Committee on Nebraska Retirement Systems

Public Hearing

January 28, 1992

Page 7

SENATOR NELSON: Thank you. Any other questions of Mr. Lindsay? If not, thank you. I appreciate your coming forward for us. That will end the hearings on the appointments and with that is Senator Horgan here? We will hear LB 1001, Senator Horgan.

LB 1001

SENATOR HORGAN: Thank you, Senator Nelson and members of the committee, I am Tom Horgan representing the 4th Legislative District and I am pleased to bring before you today LB 1001, a bill which will 'amend the Omaha Public School Employees Retirement System. To quickly reiterate my statement of intent, LB 1001 seeks to accomplish the following. First it will grant a cost of living increase for members of the system whose first retirement payment was dated on or before October 1. The increases are from three to nine percent, depending upon the date of the first retirement payment. Secondly, LB 1001 will authorize a five percent increase in the amount of the percentage factor used in determining the monthly formula retirement annuity. The cost of this increase would be wholly covered by the fund as it presently exists. Thirdly, LB 1001 will also provide for an automatic. preretirement, joint and survivor annuity for members of the system with twenty or more years of credible service, who die while still employed by OPS. Finally, LB 1001 revises buy-in and buy-back provisions in the statutes so that payment procedures are consistent and so that tax deferred roll-over contributions would be permitted under certain circumstances. There are a number of individuals from the OPS system who are probably better prepared than I am to answer specific questions, but that would be my opening remarks on the bill and I would be happy to answer any questions.

SENATOR NELSON: Any questions from the committee? If not, you got off real lucky, Tom.

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SENATOR HORGAN: I got off REAL lucky.

SENATOR NELSON: Someone else will address the questions. I know Neal will the actuary (inaudible). Thank you, Tom. Proponents. How many proponents for the bill? All right, maybe we could have a Page pass around and you could just sign your name. I would hope that you would limit it to not more than two or three, especially don't be redundant in the same, same material. We do have to be out of this room about 1:15 and we would like to go into Exec Session. I don't want to cut anyone off that does want to testify, but if you would just sign in to show your support for the bill. How many opponents? Anyone in neutral? Well for that reason maybe we won't have to have a lot of people to testify. Come forward, Neal.

NEAL KRAUSE: I am Neal Krause, Administrator for the Omaha School Employees Retirement System. I am also Secretary of the Board of Education and the Chief Fiscal Officer for the School District in Omaha. Obviously, the Board of Education and the Omaha School Employees Retirement System, is in full support of LB 1001. In addition to that the bill does have the total endorsement, all of the active and inactive employee groups. Senator Horgan did a very fine job of laying out the four basic parts of the bill itself and again we have handed out to you a summation of those same basic points and I guess I would just draw to your attention a couple of things. First of all, on the three percent COLA for the retired employees, which can go to a maximum of nine percent I would just like to give you a little history on that. In that... back in 1985 we came before this committee and at that time we were requesting an automatic COLA, and the committee, in -its wisdom, did not see that that was the appropriate time to provide an automatic COLA and therefore requested that if we did, at sometime in the future and periodically, we could come forward to this committee and request a COLA increase for on an ad hoc basis, and that this committee would be receptive to that type of an approach and the last time that we were here for a COLA was in 1989. We had three years prior to that, we were also here. So, we have tried to honor that request that the committee made and we are coming forward again, with the money to fully fund that COLA. The other item that I would like to be sure and draw your attention to deals with the automatic joint and survivor benefit. We currently do have an automatic joint and survivor benefit, or do we have a joint survivor benefit but it is not automatic. And we are requesting at this point that it be automatic so that once

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January 28, 1992

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that someone has had twenty years of experience within the system that they would then be automatically covered on a joint and survivor and if they wish not to be covered under that joint and survivor option, then they would fill out some type of disclaimer. The other two items in the bill I think are pretty self-explanatory, the increase and multiplier from the 1.65 to the 1.70 and the buy-in and buy-back statute change which would basically allow two things. Number one, it would allow someone who comes in from another school system to roll the money over from their retirement system into our retirement system without having to pay taxes on it. Secondly, it does, this particular provision, also does allow for the Board of Trustees to establish the installment procedures whereby people can buy-back into the system on an installment basis. We would still be confined, of course, by the restrictions within the current statute. I guess with that I would urge you to advance LB 1001 as soon as possible and I am here to answer any questions that you may have. Also present in the room is our actuary from Millman and Robertson, Dennis Sullivan; our attorney, Dave Peterson and Mike Smith who is the retirement system director. 'If there are any questions I would respond to them and thank you very Much for your time.

