School retirement plan changes advanced
Lawmakers gave first-round approval April 17 to a measure that would gradually reduce contribution rates 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 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.
“We are effectively overfunding our plan by 6.61%,” Ballard said.
A Retirement Systems Committee amendment, adopted 38-0, would replace the bill. Under the amendment, beginning July 1, 2025, different contribution levels would be required from plan participants, employers and the state, contingent on the funded ratio on the actuarial value of assets in the previous year.
Under the amendment, state contribution rates would be set at three different funding levels. If the plan is:
• less than 96% actuarially funded, the state’s contribution rate would drop to an amount equal to 2% of the compensation of all members of the retirement system;
• between 96% and 100% actuarially funded, the state’s contribution would be 0.7% of total compensation; and
• 100% or greater actuarially funded, the state would cease making contributions.
The employee contribution rate also would be set at different funding levels. If the plan is:
• less than 96% actuarially funded, the rate would be 9.75% of employee compensation;
• between 96% and 98% funded, the contribution rate would drop to 8.75%;
• between 98% and 100% funded, the contribution rate would be 8%; and
• 100% or greater actuarially funded, the rate would be set at 7.25%.
Employer contributions would continue to be coupled with employee contributions, which currently is 101% of employee contributions. The amendment is projected to increase state revenue by $32.6 million in fiscal year 2025-26 and $51.4 million in FY2026-27.
Ballard said the amendment reflects a compromise reached with teachers, school districts and the state. On average, the provisions would result in an additional $1,000 in annual take-home pay for Nebraska teachers, he said, along with savings for school districts that could result in property tax relief.
“These agreed upon reductions have built-in protections for the long-term sustainability of the fund,” Ballard said.
Elmwood Sen. Robert Clements, chairperson of the Appropriations Committee, echoed that sentiment in his support of the measure.
A required actuarial study conducted on the proposed changes indicates that the teachers’ retirement fund will remain at 100% funded at least 56% of the time over the next 10 to 20 years, he said, even when taking into account a projected drop in the rate of return on investments.
“Saying this is a threat to the stability of the retirement plan is not true,” Clements said. “The plan is in good shape.”
Sen. Dan Lonowski of Hastings, a retired teacher and wrestling coach, also spoke in favor of the proposal, saying he was convinced that it would not endanger the teachers’ retirement plan.
Young people don’t enter the teaching profession for the money, he said, but the benefits can help keep people in the profession when they reach the mid-point of their careers.
Lonwoski said his teaching career required 10- to 12-hour days and weekends in gymnasiums for wrestling meets. By year 15, he said, he questioned whether he could keep it up for the long run.
“To have a decent retirement always ahead of me — knowing what was coming — helped,” Lonowski said.
Also speaking in support, Elkhorn Sen. Tony Sorrentino said continuing to fund a 100% funded retirement system is like continuing to pour water into a pitcher after it’s already full.
Lincoln Sen. Danielle Conrad filed and later withdrew a motion to indefinitely postpone LB645. She said the proposal was “hastily done” without proper input from all stakeholders, which she said was in contrast to past changes to retirement systems that were undertaken over time and with extensive negotiation and study.
“Anyone looking at the market — and reading the headlines and watching their 401K and watching their investments — knows that right at this moment there is a period of incredible economic volatility and uncertainty,” Conrad said. “If you wouldn’t make major changes to your retirement planning right this second, then you shouldn’t foist that on thousands and thousands of Nebraska teachers.”
Omaha Sen. John Cavanaugh said he was not necessarily opposed to the substance of the proposal, but raised concern that lawmakers were making decisions in a rush in order to fill a hole in the state budget. As a matter of principle, he said, senators should not look to retirement funds when facing a shortfall.
“I know that there are accounting reasons we want to get this [bill] passed so we can claim whatever it is that the [state contribution] will be … so that when the budget comes out, it will look like it’s balanced on paper,” Cavanaugh said.
After withdrawing her motion to indefinitely postpone the bill, Conrad offered a motion to bracket the measure until April 24. She encouraged lawmakers to wait until after a public hearing on an additional amendment that potentially would lower the minimum retirement age for educators to 55, which is scheduled for April 23, before taking action on LB645.
The bracket motion failed on a vote of 7-29 and lawmakers advanced the bill to select file 38-0.
