The City of Omaha has prudently agreed to a consultant’s recommendation to lower the assumed investment returns for its two pension plans.
The current assumption of 8 percent annually was too optimistic, said Cavanaugh Macdonald Consulting LLC, and the city’s two pension boards (one for fire and police, and one for the city’s civilian employees) have both voted to lower the rate. The assumed investment return will be 7.75 for the police and fire fund and 7.5 percent for the civilian fund.
As a result of the adjusted assumptions, the civilian pension fund is now projected to be fully funded by 2049, and the fire and police fund by 2042.
At present, the pension fund liabilities for fire and police are only about 50 percent funded, for example. That’s far below the 80 percent level generally considered by financial experts to be appropriate.
Even with the adjusted rate expectation, the Omaha city government and public-sector unions have much work to do in coming years to resolve matters responsibly each time employee contracts are renegotiated. It’s imperative to keep the plans on a trajectory toward improvement.
Recent experience is encouraging. In negotiations since 2010, the City of Omaha and the police union have agreed to increase pension contributions and reduce pension benefits. The fire union and the city have taken a similar approach since 2012.
This was a welcome change from earlier years, when the city’s pension negotiations fell far short of prudent management.
Moving Omaha’s pensions in the right direction is a long-term, incremental process. The adjustments in the assumed investment returns are a sensible decision to put these pensions on a sounder footing, for the benefit of employees and taxpayers alike.