Bill would change calculations for school retirement system

The Nebraska Retirement Systems Committee heard testimony Feb. 8 on a bill that would increase a salary cap and eliminate current exemptions for calculating benefits on annual compensation during the last five years of employment prior to retirement for individuals in the Nebraska School Employee Retirement System.

LB486, introduced by Ellsworth Sen. LeRoy Louden, would increase the annual salary cap from 7 percent to 9 percent beginning July 1, 2012. Louden said the change means that the portion of a member’s compensation for a plan year which exceeds his or her compensation for the preceding year by more than nine percent of the compensation base during the 60 months prior to a member’s retirement would be excluded from the calculation of his or her defined benefit.

In addition, the bill would eliminate current exemptions to the salary cap for a substantial change in employment position or when excess compensation is the result of a collective bargaining agreement or district-wide permanent benefit change made by an employer.

Louden said exemptions to the salary cap have increased “pretty dramatically” over the last several years, rising from 32 percent in 2008 to 47 percent in 2010. Exemptions create an unfunded liability in the school retirement plan, he said, which must be paid by other employees or by the state.

“I think we need to do something to address this trend,” Louden said.

Jerry Hoffman of the Nebraska State Education Association testified in support of the bill, saying it would help maintain the solvency of the defined benefit system.

Mike Dulaney, executive director of the Nebraska Council of School Administrators, also testified in support. He said the bill would protect the excellent retirement system that school employees currently enjoy.

“I think this represents a modest and reasonable change in the plan,” Dulaney said.

Phyllis Chambers, director of the Nebraska Public Employees Retirement System, testified in a neutral capacity. The current system for calculating the defined benefit has been in place for five years, she said, and salary exemptions have increased steadily.

If exemptions continue at the current rate, Chambers said, the value of future benefits would be reduced by approximately $1 million. Reducing the number of exemptions also would decrease the time it takes to process benefits, she said.

No opposition testimony was given and the committee took no immediate action on the bill.