Since 2014 the Nebraska Retirement Systems Committee has required political subdivisions with plans funded less than 80% to appear before the Committee and describe the circumstances that led to the underfunding and the entity’s plan to improve solvency and reach full funding.
The past two years I have heard the presentations on the metropolitan and primary class city Police and Fire Retirement Plans and have become increasingly concerned. For example, the Omaha Police & Fire Plan has over $600 million in unfunded liability and are 51% funded – which hasn’t changed that much in the past number of years.
I introduced LB 30 in order to provide secure retirement benefits for current and future police and fire employees in the metropolitan and primary class cities, and to keep their pension plans solvent and sustainable. We had an excellent hearing this week with 20 invited testifiers which included police officers, firefighters, city council representatives, and representatives of the Platte Institute, Reason Foundation and Retirement Security Initiative.
I appreciate the service provided by these brave public servants who risk their lives every day for all of us. It is not my intent to take any retirement benefits away from current plan members. My motive for introducing this bill is to ensure that current plan members receive what is promised them. I believe that a promise is a promise. I also want to ensure that new members receive an adequate and sustainable pension that is affordable for our metropolitan and primary class city taxpayers.
LB 30 requires cities of the primary and metropolitan class to place new police officers and firefighters in a cash balance retirement plan beginning on an unspecified date. LB 30 also allows metropolitan and primary class cities to provide a supplemental retirement plan to provide an additional benefit since firefighters and police officers in these cities do not participate in social security.
Cash balance plans are hybrid defined benefit plans because they guarantee an interest credit rate. Each employee has an individual account which consists of employee contributions and employer contributions (if vested) with an interest credit that increases the value of the account. Investment losses do not affect the members’ account balances – investment risks are borne solely by the employer.
What I am proposing in LB 30 is not a defined contribution plan which is like a 401(k) where the member assumes all the risk of any investment losses. These are the types of plans generally offered in the private sector for employees.
A cash balance plan is a solid and reliable pension plan. In Nebraska, state and county employees have been in cash balance plans since 2003. These plans are solidly structured and were able to sustain the 27% investment losses in 2008 and 2009 without requiring any additional funding by the state.
It is clear to me that our metropolitan and primary class cities are struggling financially to pay their ongoing funding obligations to the plans. This level of funding does not appear to me to be sustainable over the long-term.
I appreciate all the comments and written testimony presented at the hearing on LB 30 and I will continue to meet and work with all interested parties to seek a workable resolution to this problem.
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