Pension Flexibility: Nevada

Analysis of Nevada's policies

Nevada only offer a defined benefit pension plans to its teachers as their mandatory pension plan. This plan is not fully portable, does not vest until year five and does not provide any employer contribution for teachers who choose to withdraw their account balances when leaving the system. It also limits flexibility by restricting the ability to purchase years of service. 

Nevada offers two funding methods for its defined benefit plan: the Employer Pay Contribution Plan (ERPaid) and the Employee/Employer Contribution Plan (EES/ERS). Local districts choose between the two options, with most districts electing to participate in ERPaid. In the ERPaid plan, the employer pays the entire contribution to the retirement system, with teachers contributing through a salary reduction or in lieu of a pay increase. In the EES/ERS plan, teachers contribute half of the mandatory pension rate through a payroll deduction, and the employer pays the other half.

Vesting in a defined benefit plan guarantees a teacher's eligibility to receive lifetime monthly benefit payments at retirement age. Nonvested teachers do not have a right to later retirement benefits; they may only withdraw the portion of their funds allowed by the plan. Nevada's vesting at five years of service limits the options of teachers who leave the system prior to this point.

Teachers in the ERPaid plan do not make direct contributions to the system, so they are not accumulating a personal account. Those teachers, therefore, may not withdraw any funds when they leave the system. Vested teachers will receive their benefit payments later, but nonvested teachers who leave are not entitled to any funds and will have accumulated no mandated retirement savings at all because they do not participate in Social Security. In addition, salary increases may have been diminished during their tenure to pay for the pension system.

Teachers in the EES/ERS plan who choose to withdraw their contributions upon leaving receive only their own contributions. This means that those who withdraw their funds accrue fewer benefits than they would have earned contributing to basic savings accounts. Therefore, teachers leaving the pension system would have saved only 12.25 percent of their salary (see Goal 4-H), which is below the level conventionally recommended by retirement advisers for individuals not also contributing to Social Security. While Nevada's mandatory contribution rate allows for flexibility in teachers' retirement savings, it also means that the state needs to educate teachers on what happens if they leave the system and encourage savings in other portable supplemental plans. Further, teachers who remain in the field of education but enter another pension plan (such as in another state) will find it difficult to purchase the time equivalent to their prior employment in the new system because they are not entitled to any employer contribution.

Nevada limits teachers' flexibility to purchase years of service. The ability to purchase time is important because defined benefit plans' retirement eligibility and benefit payments are often tied to the number of years a teacher has worked. Nevada's plan allows teachers with five years of service credit to purchase time for previous teaching experience, up to five years. While better than not allowing any purchase at all, this provision is less than most states' and disadvantages teachers who move to Nevada with more teaching experience. In addition, the state's plan does not allow for the purchase of approved leave of absence, which is a severe disadvantage for teachers who may need to take leaves for maternity and paternity care, or other personal reasons. 

Citation

Public Employees' Retirement System, Summary Plan Description for Regular Members Enrolled on or after January 1, 2010 http://www.nvpers.org/public/beneProgs/regPlan-EnrolAfter-1-1-2010.pdf

Recommendations for Nevada

Offer teachers a pension plan that is fully portable, flexible and fair.
Nevada should offer teachers for their mandatory pension plan the option of either a defined contribution plan or a fully portable defined benefit plan, such as a cash balance plan. A well-structured defined benefit plan could be a suitable option among multiple plans. However, as the sole option, defined benefit plans severely disadvantage mobile teachers and those who enter the profession later in life. Because teachers in Nevada do not participate in Social Security, they have no fully portable retirement benefits that would move with them in the event they leave the system.

Increase the portability of its defined benefit plan.
If Nevada maintains its defined benefit plan, it should allow all teachers that leave the system to withdraw their employee contribution with full interest plus matching employer contributions. Teachers in the ERPaid plan should be credited with their portion of the contribution they make through salary reductions or other means. The state should also allow teachers to purchase their full amount of previous teaching experience and approved leaves of absence and decrease the vesting requirement to year three. A lack of portability is a disincentive to an increasingly mobile teaching force.

Offer a fully portable supplemental retirement savings plan.
If Nevada maintains its defined benefit plan, the state should at least offer teachers the option of a fully portable supplemental defined contribution savings plan, with employers matching a percentage of teachers' contributions.

State response to our analysis

Nevada was helpful in providing NCTQ with facts that enhanced this analysis.

The state maintained that it actively supports additional retirement savings through supplemental programs sponsored by employers.

Nevada further asserted that the state created the cost sharing multiple employer defined benefit pension plan as an economical way to provide retirement benefits to public employees. When compared to other states' costs for retirement income security when combined with Social Security, Nevada trends to the lower cost end of the spectrum. Given the very small population of the state, all public employers were mandated to participate in a single plan (a fully consolidated system), and there is full in-state portability of benefits from school district to school district as well as to other governmental units. The purchase of service provisions were designed to be equal amongst all employees since all share equally in the cost of the benefit structure.

Last word

While commendable that individual employers may provide supplemental savings plans, it does not guarantee access to all teachers, as some employers may not participate. Being able to continue membership within the state of Nevada is valuable, but despite the access to multiple employers, it still does not aid educators who move out of the state.