Retirement contribution rates will increase in the next two years based on their “5-year smoothing curve” but may drop after that. However,  I would not count on it.

The average age for retirement has increased from 61 to 64 years old. This is in just one year!

About 57 percent of public employee retirees make less than $30,000 a year and there are about 100,000 retired public employees.

The number of retired public employees re-employed under the critical shortage provisions is very low (less than 175) and most are county teachers in Clark County. Reforms were made in 2009 via AB 488.

PEBP

There are currently over $43 million in excess reserves because of plan changes since 2009. This came about because of lower claim costs, increased premiums, poorer coverage and high deductibles. This was unexpected and the excess will be spent down to cover expected increases in health costs and will not be used to reduce deductibles or premiums.

The PEBP board will set rates in March 2012 but they are expected to be flat for 2013.

The net assets for PEBP are 5 million from a high of 29 million a couple of years ago. Most of the difference ($27 million) was taken by the legislature to balance the state budget. The result was to shift state deficit problems and make public employees pay. (State Employee Tax)

The costs for claims has decreased by almost 4 percent. This is probably because of fewer retired participants. Thousands were transferred to Nevada’s new Medicare health exchange program and there were fewer catastrophic events which have high costs. Or… many public employees are not getting health care they need because it is too expensive.

The drop out rate by employees doubled and no one really knows why. They could be on another plan (spouse’s plan) or it is because the plan costs too much so they are going without insurance. The drop out rate seems to be the highest in lower paid public employees.

Generally, and despite the increased deductibles, participants are taking their medicine as before. The generic drug usage by public employees is very high though specialty drugs use is up.

Since July 1, 2010 the unfunded liability of the health plan dropped from $1.2 billion  to $947 million which is a significant decrease.

The PEBP will finally get around to Federal compliance tests/audits such as those proving non-discrimination within the plan and for COBRA compliance. They claim they could not comply because of budget cuts.

A health benefit was earned by current retirees while they were active employees but their subsidy was decreased so the employees must pay more. Public employees, both active and retired have done a lot to keep costs down and to reduce the plan’s liabilities. This is commendable.  Nevada has done more than any other state to reduce its health plan liabilities and to make it sound. State employees have been critical in that success.