The state should ensure that excessive resources are not committed to funding teachers' pension systems.
As of June 30, 2016, the most recent date for which an actuarial valuation is available, Nebraska's pension system for teachers is 89.6 percent funded, an increase of 12.5 percentage points since NCTQ's last report. Its current pension debt is $3,715 per pupil throughout the state. It also has an amortization period below 30 years. This means that if the plan earns its assumed rate of return and makes its full actuarially determined contribution payments, it would take the state less than 30 years to pay off its unfunded liabilities. Nebraska's system is financially sustainable according to actuarial benchmarks.
Nebraska commits excessive resources toward its teachers' retirement system. The current employer contribution rate of 11.88 percent and employee contribution rate of 9.78 percent are too high, in light of the fact that local districts and teachers are also contributing to Social Security and the fact that the state is also making additional payments.
The rates are set so that the districts pay 101 percent of the employee contribution rate and the state makes a 2 percent payment, as well as any additional required funding to meet actuarially determined funding needs. Thus, school districts contribute 9.88 percent of payroll to the pension fund. While these rates allow the state to pay off liabilities within the required 30-year period, it does so at a high cost, precluding Nebraska from spending those funds on other, more immediate means to retain talented teachers.
Nebraska Public Employees’ Retirement Systems, School Retirement System Actuarial Valuation Report as of July 1, 2016.
Avoid committing excessive resources to the pension system.
While the state meets actuarially benchmarks for a financially sustainable system, it does so at a high cost, precluding Nebraska from spending those funds on other more immediate means to retain talented teachers. Committing excessive resources to pension benefits can negatively affect teacher recruitment and retention and crowd out funding for other areas in education. The state should consider decreasing employer contributions, even more than currently scheduled, to allow the state and local districts to spend those funds on other recruitment and retention strategies. However, it must be careful to maintain its funding level to allow for protection during financial downturns. Improving funding necessitates, in part, systemic changes in the state's pension system. The goals on pension flexibility and pension neutrality provide suggestions for pension system structures that are both sustainable and fair.
Nebraska was helpful in providing information that enhanced this analysis