SENATOR NELSON: Any questions by the committee? Senator Abboud.

SENATOR ABBOUD: We had some information here that was prepared by the Committee Counsel and someone here for the committee. They stated that the section of the bill that provides for the increase in the formula multiplier from 1.65 percent to 1.7 percent would provide for a larger benefit than is provided for under the state school system. Could you tell me why there is a difference between the two?

NEAL KRAUSE:' At this point right now I think the State Teachers Retirement System is at 1.65 and that is Where we are right now, is at 1.65. We are requesting to go with a 1.7. At this time we have sufficient money in reserve to fund that type of an increase. We also have sufficient money, of course, in reserve to fund the three percent without an increase to the employees contribution and without an increase on the commitment of the Board of Education. So since the money is available there, we would like to use that money to increase the benefits to our system.

SENATOR ABBOUD: Why is the Omaha system separate from the state schools system?

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January 28, 1992

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NEAL KRAUSE: Just to give a little history on that, and I guess I haven't been here all this time of course, but the Omaha School Employees Retirement System was the first system, was the first teacher system in the State of Nebraska, and we have operated as an independent retirement system from the beginning. Later on I think the State Retirement Teacher System was developed arid we were progressing as a retirement system arid able to handle the particular circumstances that are involved in our system on a very efficient, in a very efficient manner and therefore we were left as a separate. independent entity.

SENATOR ABBOUD: What occurs, as you probably note there has been a drop in interest rates for a number of different financial investments. How does that impact upon your particular retirement system?

NEAL KRAUSE: On the investments in our retirement system we have what are referred to as, "Fund Managers" who handle our money and each one of them has a specific area of expertise. And, we try to keep ourselves as diversified as we possibly can so that if we find that one area is falling we have another area usually that is rising so that the income that we have all from our investments then stays fairly steady.

SENATOR ABBOUD: So, has it had no impact on your ...

NEAL KRAUSE: Basically, at this point right now, as far as our earnings on our system, we have earned, I think over the last five years, the interest rate, or the interest earnings have been about 14 percent, so we have done well. At this point right now we are doing extremely well in the area of stocks, equities. So we have had no problems. We have professionals, of course, working in that particular area and they have done an extremely good job for us. That basically is the reason why that we have sufficient money at this point right now to be able to fund these types of increases. That we have had good success with our investments in the retirement system.

SENATOR ABBOUD: Thank you.

SENATOR NELSON: Any other questions by the committee? All right, if not, I believe, would Dennis like to come forward then? Your actuary or anyone else? Are they with you Neal?

NEAL KRAUSE: He was not going to testify unless there was a question that was involved, otherwise...

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SENATOR NELSON: All right, who else would like to testify then?

ARTHUR JOHNSON: Senator Nelson, I am Arthur Johnson, currently serving as President of the Board of Trustees of the Omaha School Employees Retirement System. That is S-O-N ... In the interest of brevity I just want to say that the Board of Trustees which is comprised of members of the retirement system. i.e. employees or retired people, members of the Board of Education, the Omaha Public Schools and members of the business community, of which I am representative. We have unequivocally supported this bill. Financially we know it is feasible. We know that one of our goals is to enhance the benefits of the retirement system when we can, with what we've earned and we have been fortunate enough to produce outstanding investment results which has given rise to the funds to do this. I would just simply want to say that we would urge you to advance this bill.

SENATOR NELSON: Any questions of Arthur, Mr. Johnson. All right, one question that I have or maybe, and somewhat the same question as Senator Abboud and I know that your actuary feels that this is actuarial sound. But, we also have the same concern with falling interest rates where you are advancing the retirement approximately three percent, then that goes on, I mean there is no backing off on that on... I also had it very carefully explained to me that the finances and the money is there. I do want to commend you on your investments. I have compared state with yours too, almost comparable. One thing that I did see down here is the normal buy-ins and buy-backs. That is controlled by statute now, I believe, but we're continually being asked to broaden that for more people to buy back into the system. Would you like to express, give us any concerns or express your concerns in regards to that?

ARTHUR JOHNSON: No, I would have no concerns. I think it is certainly beneficial both to the school district as well as to prospective employees in this day of mobility, it makes available a larger group from which to hire, for example, for the school district to entice talent into the system.

