SAN JOSE, Calif., February 7, 2017—Leaders of the Retirement Security Initiative today testified before Nebraska Legislature’s Retirement Systems Committee in support of LB30, a pension measure that would reform Omaha and Lincoln police and fire pension systems. The bill, sponsored by Committee Chairman Sen. Mark Kolterman, would transition new-hire employees from the currently-used defined benefit structure to a cash-balance retirement program.
Testifying at the hearing were RSI Board Member Dan Liljenquist, who successfully spearheaded pension reform efforts during his time as a Utah State Senator, and RSI Executive Director Pete Constant, a former San Jose City Council member and retired police officer.
Both Lincoln and Omaha fire and police pension systems are in dismal financial shape, according to the RSI experts. Without substantive reform offered by LB30, both systems will continue to deteriorate, jeopardizing government finances and public workers’ retirement benefits.
“The situation in Lincoln and Omaha is that they’ve been chronically underfunding their plans,” Liljenquist told committee members during the hearing. “Couple that with high assumption risks and low market returns for years and the plans are in dire straits.”
The Omaha Police and Fire public pension system is roughly $630 million in debt and Lincoln’s Police and Fire pension fund is an estimated $190 million in debt. “The structure of the plans and the new normal of what the markets are doing make it very expensive,” Liljenquist continued.
Neither the Lincoln nor the Omaha pension plans have kept up with funding levels to keep them sustainable (Omaha is funded at roughly 50 percent, Lincoln at 80 percent), instead relying on high assumed market returns. In Lincoln, the average rate of return for the past 15 years has been 5.2 percent, compared to its 7.5 percent assumed return. During the same time, Omaha has been guaranteeing 8 percent returns, while average actual returns have been only 4.8 percent. To help make up for the difference both cities have continually poured taxpayer dollars into the systems.
“Pumping more money into a system is not a plan, it’s triage,” said Liljenquist. “It’s like stumbling across a chemical spill in your backyard. First you have to cap that spill and then work overtime to clean it up. LB30 does that.”
LB30 would transition new hire employees from the current defined benefit structure to a cash-balance program that uses lower assumed return rates and cuts future risk in half. The reform would not affect current employees and retirees. Adopting the cash-balance plan for new employees would help ensure that retirement promises that were made to current employees and retirees can be kept.
"For Lincoln and Omaha to honor the promises made to their active police officers and firefighters and retirees, reform of some sort must happen,” Constant told committee members. “If they want to be able to recruit from the millennial generation and Gen Z, pension portability and sustainability are essential.”
According to Constant, neither the Lincoln nor Omaha pension systems, as they are currently structured, are sustainable and leave employees and retirees vulnerable to retirement insecurity.
“The plans have significant funding problems,” he told members. “When pension plans hit a funding ratio like Lincoln’s and Omaha’s and carry significant debt, taking no action threatens their very solvency.”
For more information on the pension crisis facing Lincoln and Omaha, click here for in-depth analysis by the Platte Institute and Reason Foundation.