For the first time in at least a decade, the City of Omaha and its police and firefighters are putting enough into their pension plan, according to an actuarial analysis.
That’s the good news from the 2015 actuarial report on Omaha’s police and fire pension fund.
The upshot, said Omaha Finance Director Steve Curtiss: “It doesn’t mean you’re out of the woods by any stretch, but it’s an achievement.”
The bad news: The fund brought in a paltry return on its investments last year — 0.2 percent — and its funded ratio rose only slightly.
On that front, “we’ve basically treaded water,” Curtiss said.
The police and fire pension is one of two plans covering Omaha city employees. The other plan covers civilians.
It’s been less than 10 years since Omaha instituted a package of pension reforms intended to prevent a collapse of the police and fire system, including increased payments from both the city and employees and reduced pension benefits.
At the low point, in 2010, the city was putting in less than 44 percent of what an actuary said it should contribute to the fund.
Last year, for the first time, that contribution figure has risen above 100 percent. The city contributed $42.1 million, slightly more than the $41.9 million that the actuary determined was required.
Overall, as of Jan. 1, the plan was funded at 50.8 percent. The actuary determined the plan’s liability to be $1.2 billion, compared to $621 million in assets.
The funded ratio is up slightly from last year’s 49.6 percent. And it is well above the 39 percent ratio in 2008, which was the low point.
John Wells, president of the Omaha police union, said the report shows that the pension reforms have been working.
“We continue to move in the right direction, which is moving to be fully funded,” he said.
But Jim Vokal, CEO of the Platte Institute, an economically conservative Nebraska think tank, says 50 percent funded isn’t anything to brag about.
“Omaha still has a problem with police and fire, and we’re not going to earn our way out of it,” he said.
The Platte Institute is set to release a report about the pension plan today that again advocates a move away from a traditional pension for firefighters and police officers.
The city’s civilian workers have recently adopted a hybrid plan for new workers that functions as a cross between a pension plan and a 401(k).
The debate hinges on the current police and fire pension plan’s assumption that it will produce, on average, an 8 percent return over the long run.
The plan has exceeded that target over the last few decades. But Vokal argues that it’s not a reasonable assumption going forward in this post-Great Recession economy.
If the plan doesn’t produce the projected rate of return, that means its actual liability will turn out to be much higher than the current estimate.
“Without it, their plan doesn’t work, the system doesn’t work and the liability grows,” Vokal said.
Curtiss said the city is aware of the criticism about the projected return rate. And he noted that Omahans know they wouldn’t be able to expect 8 percent on their personal 401(k) plans.
But he said a pension plan doesn’t function like a 401(k). Instead, it’s more like an endowment, because it’s supposed to exist forever. That allows for a longer-term view of investments, as well as more diversification.
He questioned whether the Platte Institute experts can accurately predict what’s going to happen in the market over the next several decades.
“If they know for sure what’s going to happen, I want to go to Vegas with them,” he said.
Mayor Jean Stothert, who was in the hospital late last week and not available to speak about the pension report, has said the city has made good progress on the pension plan but there’s still more work to be done.
Fire union President Steve LeClair could not be reached for comment late last week.
The city and the Omaha Police Officers Association could not come to an agreement over the 2015 labor contract, in large part because Stothert wanted additional pension concessions from officers. The 2015 police contract is now before the state’s labor court.
Wells said the report shows that the pension plan is now on track, so additional concessions wouldn’t be necessary. He said making more cuts to benefits could hurt the city’s ability to attract good job candidates to be police officers.
Wells also said the plan needs to be considered over the long term. A low return in single year, he said, doesn’t mean doom.
“My question to (Vokal) is, if we have an 18 percent return, does that mean we increase benefits?” he said. “No, so stop freaking out about it.”