State patrol retirement changes advanced

Lawmakers gave first-round approval March 9 to a proposal that would change the retirement plans of new Nebraska State Patrol members.

Seward Sen. Mark Kolterman, sponsor of LB467, said the bill was introduced last year as a placeholder while the committee worked to reach a compromise on changes to the state patrol plan.

“LB467 was introduced to create a second tier of reduced benefits for [new] members of the Nebraska State Patrol,” Kolterman said, adding that similar changes have been made in recent years to the state’s other retirement plans.

Work was done over the interim, he said, which resulted in additional proposed changes. The result was a Retirement Systems Committee amendment, adopted 32-0, which replaced the bill.

Among other provisions, the amendment would make the following benefit changes for state patrol officers who are hired on or after July 1, 2016:
• increase the officer contribution rate from 16 to 17 percent;
• reduce the maximum cost of living adjustment (COLA) from 2.5 to 1 percent;
• prohibit participation in the Deferred Retirement Option Plan;
• increase from three to five the number of years of employment used to calculate a member’s final compensation rate;
• limit the increase in compensation in each of the five years prior to retirement to 8 percent per year for benefit calculations; and
• exclude any unused sick, vacation, holiday and compensatory leave in the calculation of a member’s final average monthly compensation.

If the plan is 100 percent funded, a maximum supplemental COLA of 1.5 percent could be granted at the discretion of the Public Employees Retirement Board (PERB).

“We know that it’s not exactly what the patrol wants—they’d always like to have more—but this brings the state patrol plan into the same position that we passed in 2013 for the teachers and last year for the judges,” Kolterman said.

Sen. Heath Mello of Omaha supported the bill and the amendment, saying the changes are essential to the sustainability of the state patrol retirement plan.

Mello said the 8 percent cap on increased compensation was particularly important in containing costs. The impact of so-called “spiking” by patrol members prior to retirement is an estimated unfunded liability for Nebraska taxpayers of $12 million over time, he said.

Sen. Brett Lindstrom of Omaha also supported the changes, saying additional issues likely will require examination in the future—including the estimated annual rate of return on the plan’s investments.

“It comes down to one thing: long-term solvency,” Lindstrom said. “I would suspect that when the actuary looks at the data and puts in its recommendation, that will change from 8 percent to 7.75 or 7.5 percent.”

Kolterman agreed. While the state patrol plan currently is 87 percent funded, he said, it will be sustained only through annual multi-million dollar, actuarially required contributions by the state.

“This summer, the actuarial experience study is going to be completed,” he said. “We as a committee and the PERB expect to see a reduced assumed rate, which will require even greater contributions by the state.”

LB467 advanced to select file 32-0.