Is Nevada’s Higher Education Retirement Plan A Pension Reform Model?

(Reprinted, with permission, from the Nevada News Bureau)
By Sean Whaley | 9:33 am March 8th, 2011

CARSON CITY – Gov. Brian Sandoval is seeking significant changes to Nevada’s public employee pension plan in the 2011 legislative session to reduce the ongoing and long-term financial cost of the benefit to the state and taxpayers.
But if he wants fundamental change, he might look to the state university system’s retirement plan for faculty.
In all the talk of changes to the Nevada Public Employees’ Retirement Plan, which covers more than 102,000 current active state and local government workers, a separate plan for one small segment of Nevada workers – university and college faculty and professional administrators – has received scant attention.
This group of employees has its own defined contribution plan, the cost of which is shared equally by the Nevada System of Higher Education and the faculty and administrators. The current contribution rate is 11.25 percent from the employee and the same amount from the employer. It was created in 1970 following action by the Legislature in 1969.
About 4,600 Nevada higher education professionals participate in the defined contribution plan, while another 639, or 12.2 percent of the total, are in the PERS plan.
The 401(k)-style retirement plan is portable, meaning faculty can take their investments with them if the relocate. It is the type of plan used by most higher education systems across the country to provide a retirement benefit to faculty because they often relocate to other states as part of their academic careers.
Most importantly, because it is a defined contribution plan, where the employees are responsible for their investment choices, there is no liability to the Nevada higher education system, the state, or taxpayers. The contribution rates for the plan mirror those set for PERS participants.
“There is no accrued liability to the state or the institution under a defined contribution plan,” said Gerry Bomotti, senior vice president for Finance and Business at the University of Nevada, Las Vegas. “Basically the employee and the employer contribute. The employee basically has those resources for their retirement purposes. They have options with investments and the like.”
Bomotti said faculty preferences do tend to shift between the current 401(k)-type plan and the defined benefit option offered by PERS depending on how the markets are performing.
Individuals who manage their own retirement accounts can suffer more in major market downturns than the defined benefit plans managed by professionals.