Nebraska commendably continues to rank high in its management of state pensions. Several national studies explain the long-term importance of sound pension management — and the dangers when states fail at the task.
Despite nine years of economic recovery since the last recession, “most state pension plans are not equipped to face the next downturn,” a new report from the Pew Charitable Trusts says. In many states, “policymakers have not taken advantage of strong investment markets to make progress on closing the pension funding gap.” New Jersey, the report said, “has consistently failed to meet minimum actuarial funding standards.” Illinois has boosted its contributions, but not enough to keep the pension debt from growing. Kentucky handled one pension system (state employees) capably but another system (teachers) poorly.
Fiscal analysts recommend pension funds be at least 80% funded. But in 2017, only 14 states including Nebraska and Iowa met that test, according to the Pew report. Only eight states were at least 90% funded, including Nebraska at 90.2%. Iowa was at 82.3%.
The three worst states in 2017: Kentucky, at a meager 33.9% funded; New Jersey, 35.8%; Illinois, 38.4%.
Twenty-three states failed to sufficiently raise contributions since 2009, Pew analysts wrote, and the poor financial condition of many state pension systems raises “concerns about how some states would fare in the case of a future recession.”
Nebraska’s pension management scored high on various measures, including net amortization and operating cash flow ratio, indicating long-term fiscal sustainability. Nebraska state government was rated No. 1 for fiscal management overall in the most recent study by the Mercatus Center, a free-market think tank at George Mason University in Arlington, Virginia.
Nebraska stood out in a 2018 report by the American Legislative Exchange Council. Its analysis of state pension systems found that:
» Nebraska ranked first for lowest unfunded liabilities as a percentage of gross state product, at 14.2%. The numbers for the worst-ranked states were far higher: Alaska, at 65.7%; Mississippi, 59.4%; New Mexico, 54.7%. Iowa was 16th-best, at 24%.
» Nebraska ranked third for lowest unfunded pension liabilities per capita, at $9,042. The lowest-ranked state was Alaska, at $46,774. Iowa was 21st.
» Nebraska ranked fourth on a key improvement factor: change in funding ratio between 2013 and 2018. The worst-ranked: Vermont, California, South Carolina. Iowa was 18th.
The most recent audit showed that the pension systems managed by Nebraska state government are funded at healthy levels: county employees, 101%; state employees, 101%; judges, 96.1%; State Patrol, 87%.
The pension fund for school employees — other than for Omaha Public Schools, which has its own pension system — is 89% funded. The troubled OPS pension system, currently managed by a board separate from the state, is at 63% funded. The OPS pension woes led the state in 2017 to turn over the system’s investment decisions to the state.
Responsible pension management is imperative at all levels of government, including municipalities. Pension mismanagement was a key factor behind municipal bankruptcy filings by Detroit and Stockton, California, for example. Omaha has made significant progress in recent years in addressing challenges with its police and fire department pensions, though more remains to be done.
The Nebraska Legislature’s Retirement Systems Committee has demonstrated capable pension management for years under a long series of chairpersons. A key has been a spirit of collaboration among the many stakeholders. Constructive negotiations have enabled successive adjustments in contributions and other aspects, keeping the systems properly funded. “All the parties get involved as we make changes,” said State Sen. Mark Kolterman of Seward, committee chairman.
Kolterman credited the strong performance by the members and directors for the Nebraska Investment Council and the Nebraska Public Employees Retirement Board.
Above all, he told The World-Herald, is the ability of Nebraska government to build consensus so that sometimes difficult adjustments are made. That positive spirit is an invaluable ingredient indeed for policy success on this and other Nebraska issues.