In January when legislative committee assignments were made, I requested a seat on the Nebraska Retirement Systems Committee. This year I have learned a great deal about state retirement plans and the legislature's responsibility for them.
The Nebraska Retirement Systems Committee has six members. The committee manages bills that affect retirement systems established by the state of Nebraska and its political subdivisions. The committee has jurisdiction over three administrative entities established to oversee retirement plans for the state and the laws that govern them.
The legislature created the Nebraska Investment Council in 1969 to provide centralized investment of state funds. The Council has five voting members, who are appointed by the governor and confirmed by the legislature. The governor also appoints eight members to the Public Employees Retirement Board. The Nebraska Public Employees Retirement Systems, under the direction of the Public Employees Retirement Board, administers plans for the state, counties, schools, state patrol employees, and judges.
County employees are eligible to participate in the applicable retirement plan, if their county does not offer a voluntary plan.
State retirement plans currently have over 116,000 members and assets of more than $9 billion. Like many other investment-based retirement plans, the state of Nebraska's accounts sustained significant losses in 2008-09 due to the tremendous downturn in the stock market.
Nebraska experienced a $2.1 billion loss – a decline of almost 28 percent - in market assets of the state's defined benefit plans.
The state General Fund is responsible for financing any shortfall in these plans.
The governor presents the administration's budget proposal to the legislature early in the session. This year Gov. Heineman delivered his budget but, for the first time, his proposal did not address a shortfall in the school employee pension fund.
In response to this unusual move, the Legislature's Retirement Committee introduced LB 553 to enable the shortfall to be corrected during the session.
The amount of retirement contributions is mandated in state law. The only way to change the amounts to be paid by the state or by the employees covered by the state plans is to change the law. Without LB 553, the state of Nebraska would have been obligated to pay the current required contribution of more than $48 million on July 1 and over $88 million during the next two-year budget cycle.
LB 553 would modify retirement benefits for school employees who begin work after July 1 and continue the current amount all school employees contribute by eliminated a rate reduction that was scheduled for 2017. Under the bill, the school employees' maximum cost-of-living adjustment would move from 2.5 to 1 percent, and the number of work hours per week to participate in the plan would increase from 15 to 20. Because they recognize the bind the state is in as it continues to recover from the 2008-09 losses, teachers, judges and the state patrol agreed to these changes.
LB 553 is good public policy and would actually reduce the state's future obligations for the school employee retirement fund.
Earlier this month LB 553 was passed and sent to the governor for his signature. The governor returned the bill with his objections. In other words he vetoed the bill.
Objections to LB 553 appear to be based on a desire to change the school employees retirement fund from a defined benefit plan to a defined contribution plan.
Such an expectation is certainly understandable. A defined contribution plan would cost the state far less money over time. Many employers in this country have eliminated defined benefit plans in the past few years.
The governor's veto message said he believes the school employees retirement fund should be studied and modified. The legislature agrees and will conduct an interim study on the subject this year.
In the meantime the Nebraska Supreme Court has determined that pension benefits are contractual rights protected under the federal and state constitutions. Pension funds for current members in the state retirement system may not be eliminated or reduced, and a reduction in benefits may be applied only to new plan members.
In the 1990s plans were over-funded by 12 percent. If or when investment returns improve, we can reduce the state's obligation and sunset the high participation rates imposed on participants and local governmental bodies that match the contributions.
The state of Nebraska has contractual agreements with all of the members in the state's retirement plans, and we simply cannot violate the agreements.
That is why the legislature voted to override the governor's veto of LB 553. It was our legal obligation to do so.
As always, I value your input, and welcome phone calls, emails and personal visits from you.
Sen. Al Davis, State Capitol, PO Box 94604, Lincoln, NE 68509, (402) 471-2628, firstname.lastname@example.org