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'Is my pension safe?' Answering questions about OPS's $771 million pension shortfall

'Is my pension safe?' Answering questions about OPS's $771 million pension shortfall

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Last week's "How to wreck a pension fund" report sparked questions. Here are some answers. 

Q. I'm an OPS teacher. Is my pension safe?

A. Yes. The Omaha schools retirement plan is a defined benefit pension plan, meaning that members, once they work long enough to be vested, are guaranteed to receive their pension at the level that was set when they were hired. Nebraska case law has generally protected promises made in public sector pension plans. That means pension benefits for both the district's 4,500 current retirees and 7,500 current employees likely can't be changed. 

Q. People are living longer, so isn’t that a factor in the pension’s shortfall? 

A. Pensions indeed involve a lot of moving parts, including mortality, how much teacher pay rises, at what age teachers retire, number of new hires and returns on investment. Actuaries regularly compare the assumptions to actual experience and revise them. But a look over the last decade's OPS actuarial reports, covering the time the district's shortfall grew by $633 million from $138 million to $771 million, make it clear this is largely an investment returns problem. The reports show the shortfall grew by $419 million due to investments falling short of expectations. Changed assumptions added another $138 million to the deficit, and most of that was due to actuaries revising down future investment returns to reflect the reality of recent years. Add the lagging actual returns with the projected drop in future returns and the figure exceeds $500 million. That's similar to the figure The World-Herald calculated the fund would have today had it continued to receive the level of returns it did before trustees in 2008 began selling off stocks and getting into other types of investments.  

Q. Didn't these investments have to be approved by the school district?

A. Yes. Any investments made by the trustees by law needed approval from the full school board. However, school board members interviewed said they deferred to the trustees because they were the ones studying markets, setting strategies and interviewing fund managers. Nebraska law also gave the trustees a fiduciary duty to the fund. 

Q. Are the same people still managing the pension fund?

A. Yes and no. Effective Jan. 1, 2017, a bill passed by the Legislature assigned all investment management authority for the fund to the Nebraska Investment Council, manager of state pension investments. But the trustees continue to administer the pension program, including determining benefits and sending out payments. Four of the current trustees have been on the board since at least 2007. 

Q. Can improved investments solve this problem? 

A. The district will certainly hope for better investment returns. The returns under the state in the first year were good. But even a number of good years likely would not make a significant dent in the problem.

Q. So how will the $771 million shortfall be made up?

OPS, in effect, cut its  budget for this school year by 3 percent to make an additional $19 million payment into the fund, and those payments are expected to rise in future years. Cheryl Logan, the district's new superintendent, has appointed a stakeholders' group that she says will put all options on the table. Among the possibilities: more budget cuts; increased withholdings from the pay of current teachers; reduced benefits for future district hires; or having the district go to voters to seek to exceed the state's cap on property taxes for schools. Logan stresses that nothing has been decided. And she said any changes affecting teacher pay and benefits would have to be made with an eye toward keeping competitive.

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Reporter - Metro News

Henry is a general assignment reporter, but his specialty is deep dives into state issues and public policy. He's also into the numbers behind a story, yet to meet a spreadsheet he didn't like. Follow him on Twitter @HenryCordes. Phone: 402-444-1130.

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There are plenty of other states and school districts trying to stabilize pension systems so that budgets can be balanced and employees can be guaranteed the benefits they were promised. Solutions have included increased contributions from current workers, cuts to current benefits through reduced cost-of-living adjustments and increased contributions from taxpayers.

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