Lawmakers advance changes to Nebraska school retirement plan to help close budget hole

LINCOLN — Despite earlier statements that changes to annual school retirement contributions would not be used to balance Nebraska’s budget, lawmakers confirmed Thursday that the reductions will go toward that goal.

State senators gave 38-0 first-approval Thursday to Legislative Bill 645, from State Sen. Beau Ballard of Lincoln at the request of Gov. Jim Pillen, to lower employer, employee and state contributions to the statewide school retirement plan based on its funding level compared to obligations to members. The plan is currently 99.91% funded.

The state retirement plan covers all eligible school employees, notably teachers, outside Omaha Public Schools, which has a separate retirement plan and is not as highly funded.

Currently, employees contribute to the group plan 9.78% of monthly payroll and school districts give 9.88% of the payroll paid to covered district employees. The state annually gives 2% of the statewide payroll for covered members. Payroll was about $2.5 billion in the past year.

‘Built-in protections’

Under Ballard’s bill, and an amendment adopted 41-0, contribution rates would change as follows:

• Less than 96% funded — 9.75% employees, 9.85% employers, 2% state.
• Between 96% funded and 98% funded — 8.75% employees, 8.84% employers, 0.7% state.
• Between 98% and 100% funded — 8% employees, 8.08% employers, 0.7% state.
• 100% funded or more — 7.25% employees, 7.32% employers, 0% state.

“Importantly, these agreed-upon reductions in contributions have built-in protections to ensure the long-term sustainability of the fund,” said Ballard, chair of the Legislature’s Nebraska Retirement Systems Committee.

The amended LB 645 could save the state at least $80 million in the next two fiscal years, which multiple senators celebrated as helping to close the state’s projected budget shortfall of $457 million for the next two years.

That is prior to ongoing work by the Appropriations Committee, which has whittled the deficit down to about $100 million with continued negotiations. The budget bills must be presented to the Legislature by the end of the month for debate.

Health of the retirement plan

Opponents of Ballard’s measure, chiefly State Sen. Danielle Conrad of Lincoln, said “political games” should not be played with teacher retirements, especially with what she said is “incredible economic volatility and uncertainty” under President Donald Trump.

“Playing Russian roulette with their retirement is wrong,” Conrad said Thursday.

If annual contributions in any year are not enough to keep the plan adequately funded under state law, such as if investment returns come up short or stock market returns are too volatile, the state is on the hook for additional funding outside of annual contributions. That happened in the late 2000s, leading to the current funding contribution levels in 2013 negotiations.

State Sen. Rob Clements of Elmwood, chair of the Appropriations Committee and a member of the Retirement Committee, described Ballard’s LB 645 as a “reasonable compromise.”

He said opponents blasting the bill as a “serious threat” to the plan is just “not true” and that employees would see no benefit reductions. Clements said it’s “the right thing to do at this time.”

“The plan is in good shape, and the state’s contribution would go back to a full amount if it’s below 96% [funded],” Clements said.

‘We’ve done something to ourselves’

State Sens. Mike Moser of Columbus and Jana Hughes of Seward said the contribution rates should have been examined without regard to the state budget, even if there was a surplus.

“If this retirement fund is funded at 100%, we should all raise our hands and say, ‘Halleluja,’” Moser said. “Funding it beyond 100% just does not make sense.”

Throughout the 2025 session, LB 645 has faced significant changes since it was first introduced in January.

At that time, only the state government would have seen a lowered contribution rate. Then, prior to a March hearing on LB 645, Ballard offered an amendment to change employee contribution rates. Now, employers who opposed the bill would also see lowered contribution rates.

School advocates have said the freed-up funds could lead to possibly lower property taxes or increased teacher pay, and many school advocacy groups are now in favor of the bill.

Ballard shared data from the Nebraska State Education Association estimating that the average school teacher could receive $1,000 more in take-home pay when the retirement plan is more than 98% funded, under LB 645. If the plan is fully funded, the take-home pay could be $1,500 each year.

State Sens. George Dungan of Lincoln, of the Legislature’s Revenue Committee, and Machaela Cavanaugh of Omaha, on the Appropriations Committee, said the budget deficit is self-inflicted.

Dungan described it as an online meme where a young child puts a stick in the spike of his bicycle and flips over, asking, “Oh my God, who did this?”

“This kind of feels like we’ve done something to ourselves and now we are operating under this structure where we feel like our hands are tied and we have to do these things,” Dungan said.

A piece of the budget ‘puzzle’

State Sen. Tony Sorrentino of the Elkhorn area, a member of the Revenue and Retirement Committees, described the situation as paying a bill twice.

“You don’t overfund pensions. You don’t overpay bills,” Sorrentino said. But you do have to have the wherewithal to make up for that when and if it gets to a certain level of funding.”

Conrad blamed “unsustainable, inequitable, reckless tax cuts,” and Cavanaugh said the Appropriations Committee “not once” discussed using the freed-up state retirement contributions to invest in education, contrary to earlier statements from the governor’s staff that the funds would not be used toward balancing the budget.

Kenny Zoeller, director of the governor’s policy research office, who made those commitments earlier this year, did not respond to a request for comment on what had changed. Ballard said he would like to balance the budget without raising taxes, such as by limiting spending.

State Sen. Myron Dorn of Adams, a seven-year member of the Appropriations Committee, said that as of Wednesday the committee still had $100 million to find to balance the budget. 

He has often described the budget as a “giant puzzle,” stating Thursday that retirement contributions is one piece. If his colleagues chose not to adopt the retirement changes, Dorn said that would lead to cuts somewhere else.

“This is just one part of that puzzle,” Dorn said.

‘We shouldn’t rush’

The Retirement Committee will have a new hearing on an amendment to LB 645 next week that could expand retirement eligibility for employees hired after July 1, 2018. Currently, retirement eligibility is when age plus years of service meets or exceeds 85 years — “Rule of 85.” Workers hired before July 2018 can retire as early as age 55. Newer employees have to wait until at least age 60.

As a trade-off, the state would not provide any annual contributions to the retirement plan in the next two years, potentially saving nearly $20 million more, before contributions are set as now outlined in LB 645.

Tim Royers, president of the NSEA, said the organization was happy that LB 645 advanced, and is looking forward to next week’s hearing on correcting a “serious wrong.”

“We have a chance to make them whole, and that’s important,” he told the Nebraska Examiner.

Ballard said he’s unsure how the amendment would be received the Legislature before the hearing.

Conrad, the dean of the Legislature who competed against Ballard for chair of the Retirement Committee in January, losing 25-24 after a tied vote, said the amended LB 645 could very well be a “good deal” for school employees, but she urged caution.

“If indeed we can find a path forward, we shouldn’t rush,” Conrad said. “We shouldn’t rush with something this important.”