At least one state senator is not satisfied with the progress Omaha has made in resolving its pension problems, and he’s looking at major changes in benefits for future Omaha and Lincoln firefighters and police officers.
Omaha has been grappling with its underfunded pension liability for years, and the public safety pension has improved from a low point of being only 39 percent funded to 50 percent funded.
But State Sen. Mark Kolterman of Seward, chairman of the Legislature’s Retirement Committee, said that remains troubling, and he’s concerned that Omaha city leaders might eventually ask the state to bail out the pension system.
“I just don’t see how they’re going to dig themselves out,” he said.
Kolterman plans to sponsor a bill that would require that future fire and police employees in the state’s two largest cities receive a cash balance plan, which is a hybrid of a traditional pension and a 401(k). The proposal would not affect benefits for current employees.
Already, the Omaha police chief, city unions and others are pushing back on Kolterman’s idea, saying it wouldn’t help with the unfunded liability and it would hurt Omaha’s ability to attract and retain workers.
“This is going to be a massive fight in the Legislature,” said John Wells, president of Omaha’s police union.
Mayor Jean Stothert declined to take a position on Kolterman’s proposal, saying she hadn’t seen the specifics. But she said she would rather resolve the issue on the local level, and she continues to push the police union for more concessions on pensions.
Lincoln’s fire and police pension system is doing somewhat better than Omaha’s, at a funding level of 64 percent.
The City of Omaha and its unions agreed in 2012 to a host of changes intended to prevent a collapse of the police and fire pension system, including increased payments from both the city and employees and reduced pension benefits.
Now, the plan is slightly more than 50 percent funded — which leaves roughly $600 million in unfunded city liability for the fire and police pension system alone.
The city’s pension liability is the amount of money the pension system needs today to be able to pay for all of its obligations due in the future. The unfunded liability is the shortfall between the pension liability and all of the funds the pension system currently has.
Bond raters, who assess the city’s ability to pay off its debt, said this year that the unfunded liability in the city’s two pension plans — the other is for civilian workers — is keeping Omaha from a AAA top bond rating.
“We view the city’s pension liabilities as significant,” wrote a Standard and Poor’s analyst this year. “Without additional necessary structural reforms, we view growing pressure on the city’s finances and tax base as likely. At this time, the poorly funded pension plans and lack of a sufficient enacted plan to address the obligations preclude a higher rating.”
Civilian employees approved a contract in 2015 under which employees hired in March or later would be covered under a cash balance plan. That plan is 56 percent funded, and Stothert said the cash balance plan puts the pension system on the path to being fully funded.
Kolterman said he’s concerned that Omaha’s police and fire pension system will worsen. Kolterman said the funding shortfall is not the state’s responsibility — but making sure pension plans are well managed is.
“Our intent is to make sure the plans are financially solid going forward, and we have a way to at least give the cities of Omaha and Lincoln an opportunity to make that happen,” he said.
He said a cash balance plan is still better than what many private employers offer.
Kolterman said he’s not sure of the bill’s chances but said he will make a serious effort to push for the proposal. And he said he is willing to talk to union leaders about the issue.
“We’re very willing to talk. We’re very willing to listen,” he said. “But at the end of the day we have to do what’s best for the taxpayers and the people.”
The Platte Institute for Economic Research has been pushing for such changes to Omaha’s pension plans for years.
The group’s CEO, Jim Vokal, said he’s working with the national group Retirement Security Initiative to advocate for pension changes.
“We feel it’s important to stop the bleeding for taxpayers,” Vokal said.
Stothert has been pushing the police union for more concessions to officers’ pension benefits, which she said would make them comparable to firefighters’ benefits.
The mayor has asked officers to accept two changes: putting an additional 1 percent of their salary into the pension system, and lowering the pension cap for new hires to 65 percent of their salary. The current maximum is 75 percent. She said that would put their benefits in line with what firefighters receive.
But the police union maintains that there’s no need because the changes they’ve agreed to are working.
Police officers are the only bargaining unit in the city without a current labor contract. The previous contract expired in 2014.
The city and the union went to the state labor court last month to present arguments over 2015 wages for officers.
Stothert said she has not asked legislators to intervene on the city’s pension plan.
She said that she’d prefer to settle the matter through a new labor contract and that she’d recently had a productive meeting with union leadership.
“I think we can come to a resolution without state involvement,” Stothert said.
At a Platte Institute legislative summit last year, Stothert said on a panel that she’d be open to legislative changes. Stothert said Vokal, who was moderating the discussion, did not specify what those changes might be and did not ask if she’d be open to legislation such as Kolterman’s proposal.
She said she doesn’t intend to ask the fire union for more concessions on their pensions.
Stothert’s mayoral challenger, outgoing State Sen. Heath Mello, who sits on the Retirement Committee, said he doesn’t support Kolterman’s proposal. He said he doesn’t believe it will solve the unfunded liability problem.
Mello also said he believes Omaha would have problems attracting and retaining new public safety employees under the proposal.
“Other cities across the country who’ve done this are dealing with the aftermath of their decision,” Mello said.
Omaha Police Chief Todd Schmaderer said he hadn’t seen the specifics but said losing a traditional defined benefit pension plan would probably make it more difficult for the department to hire and keep good officers.
He said policing can have some extreme lows for officers — he cited the death of Omaha Police Officer Kerrie Orozco, who was killed in the line of duty in May 2015 — and they need an incentive to stay.
“It would seem to me that this is just going too far,” he said.
The fire union president, Steve LeClair, said he foresees a similar problem with retention in the Fire Department. He said job candidates would probably come to Omaha as a training ground, then move on to departments that offer better benefits.
LeClair said he’s prepared to push back against Kolterman’s proposal.
“If the state wants to step in and assume responsibility and usurp” Omaha’s authority, he said, “then they can assume the full unfunded liability.”