Changes to school retirement plan proposed

Members of the Nebraska Retirement Systems Committee heard testimony March 14 on a measure that would gradually reduce the state’s contribution to the school employees retirement system based on its actuarial funding level.

Currently, the state contribution is an amount equal to 2% of the compensation of all members of the retirement system. Under LB645, as introduced by Sen. Beau Ballard of Lincoln at the request of Gov. Jim Pillen, that contribution rate would be set at an amount equal to 2% of compensation if the funded ratio is less than 92%, beginning July 1, 2025.

Under the measure, the state’s contribution rate would gradually decrease as the funding ratio increases, ending when the plan is 100% funded. The bill would increase the state’s contribution rate automatically in the following fiscal year should the actuarially funded ratio decrease.

Ballard brought an amendment to the hearing that would replace the bill. Under the amendment, beginning Jan. 1, 2026, different contribution levels would be required from plan participants and the state at three different funding levels:
• if the plan is less than 96% actuarially funded, the state and employee contributions would remain at their current levels;
• if the plan is between 96% and 100% actuarially funded, the employee contribution would drop from the current 9.78% to 7.28% of their salary and the state’s contribution would drop from the current 2% of total compensation to 0.7%; and
• if the plan is 100% actuarially funded, the state would cease making contributions.

Ballard said the current contribution levels were set in 2013, when the state’s school retirement plan was facing a $108 million shortfall. After increasing the contribution rates for employees, employers and the state, he said, the plan now is on track to be over 100% funded by next year.

“Fast-forward 12 years and the changes the Legislature made in partnership with the education community have been very successful,” Ballard said.

Under the amendment, he said, teachers would see an increase in their take-home pay due to a lower retirement contribution rate and the state would save taxpayer money by not over-paying into a retirement fund that does not need the contribution.

Kenny Zoeller, director of the Governor’s Policy Research Office, testified in favor of the proposal. Calling 2013 a “dark time” for all retirement plans, he noted that the school employees retirement plan was 77.15% actuarially funded that year, due to losses associated with the Great Recession.

The plan is currently 99.91% actuarially funded, he said, which provides an “exciting opportunity to find wins for teachers and taxpayers” by lowering contribution levels.

Representing the Platte Institute, Nicole Fox also supported LB645, saying the current contribution rates were right for the time they were put in place, but that it is time for a change.

“We feel that LB645 is reasonable at a time when prudent use of taxpayer dollars is necessary,” Fox said.

Testifying in opposition to the proposal was Jeremy Knajdl, speaking on behalf of the Nebraska Association of School Administrators. He cautioned against dropping contribution rates at a time of market instability and uncertainty.

“We have the best retirement system in the nation [and] we wouldn’t want to do anything to jeopardize that,” Knajdl said.

Also testifying against LB645 was Colby Coash. Speaking on behalf of the Nebraska Association of School Boards, he said lowering contribution rates when a retirement plan is in “good shape” is tempting, but that doing so makes course correcting difficult in the future if the economic situation changes.

“Leaving the plan alone makes sense,” Coash said.

Tim Royers, president of the Nebraska State Education Association, testified in a neutral capacity. He said the association needs more information on the long-range actuarial implications of the proposed changes in the amendment, but is willing to work with the committee and the governor’s office going forward.

The committee took no immediate action on LB645.