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
Updated: December 2017
-
Nebraska
Select another topic
General Teacher Preparation
- Program Entry
- Teacher Shortages and Surpluses
- Program Performance Measures
- Program Reporting Requirements
- Student Teaching/Clinical Practice
- Teaching Methods
Elementary Teacher Preparation
Secondary Teacher Preparation
- Middle School Content Knowledge
- Middle School Licensure Deficiencies
- Adolescent Literacy
- Secondary Content Knowledge
- Secondary Licensure Deficiencies
Special Education Teacher Preparation
Alternate Routes
Hiring
- Requirements for Out-of-State Teachers
- Provisional and Emergency Licensure
- Licensure for Substitute Teachers
- Supporting New Teachers
Teacher and Principal Evaluation
Teacher Compensation
Retaining Effective Teachers
Early Childhood Preparation
How we graded
Research rationale
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.[3] Without reform, funding is unlikely to keep up with promised benefits and these systems will become increasingly vulnerable to collapse.
Pension plans disadvantage teachers early in their careers. By overcommitting employer resources to retirement benefits, these plans often require districts to depress salaries and restrict incentives. The contribution of employers to their workers' retirement benefits is a valuable benefit, important to ensuring that individuals have sufficient retirement savings. Compensation resources, however, are not unlimited, and they must fund both current salaries and future retirement benefits. Mandated employer contributions to many states' teacher pension systems are extremely high, leaving districts with little flexibility to be more innovative with their compensation strategies.[4] Lower mandatory employer contribution rates (in states where they are too high; in some states they are shamefully low) would free up valuable compensation resources to ensure pension systems are more sustainable and equitable for all teachers. In addition, some states require high employee contributions; the impact this has on teachers' paychecks may affect retention, especially early in teachers' careers.[5]
The burden placed on districts to fund unsustainable pension systems is further exacerbated for those in states where teachers also participate in Social Security, requiring the district to pay even more toward teacher retirement. While retirement savings in addition to Social Security are necessary, states are mandating contributions to two inflexible plans rather than permitting options for teachers or their employing districts.[6]
[1] Doherty, K. M., Jacobs, S., & Lueken, M. F. (2017, February). Lifting the pension fog: What teachers and taxpayers need to know about the teacher pension crisis. Retrieved from National Council on Teacher Quality website: https://www.nctq.org/dmsView/Lifting_the_Pension_Fog
[2] For an overview of the current state of teacher pensions, the various incentives they create, and suggested solutions, see Costrell, R. M., & Podgursky, M. (2011, February). Reforming k-12 educator pensions: A labor market perspective. New York, NY: TIAA-CREF Institute. Retrieved from https://www.tiaainstitute.org/public/institute/research/briefs/institute_pb_reforming_K-12_educator_pensions.html
[3] NCTQ's analysis of the financial sustainability of state pension systems is based on actuarial benchmarks promulgated by government and private accounting standards boards. For more information see U.S. Government Accountability Office. (2007). Government Accounting Standards Board statement No. 25. Retrieved from http://www.gasb.org/st/summary/gstsm25.html
[4] Costrell, R. M., & Podgursky, M. (2011, February). Reforming k-12 educator pensions: A labor market perspective. New York, NY: TIAA-CREF Institute. Retrieved from https://www.tiaainstitute.org/public/institute/research/briefs/institute_pb_reforming_K-12_educator_pensions.html
[5] For further evidence supporting NCTQ teacher pension standards, see The Segal Group, Inc. (2010). Public employees' retirement system of the state of Nevada: Analysis and comparison of defined benefit and defined contribution retirement plans. Retrieved from https://www.nvpers.org/public/executiveOfficer/2010-DB-DC%20Study%20By%20Segal.pdf
[6] For additional information on state pension systems, see Loeb, S. & Miller, L. (2006). State teacher policies: What are they, what are their effects, and what are their implications for school finance? Stanford University: Institute for Research on Education Policy and Practice. Retrieved from http://web.stanford.edu/~sloeb/papers/Loeb_Miller.pdf; and Hansen, J. (2008, May). Teacher pensions: A background paper. Committee for Economic Development. Retrieved from http://eric.ed.gov/?id=ED502293