Pension Sustainability: Nebraska

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

Nebraska Public Employees Retirement Systems, School Retirement System 2010, Fifty-eighth Actuarial Report https://npers.ne.gov/whalecomfb0318c98356c776ad65/whalecom0/SelfService/public/howto/publications/ActuarialReports/ActuarySchool2010.pdf

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.