‘Good’ Grades Given to State Retirement Plan

Annual Report on Plan Highlights Growth, Stability

The outlook continues to be rosy for the state-managed retirement plan for public school employees.

In fact, “good” might be the best adjective for the plan status as of July 1, 2018. “Good” was used frequently to describe the growth during the annual report on the plan to the Public Employees Retirement Systems Board of Directors in November.

“Someone asked before the meeting started whether it would be good news,” said Pat Beckham, a consultant and principal actuary with Cavanaugh Macdonald Consulting. “I would say ‘yes.’”

Near the end of the report, the board’s Jim Schulz went further.

“To make that much more (income) in one year, that’s not good – that’s ‘good good,’” said Schulz.

All three plans (school, judges and state patrol) under the board’s purview experienced very good growth. The school plan’s market value assets grew by $760 million, to $11.636 billion, an 8.6 percent increase, in the year that ended on June 30. The board has set an assumed annual rate of return on investment of 7.5 percent.

“Eight-point-six percent is great – the expected is 7.5 percent,” said Beckham. “The gain on assets and liabilities – it’s all good.”


The good news also extended to the plan’s long-term health. Two years ago, the forecast projected the plan to be fully funded by 2038. A year ago, that date was 2030. The most recent projection sees a fully-funded plan by 2028.

Among other key findings, said Beckham, was that salary increases below assumed levels for the plan created an actuarial gain on future liabilities. That gain combined with market growth to bolster the funded status – the percent of liabilities that are currently supported by cash in the system. The school plan is now 88.8 percent funded, up from 86.7 percent a year ago. Five years ago, the school plan was just 77 percent funded.

“A two percent changed in (funded) ratio is not inconsequential,” she said.

‘Healthy Improvement’

Two years ago, the PERB lowered the actuarial rate of return on investments from 8 to 7.5 percent.

Beckham said the number of public retirement plans that maintain an 8 percent or higher rate of return continues to dwindle. Fifteen years ago, most public funds assumed an 8 percent return. Over the past few years, most have scaled back to a more conservative rate of 7.5 percent or less, with only a handful above the 7.5 percent rate.

“There has been a pretty drastic change in a period of seven to nine years,” she said.

The school plan’s unfunded liability dropped from $1.66 billion to $1.46 billion.

“That’s a fairly healthy improvement,” said Brent Banister, also with Cavanaugh Macdonald.

Banister said the school plan is stable enough that no additional state contribution beyond the statutory rate will be required in the next year.

In addition to the state’s contribution, which equals two percent of teacher salaries, education employees contribute 9.78 percent of salary, and school districts contribute the equivalent of 9.88 percent of salary. The state plan covers all K-12 education employees in Nebraska except for those in Omaha. Educators there fall under a separate plan that was founded decades before the state plan.