School retirement changes discussed; budget debate resumes
May 4th, 2017
Future teachers and other school employees would have to wait until age 60 rather than 55 to retire, under a bill being considered in the Legislature. And senators resumed debating the state budget, amid criticism from Gov. Pete Ricketts.
Sen. Mark Kolterman of Seward, chairman of the Retirement Systems Committee said the changes he is proposing to teachers’ retirement are needed for several reasons. Both current and projected returns on investment have declined, and retirees are living longer, drawing more benefits.
To keep the plans actuarially sound, Kolterman is proposing raising the retirement age for future school employees from 55 to 60. His proposal would say any school employee who retires can’t work for a school within three years if they take an early retirement incentive program. And it would also prohibit teachers from beginning work again as substitute teachers, for 180 days after retiring.
In addition to financial reasons, Kolterman also said he wanted to address a problem with public perception.
“We hear from constituents who are angry about employees retiring and then returning to work, and earning second, even third retirement benefits,” Kolterman said.
Sen. Sue Crawford of Bellevue said that shouldn’t be a reason for the bill.
“Envy and resentment. That’s why this bill is on the floor. Colleagues, I live in a community that loves our public employee retirees. Bellevue operates on, our small businesses are run by, our military retirees and our retired teachers. We’re not resentful that they decided to start a second career. We welcome that,” Crawford said.
Raising the retirement age is expected to save taxpayers $100 million in contributions they would otherwise have to pay for retirement contributions over the next 30 years. But much of the debate centered on the requirement that teachers wait 180 days after retiring before being eligible to substitute. Sen. Steve Erdman of Bayard said that would be a hardship for many districts.
“In western Nebraska, and I don’t know if it’s that way in the eastern part of the state, we have a shortage of substitute teachers – a severe shortage. We have classes that go to the library or join other classes because we can’t find substitutes,” Erdman said.
Kolterman acknowledged the problem. But he said the current system could create a problem with the Internal Revenue Service.
“IRS compliance for qualified governmental plans requires a bona fide separation of service for every member. Currently there are numerous examples of school members who file for retirement and sign up for substitute teaching in the same week or month that they retire. It’s difficult to argue that the terminated members or retirees intend to have a bona fide separation of service under these circumstances,” Kolterman said.
Sen. Adam Morfeld asked how real that problem is.
“Have we received any official communication from the IRS stating this is a problem? Is there any precedent, ruling, case law, anything of any nature other than the legal counsel’s thought on this?” Morfeld asked.
“No, to my knowledge we have not. We’re just trying to be proactive so that doesn’t happen,” Kolterman replied.
Sen. Lynne Walz of Fremont offered an amendment to say that retirees could substitute teach up to 45 times during the first 180 days after they retire. Although lawmakers moved onto another subject before voting, that amendment will be pending if and when the Legislature returns to the bill, which will require Kolterman to show he has 33 votes to overcome a potential filibuster.
Also Wednesday, lawmakers returned to debate on the state budget for the next two years. Tuesday, the Appropriations Committee recommended closing a new, $50 million gap created by lower revenue projections through a combination of about $10 million in additional cuts, but primarily by lowering the required budget reserve from 3 percent to 2.5 percent. The way the reserve requirement works, a total budget of, for example, $10 billion requires at least $10.3 billion in funds expected to be available. Lowering the reserve requirement means the Legislature can adopt a budget with less of a cushion of expected revenues.
Gov. Pete Ricketts criticized the plan.
“Instead of setting priorities and making needed cuts to spending, Appropriations Committee members have placed the state’s finances on shaky ground by Iowering the minimum reserve in our checking account. I urge the full Legislature to reject this proposal and to roll up their sleeves and get to work cutting spending to bring the budget back into balance,” Ricketts said.
Sen. John Stinner, chairman of the Appropriations Committee, defended the committee’s plan.
“I think it is a tool that we can use in order that we don’t do any more damage to our priority list, which is the provider rates, Corrections, the Supreme Court those types of things that we set up as priorities,” Stinner said.
Stinner noted that several areas the governor had suggested for further cuts, including Medicaid provider rates and the University, had received no support in the committee. Before senators could get to debating the reserve requirement, they got caught up in renewed debate over language in the budget bill on the distribution of federal family planning funds.
Critics of the language said it was intended to cut off funds to Planned Parenthood, but would also cut off other family planning clinics around the state. Supporters said the other clinics would still be funded. Even some pro-life senators, including Speaker Jim Scheer, said the issue should be debated on its own, not as part of a must-pass budget bill. But the first attempt to strip out the language failed, falling three votes short.
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