Many educators question why I introduced LB 415. I want to share my reasons with you and explain some of the complexities. I support defined benefit plans as long as they maintain a healthy funded status. I believe they are a valuable benefit for our public employees and I am committed to protecting these plans. The State of Nebraska contributes $38 million to the School Plan and an additional $7 million to the Class V (Omaha) School Plan every year. Because of the tremendous state budget deficit, there has been some interest in reducing this annual contribution. I objected to, and prevented an attempt on the floor to reduce this annual appropriation because I knew it would endanger the healthy funding status of this plan. I also understand that if we don’t make these annual contributions, the State of Nebraska is liable for the funding.
In addition to keeping the plan well-funded, retirement plans must also be kept in compliance with IRS requirements for qualified plans – which includes ensuring there is a “bona fide separation of service” when a member retires.
Currently in the School Plan, intermittent substitute and voluntary service are allowed during the 180-day separation of service period following retirement. The Nebraska Public Employees Retirement System (NPERS) advised me they are seeing a trend in retirees providing more and more substitute service during this 180-day period – service that is beyond what can be deemed “intermittent”. As a result NPERS staff are spending significantly increasing staff time to monitor and investigate “intermittent service” in order to keep the plan in compliance with the IRS. When NPERS has deemed service has not been intermittent, they had to suspend the retiree’s benefit for a period of time—a result that we all want to avoid.
LB 415 was introduced to eliminate retirees from providing substitute or voluntary service during the 180-day separation of service period in order to create a “bright line” to ensure that the IRS-required bona fide separation of service occurs.
The other proposed changes in LB 415 were in response to information provided by the actuary. During last summer’s examination of all the retirement plans, the actuary determined that members are living much longer — which is great news! But it also means retirement benefits are paid over longer periods than originally assumed. The actuary also informed the Committee that when incentives are offered that encourage plan members to retire early, then benefits are paid over a longer period of time than assumed. Both of these findings result in increased costs to the plan which is why LB 415 includes the provisions that require future hires to work until at least age 60 and a longer separation of service period for retirees who take a voluntary separation agreement or other form of early retirement inducement.
These issues were studies throughout the interim. I met numerous times with representatives of NPERS, NSEA and NCSA throughout the interim last year to discuss these proposed changes and I also made presentations to NSEA and NCSA groups.
After the hearing on LB 415, I agreed to reduce the originally proposed Rule of 90 to a modified Rule of 85 with a minimum retirement age of 60 and during debate on the bill, I further agreed to reduce the separation of service period from 3 years to 2 years for retirees who take early retirement inducements and allow voluntary service after 180 days. During debate other alternatives were offered to reduce the 180-day period, but because of the complexity of determining whether or not they would meet IRS requirements, I agreed to eliminate my proposed changes to the 180-day separation of service and to study this issue further over the interim.
I know many educators are concerned about what I proposed in LB 415. I want to reassure educators, the 180-day separation of service period that allows intermittent substitute and voluntary service remains in effect – there are no changes.
I also want to assure educators that the new Rule of 85 requiring a minimum retirement age of 60 does not apply to any current member or to anyone who is hired prior to July 1, 2018. Only employees hired on or after July 1, 2018 will need to comply with the minimum retirement age of 60 requirement. The actuary determined that this change alone is projected to save the School and Class V (Omaha) Plans a little over $100 million over the next 30 years which will help keep the School plan well- funded.
During the interim the Retirement Committee, joined by several other senators, will study these issues under LR 202, and several Education Committee members have introduced LR 130 to study a number of issues raised about substitute teaching.
I appreciate the dedication and commitment of educators and respect the service provided to our communities and our children. I will continue to work to protect all retirement plans by keeping them in compliance with IRS requirements and making benefit adjustments in order to keep all plans fiscally healthy. In addition, I will continue to object to any efforts to reduce funding for the School Plan or efforts to convert any of the defined benefit plans to cash balance plans as long as they remain well-funded. I look forward to working with all educators in these efforts and welcome any questions.
As always, if we can be of assistance to you in any way, please do not hesitate to contact my office. My door is open and I have made it a goal to be accessible to the constituents of our district. Please stop by any time. My e-mail address is firstname.lastname@example.org, and the office phone number is 402-471-2756. David and Katie are always available to assist you with your needs. If I am not immediately available, please do not hesitate to work with them to address any issues that you may need assistance.