SENATOR NELSON: I think you are referring to administrators. I am not necessarily referring to administrators. In other words, I guess the thought is that if you're ... the administrators are usually allowed or to

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move the mobility then we should broaden that group considerably and I have discussed that with some of you,: board members and the liability or the implications in broadening that. Thank you. Any other questions? If not, thank you, Mr. Johnson. Anyone else wish to testify?

ALBERTO RODRIGUEZ: Senator Nelson, members of the committee, my name is Alberto Rodriguez, A-L-B-E-R-T-0 R-0-D-R-I-G-U-E-Z.

SENATOR NELSON: Thank you.

ALBERTO RODRIGUEZ: I am vice-president of the Service Employees International Union, Local #226. I am speaking on behalf of approximately 700 Custodial, food service, clerical, paraprofessional, and transportation employees of the Omaha Public Schools. At this time I want to introduce the president of Local 226, Mr. Mark Tomasello. Our rank and file membership supports LB 1001 in its entirety. We strongly recommend that you approve and enact it as soon as time permits. Thank you.

SENATOR NELSON: Thank you. Any questions of Mr. Rodriguez? Any questions by the committee? If not, thank you. Anyone else that would wish to testify in support?

CRAIG CHRISTIANSEN: I am Craig Christiansen, President of the Omaha Education Association. Senator Nelson and members of the committee, I am here on behalf of over 2800 members of the Omaha Education Association. This association represents the teachers and administrators in the Omaha Public Schools. On their behalf I want to convey our support for the provisions of LB 1001. We have reviewed these provisions at every level in our organization by meetings, hearings, seminars, and all of them have met with enthusiastic endorsement. On behalf of the active teacher members of the retirement system and the OEA I urge your support in advancing this bill.- Thank you.

SENATOR NELSON: Thank you, Craig. Any questions? Senator Moore.

SENATOR MOORE: Well because you are in a policymaking position I'll ask you this question. Obviously there is a concern that Senator Abboud mentioned about going from 1.65 to 1.7, obviously actuarially sound to do it, but from a policy perspective, how would you deal with the fact that you would have obviously the Omaha situation is different than the rest of the state but by decoupling them and

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raising that one up, how do I explain that to everybody else?

CRAIG CHRISTIANSEN: Well I can't answer that question in terms of your responsibility for the state system. I believe that it is a fair thing to do given the responsibility of the retirement system, the trustees, to its active and retired members in terms of the resources that we have and the intent of those resources. We have the money, it is actuarially sound and we believe that it is the right thing to do.

SENATOR MOORE: Maybe I didn't ask my question right because .... you are right, it is my job and it is my problem, but my question was that you as a policymaker, I mean I am just asking a philosophical question, if you had one school with more resources and one with not as much, how do you explain that away?

CRAIG CHRISTIANSEN: Well, I think that question is probably historically dependent upon the amount of contributions and the funding assumptions, earning assumptions that have. been made by either system, and those are actuarial questions I think that are not in my domain. I believe that is where the answer lies.

SENATOR MOORE: Well the best answer you could give is that you are different, you are different, you always have been different and you don't have to be the same. But you didn't give me that answer.

CRAIG CHRISTIANSEN: I did give you that answer, Senator, but it was couched in different terms.

SENATOR MOORE: Okay, okay.

SENATOR NELSON: Any other questions? Senator Abboud.

SENATOR ABBOUD: Craig, when you are negotiating contracts, do you put a priority as far as for your membership, do you put a priority on retirement system or on salary? Where .would you put a higher priority?

CRAIG CHRISTIANSEN: We do not negotiate the provisions of the retirement system. Those would be dependent upon the actuarial assumptions of the system and those are controlled by the recommendations of the trustees to the Board of Education. Those are not part of the negotiations process.

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SENATOR ABBOUD: I see, is your membership involved as a trustee or is there any teachers...

CRAIG CHRISTIANSEN: We have representatives from the teacher members on the Board of Trustees, yes. And those represent the membership in terms of the decisions and recommendations of the trustees. But, in terms of negotiating benefits and that type of thing through the system, we do not do that.

SENATOR ABBOUD: So this is outside of your negotiation then.

CRAIG CHRISTIANSEN: Yes.

SENATOR ABBOUD: So when you go before the CIR, negotiating or discussions over what is a proper salary level, retirement is not a factor at all.

CRAIG CHRISTIANSEN: That is correct.

SENATOR ABBOUD: Do you think it should be?

CRAIG CHRISTIANSEN: I think that-there are, in my opinion, I believe that there are questions that involve some very technical answers that probably are not in that domain of the give and take across the table. So I am comfortable with the system as it is.

