Changes to school retirement plans discussed

The Nebraska Retirement Systems Committee heard testimony Feb. 12 on two bills that would make changes to the state’s school retirement plans.

LB1041, introduced by Omaha Sen. Jeremy Nordquist, would change the length of service required for new employees of the School Employees Retirement Plan and the Class V (Omaha) School Employees Retirement Plan to be eligible to purchase additional service credit.

Beginning July 1, 2014, new employees of the two plans would not be eligible to purchase service credit – also known as “air time” – until they have acquired 10 years of creditable service. Employees hired before the deadline still would be eligible to purchase air time after acquiring five years of creditable service.

Nordquist said the change was necessary because the school retirement plans receive significant general fund dollars from the state.

“We really think that this is a fundamental fairness issue,” he said, adding that employees should be required to invest a meaningful amount of time in the system before they are able to purchase air time.

The bill also would make several technical changes to the Class V plan, including:
• inserting references to the Internal Revenue Code regarding the duties and responsibilities of the trustees who administer the plan;
• clarifying that school board or board of trustees members will not be personally liable for their actions related to retirement system duties except in cases of willful dishonesty, gross negligence or intentional violations of the law; and
• requiring annual presentation of a Class V school board’s most recent actuarial valuation report to the committee at a public hearing, beginning March 1, 2015.

David Kramer, outside counsel to Omaha Public Schools, testified in favor of the bill. He said the liability standard in the bill for the school board and board of trustees is the same as that which currently applies to the Public Employees Retirement Board and the Nebraska Investment Council.

“Those two entities serve the same functions for the Nebraska Public Employees Retirement System that the Omaha board does for the Omaha Public Schools retirement system,” Kramer said.

No one testified in opposition to the bill.

LB1042, also introduced by Nordquist, would change the cost for repurchase of relinquished creditable service in the School Employees Retirement Plan. He said the Nebraska Public Employees Retirement System has calculated that the cost currently assessed is not adequately covering the cost of restoring the service credit.

Service credits are relinquished when a member terminates employment and withdraws all accumulated contributions, Nordquist said. If the person again becomes a school employee, he or she has the option to buyback the relinquished service credits.

LB1042 would change the cost of repurchase to the actuarial cost to the school retirement system for restoration of the relinquished creditable service.

Nordquist said the committee would need to determine a date for the change to take effect, adding that approximately 2,400 employees had rejoined the school retirement system and would be eligible to buy back their service credits.

“So, where do we draw the line for those people?” he said. “That’s what we’re going to have to deliberate on.”

Jason Hayes of the Nebraska State Education Association testified in support of the bill, saying the few members of the retirement plan who leave the system and then return and purchase their service credits should not be subsidized by the rest of the members.

“LB1042 represents another common sense pension reform … that will help ensure the continued financial soundness of the school employees retirement plan,” Hayes said.

No one testified in opposition to LB1042 and the committee took no immediate action on either bill.