REFORM CITY OF OMAHA PENSION SYSTEM

NTF Issue paper: ccwatch134.doc.  10-13.
NEBRASKA TAXPAYERS FOR FREEDOM ISSUE PAPER:
REFORM THE CITY OF OMAHA PENSION SYSTEM. 

BACKGROUND.  Omaha like many other cities has underfunded public sector pensions.  City union employees enjoy retirement benefits several times higher than those of comparable private company employees, placing great strain on our city budget.  Without substantial reform, city pensions will terminate by default. Severe service cuts will ensue.  Pension costs are devouring dollars needed for basic city services, like libraries and public safety.  Government employees are retiring earlier and living longer.  The ratio of pensioners to active employees increases.  Taxpayers could see the city sending retirement checks to employees for more years than employees worked.  Lowering pensions for new employees and increasing worker pension contributions might not cut spiraling pension costs soon enough to avert disaster.  Delaying action will erode our standing in bond markets.   Another recession could cripple pension portfolios.  The city must stop engaging in compensation bidding wars with other communities to snag valued employees.  

NTF SOLUTIONS.  Transition into a defined-contribution pension plan for new employees.  Grant only cost of living increases to retirees.  Increase to age 65 at which employees may retire with full pension benefits.  Reduce current and future benefits under shared employer/employee risk if insufficient funds available. Increase employee contributions, if actual investment returns fall below assumed projections.  Use career average pay to calculate pensions. Compute final pension compensation on base pay over a 5-yr. average to prevent pension spiking.   Employees could select a lower pension for future service or contribute an additional percentage of pay to continue to earn a current pension.  Freeze earned pension benefits and re-set pension formulas at realistic levels for current employees. The city charter should reserve the right to alter retirement plans at any time.  Delegate labor negotiations to experienced, tough negotiators.  Impose a cap on salary used to determine pension benefits.  To exceed this level, employee and employer could make additional contributions into a defined-contribution plan.  Establish maximum hours that retirees can return to work and continue to receive a pension.  Tighten standards for revoking or reducing pensions of public employees and elected officials convicted of specific crimes regarding public trust.  Prohibit retroactive pension increases.  Submit all pension increase proposals to voters.  Such ballot issue must contain clear and concise actuarial information.   Annual financial reports must include the present value of liabilities of individual pension funds and government pension contributions as a percentage of both general operating budget and  personnel costs. With greater transparency, taxpayers can evaluate if city pension programs administered honestly and competently.  This transparency will pressure legislators to pass reforms to eliminate our city pension crisis.  Local subdivisions compete  with private companies for intelligent employees, so pension plans must accommodate greater mobility within and outside of public service.  Plans therefore must appear flexible, transferable, and attractive to prospective employees from the private area who may remain only a limited time. Make retirement savings plans portable, thus more flexibility to move a plan to other jobs.   Place a year limit on total service counted toward a pension.  Reduce pensions more for early retirees.  Establish base benefits normally granted, additional benefits offered only if a fund reaches specific financial benchmarks.  Require pre-determined actions to change future benefits, contributions, and asset allocations, if a change in the plan financial condition.  If a funded ratio drops for 2 yrs., employer and employee contributions should rise by 1%.  Base benefits would drop.  Conversely, benefits would rise, if funded ratio rises above 105%.  Such constitutes risk-sharing.  Increase the number of years for vesting. Cap overtime counted towards retirement.  Exclude overtime from final average salary calculated for a pension. Eliminate lump sum withdrawals of contributions at retirement.    End lump sum payments for unused vacation leave from final average salary calculation.  Prohibit use of unused sick leave for additional service credit at retirement age.  Allow public defined benefit systems to buy private annuities.  Make annuity contracts with private insurance companies.  Thus, underfunding would become impossible, because life insurance companies would pay pensions and assume all investment risks, regulated by our state insurance dept. to insure the strength and solvency of the companies.  The U.S. Chamber of Commerce endorses this option.

COLA IDEAS.  Subject cost of living adjustments (COLAs) to restrictions dependent upon the amount of surplus in funds.  Peg COLA benefits at 50% of  the local urban inflation rate.  No longer guarantee COLAS; reduce or suspend them, if the pension plan status deteriorates.  Belated increases could occur later, if plan finances improve.  Apply COLA increases to only a percentage of pensions.  Adjust for inflation only after age 67.

LEGISLATIVE HELP.  Our Unicameral should create pension options for state and local governments. As a ballot issue, legislators with voters could pass a constitutional amendment to allow pension cuts or revisions for current state and local government employees in future.

WORK WITH UNIONS.  The city should work cooperatively with public unions by renegotiating union contracts to lessen the financial impact of exorbitant pensions.  If unions refuse to renegotiate, utilize layoffs and furloughs.  Public employees often lack financial education and informed retirement planning, so offer educational seminars and information necessary for employees to plan for retirement and make intelligent investment decisions themselves.  Increase employee incentives for cultivating personal savings outside their employment.

CITY CHARTER REFERENCES.  Reference our above suggestions to City Charter Part II: Chapter 22, Article II: Sec. 22-30: Service retirement options-age of retirement; Sec. 22-31: Maximum benefit; Sec. 22-50: Limitation on compensation; and Sec. 22-54: Adjustment of pensions.

TAKE ACTION NOW.  The above suggestions for reform will provide a secure retirement benefit, keep faith with public employees, and make costs more predictable and sustainable for a city.  They will improve the fiscal health of the Omaha pension system.  Reform will help control the rise in city property taxes.  Our suggestions, as objectives, make public employee benefits sustainable and consistent with private enterprise.  Contact your city council member and Mayor’s office today to take a tough stance to reform union contracts and their pension plans. =====================================================================================

OMAHA CITY COUNCIL        PHONE                 EMAIL ADDRESSES                   

District 1: Pete Festersen          444-5527                      pfestersen@ci.omaha.ne.us

District 2: Ben Gray                 444-5524                      bgray@ci.omaha.ne.us

District 3: Chris Jerram            444-5525                      cjerram@ci.omaha.ne.us

District 4: Garry Gernandt       444-5522                      ggernandt@ci.omaha.ne.us

District 5: Rich Pahls               444-5528                      rpahls@ci.omaha.ne.us

District 6: Franklin Thompson  444-5523                                   fthompson@ci.omaha.ne.us

District 7: Aimee Melton          444-5526                      amelton@ci.omaha.ne.us

Address mail to: Councilman __________________________
Rm. LC-l
Omaha Civic Center
1819 Farnam Street

Omaha, NE. 68l83-0100

FAX: 444-5263

OFFICE OF MAYOR JEAN STOTHERT   Phone: 444-5000
Room 300

1819 Farnam Street                                          Office website: http://www.cityofomaha.org/mayors-office
Omaha, NE. 68183-0300

Research, analysis, and documentation for this issue paper done by Nebraska Taxpayers for Freedom, with express prior permission granted for its use by other groups in the Nebraska Conservative Coalition Network.  10-13.  C

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