SENATOR ABBOUD: negotiations.

CRAIG CHRISTIANSEN: Yes. Not to be included in the salary

SENATOR ABBOUD: Don't you feel, isn't a retirement system just as important to the membership as a salary level?

CRAIG CHRISTIANSEN: It certainly is. It is a question that involves long term liabilities and other actuarial problems that are not perhaps as well understood and I don't believe that there has been any reason to move it from the system that we currently have, it is working, it has worked well, and I believe our members feel that we have a good retirement system and there has been no move to move away from that.

SENATOR ABBOUD: Do other states look at that? I mean when they make comparisons like when OPS goes before the CIR and they are negotiating their salary and the CIR looks at the

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different salary levels of the teachers in the Omaha School District versus school districts in Wichita or Denver or other areas, they don't include retirement packages as a factor in that?

CRAIG CHRISTIANSEN: Well, I think that one of the reasons why that is true is there is a fundamental difference between the negotiations process that involves salary and the retirement system that involves also contributions from the members. There is, there is much more of an investment nature to the retirement system as opposed to the salary system. I believe they are fundamentally different.

SENATOR ABBOUD: Well, in ... from what I understand with the retirement they each pay, the school district pays half and you pay half as an employee and that has increased over the years where a larger and larger percentage, or ... yeah, larger and larger percentage of their salary is drawn out of that paycheck and put into the retirement fund. But, that is not determined by the employees. That is determined ... I mean that is not negotiated, it is decided by a board of trustees?

CRAIG CHRISTIANSEN: That is correct. It is not negotiated. It is however a decision that is made or recommended from the board of trustees with input from our members, from our trustee members that represent us on that board so we have a great deal of confidence in those members.

SENATOR ABBOUD: How many members serve on the board?

CRAIG CHRISTIANSEN: We have two representatives from the teachers group who serve on the board.

SENATOR ABBOUD: Out of how many on the board?

CRAIG CHRISTIANSEN: Out of nine, I believe.

SENATOR ABBOUD: That is interesting, thank you.

CRAIG CHRISTIANSEN: Thank you.

SENATOR NELSON: Any other questions? I have another question and concern, I think as all of the committee, actuarially this may sound fine today and as Senator Abboud alluded to the contributions have had to increase through the years. I believe, I don't know when the last increase was, but from 5.6 to 5.9 now 6.5 and I know you are aware as we are, every increase in retirement eventually makes an

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increase in the OPS system or we are also aware that if 1.7 is maybe given to the Omaha School District, don't kid yourself there will be another 20,000 that would like to have the same, the same benefits, and then we go back to, of course, property tax dollars as support for school. Would your group be willing to, if this should ... because of lower interest rates or is the state ... incidentally, does Omaha, and I'm sure it would be in this connection, we have an unfunded liability and of course as you know that occurs anytime that benefits are given that were not actuarially set Lip. Lucky enough there was a decrease last year in that, but it is 4.7, it was down, now its I think 2.6 million less. But, that is still an unfunded liability that is general tax dollars. Would your group be willing to support an increase in your contribution rate if eventually down the road it has to happen? It could you know.

CRAIG CHRISTIANSEN: I'm afraid you will have to repeat the question.

SENATOR NELSON: All right, would your group basically support an increase in contributions to actuarially support this increase in retirement benefits?

CRAIG CHRISTIANSEN: The response of teacher members has always been to, historically in the last few years that we have come before the Legislature to support the increase of contributions that would mean increased retirement benefits, that is correct.

SENATOR NELSON: Okay, that is what I wan you. Are there other questions? appreciate your appearing.

CRAIG CHRISTIANSEN: Thank you.

SENATOR NELSON: Any other proponents?

JOE KITTA: Senator... I wanted to hear. Thank ... If not, thank you,

SENATOR NELSON: Have you signed in? I didn't ask the other people. Okay, she has taken care of it. Thank you.

JOE KITTA: Yes, I have. Senator Nelson and members of the committee, my name is Joe Kitta, K-I-T-T-A, and I represent the skilled trades people in the Omaha Public Schools and on their behalf I am here co convey our support of this bill and would appreciate your speedy approval on it.

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SENATOR NELSON: Thank you, Joe.

JOE KITTA: Thank you.

SENATOR NELSON: Any questions? If not, thank you, Joe.

JOE KITTA: Thank you.

SENATOR NELSON: Any other proponents?

