Kudos to Steve Edmundson’s low-cost investment approach that has helped the Nevada Public Employees’ Retirement System (PERS) outperform their peers in recent years (“Nevada goes passive to beat peers,” Oct. 19).

But exclusively focusing on investments overlooks PERS ultimate objective: to have enough money to make good on its promises. With a funded ratio of only 71 percent, the system is below average nationwide and far short of the 100 percent target the American Academy of Actuaries recommends.

Because U.S. public pensions discount liabilities by assumed investment returns — for PERS it’s 8 percent — anything less than that creates a funding shortfall. Consequently, PERS has fallen further into debt over the past decade, despite outperforming peers with a 6.2 percent annualized investment return.

But investment markets are inherently risky, which is why the best any fund manager can do is target an average return. In other words, even a portfolio perfectly built to hit PERS 8 percent expected target will underperform 50 percent of the time!

This is why pension systems in the private sector, the federal government and internationally use discount rates that reflect the strength of the promise made to retirees — who expect to get paid 100 percent of the time and not just during periods of strong investment returns.

The PERS Board should follow suit.

Alternatively, the Legislature could create a new PERS tier — similar to the reforms in neighboring Arizona and Utah — that would fund members’ promised benefits with the same level of certainty as their expectation of receiving them.

While this system would still benefit from above-average investment returns, it wouldn’t depend on them — which is far too great a burden to impose on any investment manager, no matter how talented.

Robert Fellner is the director of transparency research at the Nevada Policy Research Institute. A condensed version of this letter to the editor was originally published in the Wall Street Journal.