The state should ensure that excessive resources are not committed to funding teachers' pension systems.
As of June 30, 2015, the most recent date for which a financial report is available, Nevada's pension system for teachers is 73.2 percent funded, an increase of 2.0 percentage points since NCTQ's last report. Its current pension debt exceeds $27,000 per pupil throughout the state. The plan's amortization period is unknown as it is not reported in its annual financial report. This is the number of years to pay off its unfunded liabilities if the plan earns its assumed rate of return and makes its full actuarially determined contribution payments. The state's funding ratio does not meet conventional standards, and the state's system is not financially sustainable according to actuarial benchmarks.
Nevada commits excessive resources toward its teachers' retirement system. Local districts choose between two funding options—the Employer Pay Contribution Plan (ERPaid) and the Employee/Employer Contribution Plan (EES/ERS)—with most districts electing to participate in ERPaid. Each of these plans are cost-equivalent. The current employer contribution to the ERPaid plan through FY 2017 of 29.00 percent appears very high. In place of a direct employee contribution, however, teachers share exactly one-half of the employer contribution rate through salary reduction or by foregoing an equivalent pay raise. Thus, the employer rate is effectively 14.50 percent under the ERPaid plan. Teachers and employing school districts negotiate which of the two cost-sharing mechanisms they will use in their contracts.
Under the EES/ERS Plan, teachers and districts also share equally in the contribution, each contributing 14.00 percent. The rates for both the ERPaid and EES/ERS are excessive, considering that neither districts nor teachers make additional contributions to Social Security.
Nevada Public Employees’ Retirement System. Comprehensive Annual Financial Report of the Public Employees' Retirement System of Nevada, For the Fiscal Year Ended June 30, 2015.
Ensure that the pension system is financially sustainable.
The state would be better off if its system was over 95 percent funded to allow more protection during financial downturns. Nevada, however, should consider ways to improve its funding level without greatly increasing the contributions of school districts and teachers. Committing excessive resources to pension benefits can negatively affect teacher recruitment and retention and crowd out funding for other areas in education. Improving funding levels necessitates, in part, systemic changes in the state's pension system. The goals on pension flexibility and pension neutrality provide suggestions for pension system structures that are both sustainable and fair.
Nevada did not respond to repeated requests to review this analysis.