Pension Sustainability: Nebraska

Retaining Effective Teachers Policy

Goal

The state should ensure that excessive resources are not committed to funding teachers' pension systems.

Meets in part
Suggested Citation:
National Council on Teacher Quality. (2011). Pension Sustainability: Nebraska results. State Teacher Policy Database. [Data set].
Retrieved from: https://www.nctq.org/yearbook/state/NE-Pension-Sustainability-9

Analysis of Nebraska's policies

As of June 30, 2010, the most recent date for which an actuarial valuation is available, Nebraska's pension system for teachers is 82.4 percent funded and has a 28-year amortization period. This means that if the plan earns its assumed rate of return and maintains current contribution rates, it would take the state 28 years to pay off its unfunded liabilities. While less than ideal, 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 8.88 percent and employee contribution rate of 8.8 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 1 percent payment and an annual appropriation of $5,639,235, as well as any additional required funding to meet actuarially determined funding needs. The state needs to contribute an additional $18 million to meet this year's annual required contribution, which brings the total employee, employer and state contribution rate to 19.16 percent. While these rates allow the state to pay off liabilities within the required 30-year period, it does so at great cost, precluding  Nebraska from spending those funds on other, more immediate means to retain talented teachers. 

Employee contribution rates are set to increase to 9.78 percent on September 1, 2012, and then decrease to 7.28 percent on September 1, 2014, and the state match will decrease to 0.7 percent. 

Citation

Recommendations for Nebraska

Avoid committing excessive resources to the pension system.
While the state meets actuarially benchmarks for a financially sustainable system, it does so at great cost, precluding Nebraska from spending those funds on other more immediate means to retain talented teachers. 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. 

State response to our analysis

Nebraska recognized the factual accuracy of this analysis. However, the analysis has been updated subsequent to the state's review to reflect recent policy changes.

Research rationale

NCTQ's analysis of the financial sustainability of state pension system is based on actuarial benchmarks promulgated by government and private accounting standards boards. For more information see U.S. Government Accountability Office, 2007, 30 and Government Accounting Standards Board Statement No. 25.

For an overview of the current state of teacher pensions, the various incentives they create, and suggested solutions, see Robert Costrell and Michael Podgursky. "Reforming K-12 Educator Pensions: A Labor Market Perspective." TIAA-CREF Institute (2011).

For evidence that retirement incentives do have a statistically significant effect on retirement decisions, see Joshua Furgeson, Robert P. Strauss, and William B. Vogt. "The Effects of Defined Benefit Pension Incentives and Working Conditions on Teacher Retirement Decisions", Education Finance and Policy (Summer, 2006).

For examples of how teacher pension systems inhibit teacher mobility, see Robert Costrell and Michael Podgursky, "Golden Handcuffs," Education Next, (Winter, 2010).

For additional information on state pension systems, see Susanna Loeb, and Luke Miller. "State Teacher Policies: What Are They, What Are Their Effects, and What Are Their Implications for School Finance?" Stanford University: Institute for Research on Education Policy and Practice (2006); and Janet Hansen, "Teacher Pensions: A Background Paper", published through the Committee for Economic Development (May, 2008).

For further evidence supporting NCTQ's teacher pension standards, see "Public Employees' Retirement System of the State of Nevada: Analysis and Comparison of Defined Benefit and Defined Contribution Retirement Plans." The Segal Group (2010).