Pension Sustainability: Nebraska
Pensions Policy
Analysis of Nebraska's policies
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.
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 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.
State response to our analysis
Nebraska was helpful in providing information that enhanced this analysis
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Delivering Well Prepared Teachers
- Admission into Teacher Preparation
- Elementary Teacher Preparation
- Elementary Teacher Preparation in Reading Instruction
- Elementary Teacher Preparation in Mathematics
- Early Childhood
- Middle School Teacher Preparation
- Secondary Teacher Preparation
- Secondary Teacher Preparation in Science and Social Studies
- Special Education Teacher Preparation
- Special Education Preparation in Reading
- Assessing Professional Knowledge
- Student Teaching
- Teacher Preparation Program Accountability
Expanding the Pool of Teachers
Identifying Effective Teachers
- State Data Systems
- Evaluation of Effectiveness
- Frequency of Evaluations
- Tenure
- Licensure Advancement
- Equitable Distribution
Retaining Effective Teachers
Exiting Ineffective Teachers
Pensions
Research rationale
Teacher salaries are just one part of the compensation package that teachers receive. Virtually all teachers are also entitled to a pension, which, upon vesting, provides compensation for the rest of their lives after retirement. In an era when retirement benefits have been shrinking across industries and professions, teachers' generous pensions remain fixed. In fact, nearly all states continue to provide teachers with a defined-benefit pension system, an expensive and inflexible model that neither reflects the realities of the modern workforce nor provides equitable benefits to all teachers.
Under defined benefit systems, states have made an obligation to fund fixed benefits for teachers at retirement. However, the financial health and sustainability of many states' systems are questionable at best. Some systems carry high levels of unfunded liabilities, with no strategy to pay these liabilities down in a reasonable period, as defined by standard accounting practices. Without reform, these systems are a house of cards, vulnerable to collapse as funding cannot keep up with promised benefits. And it is taxpayers who will have to pay if it all tumbles down.
Pension plans disadvantage teachers early in their careers by overcommitting employer resources to retirement benefits.
Pension Sustainability: Supporting Research
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.