Changes to school retirement plans proposed

The Nebraska Retirement System Committee heard testimony Feb. 6 on two bills that would make changes to the state’s school retirement plans.

Omaha Sen. Jeremy Nordquist, introducer of both bills, said they are intended to address both short- and long-term funding obligations for the School Employees Retirement System and the Class V (Omaha) School Retirement System.

LB553 would create a new tier of reduced benefits for employees under the School Employees Retirement System who begin work for the first time on or after July 1, 2013.

The bill would reduce the cost of living (COLA) adjustment from 2.5 to 1 percent for members in the new tier and increase from three to five the number of years used to determine final average salary for purposes of calculating a member’s retirement benefit.

The new tier of benefits would not apply to employees who are members of the plan prior to July 1, 2013.

Finally, the bill would change the amortization method for the plan from level dollar to level percent of pay beginning with the July 1, 2013 state contribution payment.

LB554 would make similar changes to the Class V School Employees Retirement System. The bill would create a new tier of reduced benefit for new employees hired on or after Sept. 1, 2013, and make the following changes regarding the new tier:

• reduce the COLA from 1.5 to 1 percent; and
• increase from three to five the number of years used to determine final average salary for purposes of calculating a member’s retirement benefit.

Both bills would increase from 1 to 2 percent the state contribution rate for the plans and would provide an unspecified employee contribution rate with no sunset date to begin Sep. 1, 2013.

LB554 also would remove sunset dates scheduled for 2017 on the school budget and lid exclusions for employer contribution expenditures to both the School Employees and Class V plans.

Nordquist said the governor’s budget proposal does not include provisions to address the state’s obligations under the school employee plans, and that Nebraska cannot afford to “irresponsibly” ignore those obligations.

He said lawmakers must either fund the plans from the state’s general fund or make the adjustments outlined in the bills.

“These [benefits] are promises the state has made,” Nordquist said. “Many of those promises were made before I was even born, but those are promises that we must live up to.”

Jason Hayes of the Nebraska State Education Association testified in support of LB553, calling it a “balanced approach” to ensuring the solvency of the School Employees Retirement System. If the current plan is left unchanged, he said, the state could face a future deficit of $138 million.

Mike Dulaney, executive director of the Nebraska Council of School Administrators, also supported the bill. He said the new, reduced benefit tier remains an excellent retirement plan and likely would not deter young teachers from seeking employment in Nebraska.

“It’s still a wonderful retirement plan to have and it’s one that we should not take for granted,” he said.

Michael Smith, executive director of the Class V School Retirement System, testified in support of LB554, but suggested raising the plan’s retirement age rather than altering the benefits.

“Sixty-five [years of age] is a more rational time to start benefits,” he said.

Director of the Nebraska Public Employees Retirement System (NPERS) Phyllis Chambers testified in a neutral capacity on LB553. She suggested changing from 2 to 1.9 percent the factor multiplier used to calculate a member’s retirement benefit, rather than increasing the number of years used to determine final average salary.

Chambers said contracts vary by school district and mistakes often are found in the salary information that is submitted to NPERS, which can result in delayed payment of retirement benefits. She said it would be easier administratively to change the factor multiplier and would result in a comparable final average salary calculation.

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