The last decade has been hard on retirement funds, eroding surpluses and creating funding gaps. Sen. Jeremy Nordquist of the Nebraska Legislature worked with several state education groups as well as the state employment retirement system to create LB553, which he says is necessary to keep the retirement plans funded.
"This plan with the amendment is both a short-term and long-term solution to our pension issues," Nordquist said.
Nordquist pointed out the state is legally obligated to pay these pensions—whether or not there’s money in the budget for it.
"This is something we have to do. If we don’t pass a bill to make changes, we would have had a $108 million liability we’d have to put general fund dollars towards."
The bill will create a new level of reduced benefits for school employees who start work after July of this year. It lowers their monthly benefit amount, and reduces the cost of living adjustment from 2.5 percent to 1 percent. Those changes will not affect current employees—because the state can’t reduce benefits for current employees. However, all employees will continue paying their current contribution rate of 9.8 percent—which increased from 7.3 percent in 2009.
Sen. Nordquist says the plan increases the burden on everyone, "Current teachers, new teachers, schools and the state."
School districts will match 101 percent of the employee contribution. And the state will double its contribution from 1 percent to 2 percent starting in July 2014.
Most of the Legislature’s discussion consisted of clarification of the bill’s details and expressions of support from senators. However, Sen.Tyson Larson, while acknowledging employee contributions were supposed to drop to their earlier amount but will instead remain at their current level, took issue with the state’s contribution.
"Essentially it’s the state doubling its investment, and the teachers aren’t at all," Larson said.
Sen. Heath Mello responded, "The reality is this, if we do not pass LB553, we will have a $108 million hole in our budget, something Senator Larson full well knows. As much as sometimes we don’t want to have to do certain aspects of legislation as the budget, this is one that needs to be done legally, cause we have legal obligation to do so."
Senator Mello also pointed out since 2009, the employees and employers have covered 90 percent of the cost of the pension plan, leaving only ten percent to the state. And Nordquist says the state contribution—which will amount to $20 million annually—is already accounted for in the budget.
Senator Paul Schumacher expressed dismay with the accuracy of economic models used in the calculations, and the return on investment in the post-recession economy.
"This looks like we’ve got a problem. And while we’ve probably got to pass this particular measure because we’ve got a statutory obligation, we’ve got a bill we’ve got to pay… This is just the leading edge of massive problem. And the baby boomers, just grab your behinds because this is going to be a rough ride," Schumacher said.
Nordquist said he understands Schumacher's concerns.
"We make assumptions, but we make the best assumptions we can, and that includes future investment returns. And if those returns don’t materialize, we have to make changes which is what we’re intending to do here. This proposal will put us on a better course going forward."
The bill and amendment got first-round approval with no opposition.