DOROTHY SMILEY: Senator Nelson and members of the committee, my name is Dorothy Smiley, S-M-I-L-E-Y, I am president of the Omaha Retired School Employees Association and we have quite a few with us today. I would like to have them stand please to be recognized. Thank you. Most of our members live on a fixed income which over the years has lost its original value. It has been three years since we last received a cost of living increase. During those three years inflation has cut our pensions by over 13 percent. We are in need of the cost of living adjustment included in this bill. The Omaha Retired School Employees Association members give their full support to LB 1001 in its entirety. Thank you.

SENATOR NELSON: Any questions of Dorothy? Senator Crosby.

SENATOR CROSBY: This is a personal question. Is everyone that is with you from Omaha, live in Omaha? I had a call from a nice lady in Lincoln, Miss Stewart, who used to be librarian at Central. She is not hero?

DOROTHY SMILEY: I don't believe so. I personally do not live in Omaha.

SENATOR CROSBY: Okay, I just wondered if she was here.

DOROTHY SMILEY: I am a Bellevue resident. But, I belong to the Omaha retired teachers. I taught in Omaha.

SENATOR CROSBY: I wanted you to know you have a helper over here and she is 98 years old and she called me and I swear she doesn't sound like she is 98.

DOROTHY SMILEY: Well we appreciate that.

SENATOR CROSBY: And, I'm going to go call on her because I just thought it was wonderful that she took the time to call.

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DOROTHY SMILEY: Thank you, we appreciate that.

SENATOR NELSON: Dorothy, I have a question and I think just for the committee and I think that they all realize this, and no doubt I would support the bill, too, if I were you but, you do receive the normal COLA benefits that we have received in the Social Security System, correct?

DOROTHY SMILEY: Yes, that is correct.

SENATOR NELSON: So that's.... you know it isn't exactly a pension locked in as what I take today is similar to many, many other pensions.

DOROTHY SMILEY: Yes.

SENATOR NELSON: I just wanted that on the record.

DOROTHY SMILEY: That is correct.

SENATOR NELSON: Any other questions? Thank you, Dorothy.

DOROTHY SMILEY: Thank you.

SENATOR NELSON: Anyone else to testify? Senator Horgan would you like to close? No one has changed their mind as an opponent or a neutral? Okay.

SENATOR HORGAN: No opposition. Thank you, Senator Nelson and committee members. A couple of points I think I ought to make. One is the question has been raised about the reserve fund, and should interest 'rates change or be impacted upon this I think it is important to note that the assumptions made by the actuaries are conservative. While the earnings have been in the range of 14 percent, the projections are in the range of 8 percent, so there is a significant reduction in the projection of growth than what has actually occurred over the recent years. The other important thing to recognize is that the money for these improvements in the retirement system are currently in .reserve. So if the entire system were to have no earnings the money is still there to cover the retirement of all current employees in the system. So, there really should not be a concern about interest rate projections for this increase. A couple of other things I would mention is that Senator Abboud had a asked a question regarding negotiating the retirement and by statute negotiating the retirement system is not permitted and it is governed by state law, which I think philosophically is there because you don't

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want unions negotiating retirement accounts and negotiating away some of those rights or perhaps exceeding what is actuarially sound and therefore in our statutes the retirement system is protected. The other thing, also the employees contribution to the system is also provided for in statute and is at 5.8 percent and unless we change the statute it can't change. Finally, on Senator Moore's question regarding why OPS should be different than the state system, I think that Senator Moore's answer was probably the best, the teachers in the room gave him an "A" on that. The answer is also that OPS and the state system have somewhat piggy-backed on themselves and OPS usually does take the lead in these types of increases and the state system perhaps will be coming to you in the next year or so for a similar increase, if they have as good as earnings as the OPS system has been able to project in their retirement system. The other thing that I would say is that it is important to remember the automatic survivorship part of this bill, there has been an instance or two where a teacher prior to signing off a survivorship for his spouse or her spouse did die before doing that and therefore the long term survivorship was not allowed to those surviving spouses. This bill will allow that to occur without the employee having to take the initiative to sign off on that, which is an important thing I think for a number of the employees of the system. With that I would simply recommend to the committee that you advance the bill to the floor and would encourage each and everyone of your support for it.

SENATOR NELSON: Thank you. Horgan? Thank you.

SENATOR HORGAN: Thank you. Any questions of Senator

SENATOR NELSON: That will close the hearing today on LB 1001.

Disposition of Bills:

LB 1001 - Advanced to General File, as amended.

Chairperson Committee Clerk