Pension reform

How ironic that taxpayers' new best friend in the politically impossible task of reforming public employee pensions is none other than the tax man himself.

Nevada's Public Employees Retirement System provides participants with generous, guaranteed income while offering many workers the opportunity to retire with full benefits by age 50. Because today's Americans are living much longer than previous generations, such practices make it possible for government employees to receive retirement benefits for more years than they actually worked.

Workers in the private sector, who pay the taxes that fund this largess, are compelled to pay into an insolvent Social Security program that won't pay full benefits until age 67. And early withdrawals from tax-deferred savings such as 401(k) and individual retirement accounts are assessed stiff penalties by the IRS. For the tens of millions of Americans whose retirements will be funded by these instruments, early retirement is a fantasy. And while these same workers struggle to save for themselves, they face the increasing likelihood that they'll be on the hook for PERS' $6.3 billion unfunded liability.

To make matters worse, Americans who take on work to supplement their retirement incomes risk forfeiting a percentage of their Social Security benefits. Meanwhile, many retired government workers launch second careers -- often within government, again -- while collecting full pension payments.

Lo and behold, the IRS recognizes the fundamental unfairness of such disparities in retirement benefits. Why should government employees, whose taxpayer-funded pension contributions are granted tax-deferred status, be able to collect those benefits for up to 20 years before Social Security eligibility without penalty when private-sector savers are hammered for identical early withdrawals?

A rule set to take effect June 30, 2010, would bar most retired public employees from collecting benefits before turning 55, with a preferred retirement age of 62. The rule change would affect everyone from custodians to firefighters, from secretaries to schoolteachers, in every single state.

According to a briefing paper prepared by city of Henderson officials, the regulation is grounded in the IRS conclusion that a retirement age younger than 55 isn't reasonable.

The rule change has the potential to erase hundreds of millions of dollars, if not a couple of billion, from the PERS unfunded liability.

It goes without saying that this rule change won't go forward without a fight. The unions that represent politically powerful teachers, police and firefighters have spent decades securing the servitude of state and federal lawmakers.

Of course, the need for public pension reform shouldn't have to be addressed at the federal level. The IRS is merely acting out of its hunger for more revenue, not the principled position that taxpayers shouldn't be coerced into funding benefits they can't hope to receive -- and can't afford. The out-of-control costs of public employee compensation are hindering governments' efforts to provide even the most basic services.

The prospect of new federal rules governing public pensions shouldn't dissuade the 2009 Legislature from tackling PERS reform itself. Something as simple as requiring government employees to work longer -- an idea that was killed in the 2007 session -- is a Band-Aid on a shotgun wound.

Nothing short of wholesale reform, of putting all future government hires into a defined-contribution, 401(k)-style retirement plan and getting taxpayers out of the pension business, will do.