Omaha school pension fund shows progress but superintendent foresees headwinds

LINCOLN, Neb. (Nebraska Examiner) — The troubled pension fund for Omaha teachers has shown improvement over the past five years, going from 53% fully funded to about 63%, a state legislative committee was told Tuesday.

That’s because the state’s largest school district has contributed more than the amount recommended by actuaries to maintain the pension fund in each of the past four years.

But that progress might end because of the possibility of changes in state aid to K-12 that could deliver less money to Omaha Public Schools, Superintendent Cheryl Logan told members of the Legislature’s Retirement Systems Committee.

“We anticipate that it will be more difficult to contribute excess funds,” Logan said.

Rough seas ahead?

“Smart sailors know when to prepare for rough seas,” she added later.

Since 2014, the Nebraska Legislature has required local government pension systems that are less than 80% fully funded to report to the Retirement Committee about why that happened and how they plan to fix it so retired workers get the pension benefits promised.

The changes were inspired by problems with the Omaha police and fire pension system, which was on the verge of collapse a little over a decade ago, forcing dramatic reforms.

Fewer plans struggling

The good news from Tuesday’s annual meeting was that only six defined-benefit pension plans run by local governments were less than 80% funded, two fewer than last year. Those were plans for Omaha schoolteachers (63%), Omaha civilian employees (53.7%) and fire and police (57.5%), Douglas County employees (73.9%), Omaha Public Power District (75.5%) and Metro area transit hourly workers (71.5%).

But the not-so-good news was that some pension plans, unlike the Omaha schools plan, have slipped below providing the actuarially recommended contribution, or ARC, in recent years.

For instance, the annual contributions from the City of Omaha to its civilian retirement program has slipped from about 107% of the recommended amount in 2016 to 88% percent last year. Yearly contributions to the city’s police and fire pension have also fallen below the ARC, and last year, was 95.3% of what was recommended.

The slippage prompted a scolding from State Sen. Mark Kolterman of Seward who heads the Retirement Committee. He said that failing to meet the annual ARC payment is what pushed the Omaha schools pension plan to the brink of disaster in 2018, building a massive $771 million shortfall, according to reporting by the Omaha World-Herald.

‘Deaf ears’

“It’s almost like anything we’ve asked here has fallen on deaf ears,” Kolterman told a representative of the city. “It’s blatant disrespect for the employees and the citizens of Omaha.”

The Legislature, he said, passed a law requiring OPS to pay the ARC every year, adding that maybe that should be considered for the City of Omaha.

Bernard in den Bosch, a deputy city attorney, said he recognizes that the city’s annual ARC has fallen below 100% in recent years.

But he said the most important data is that reforms adopted by the city to its pension plans, including decreasing some benefits, are working. He said that both plans are expected to be fully funded a few years earlier than expected — in 2040 for the civilian worker pension and 2042 for police and fire.

One issue that has caused the annual ARC to fall below 100%, in den Bosch said, is that the city changed its annual assumption of investment rate of return from 8% to 7.75% in 2017. That lowered the expected amount of annual investment income, he said.

Investment income falls

Another current problem is that many investments during 2022 lost money. For Omaha, in den Bosch said, he’s heard that investments may have lost up to 10% of their value, which is better than the 2008 stock market crash when investments lost as much as 20%.

Logan, who has been OPS superintendent since 2018, said she is worried that if the district gets less in state aid, it won’t be able to devote excess funds to the pension program. Most recently, the school district is investing $7.7 million more than the recommended ARC of $29.5 million, she said.

Reforming the state’s aid program to K-12 school was a key campaign issue for Gov.-Elect Jim Pillen. He said that the current formula is unfair and that the funds should be doled out on more of a per-student basis. Currently, most state aid is calculated on the wealth of an individual school district, with districts like Omaha, with a higher number of low-income students, getting more state aid to “equalize” educational funding.

A Lincoln-based think tank, the OpenSky Policy Institute, recently estimated that a shift to a per-pupil basis could cost schools districts that educate 78% of Nebraska students, including Omaha, about $270 million a year.

Logan acknowledged that it’s unclear if such a change will be approved by the Nebraska Legislature but said it’s wise to be prepared.

Kolterman, who is leaving the Legislature due to term limits in January, said Tuesday that the annual meeting with underfunded pension administrators has been effective in working to solve problems. He complimented Logan on the work that’s been done at OPS.

Nebraska Examiner is part of States Newsroom, a network of news bureaus supported by grants and a coalition of donors as a 501c(3) public charity. Nebraska Examiner maintains editorial independence. Contact Editor Cate Folsom for questions: info@nebraskaexaminer.com. Follow Nebraska Examiner on Facebook and Twitter.