Guaranteed retirement plan protects thousands from market woes
Pat Schuttler is probably going to work a few years beyond traditional 65 retirement age.
But not because her retirement funds tanked in recent days.
Last year, Schuttler switched from a 401(k)-type plan for state workers to a plan that guarantees her at least 5 percent earnings on her retirement nest egg.
“It’s guaranteed, and it’s not going to go away,” she said.
And this week she’s ever so glad a friend convinced her to switch.
“I can’t thank her enough.”
Sixty-eight percent of state and county workers — 18,830 people — are in the guaranteed plan and don’t have to worry as the market sinks.
In 2002, the Legislature changed the retirement plan for the bulk of state and county employees. It had been a more traditional “defined contribution” plan, through which employees make their own investment decision, much like private company 401(k)s. Both employees and employers contribute to the retirement account.
The new plan, begun in 2003, guarantees a return of at least 5 percent on the retirement accounts. Employer and employee still contribute to individual accounts, but the state’s investment agency makes investment decisions.
Ideally, higher interest earned during good years by the state investment council will make up for bear markets.
But the guarantee means that state government, thus state taxpayers, will make up the difference when the market tanks, as it is right now.
Other state employee groups, including the Nebraska State Patrol, judges and school teachers and staff, have a “defined benefit” retirement plan through which they are guaranteed a specific monthly pension based on their salary at retirement and years of service.
“Nebraska is a bit unusual,” said Keith Brainard, an expert on public employee retirement programs, about the cash balance plan.
The defined benefit plan is the prevailing state and local government retirement program, he said.
Some states also offer a garden variety 401(k)-type plan, said Brainard, research director at the National Association of State Retirement Administrators.
Texas and Nebraska are the only states with the cash balance plan as their sole retirement plan, and Nebraska has the most pure cash balance plan, Brainard said.
All new Nebraska state and county employees automatically go into the cash balance retirement plan, said Phyllis Chambers, director of the Nebraska Public Employees Retirement System.
Long-term employees had a choice: They could stay with the old plan and make their own investment decisions and take the risk, or join the guaranteed plan.
“At the moment, it appears to have been a very good decision,” Gerry Oligmueller, the governor’s budget director, said of his decision to move to the cash balance plan five years ago, the first of two option periods.
“But it wasn’t an easy decision. I thought about it for a considerable period of time. You are effectively giving up control,” he said.
The Legislature’s decision to move to a plan that guaranteed the interest showed foresight, said Nebraska Attorney Gen. Jon Bruning, who was a state senator and chairman of the Legislatures’ Retirement Committee when the cash balance plan was put into law.
“I have to give (former Sen. Bob) Wickersham the credit,” Bruning said. “I just happened to be the committee chair.”
A study of the retirement plan showed that many employees weren’t very knowledgeable about investments and were not moving their money around to take advantage of growth opportunities, said Joe Schaefer, legal counsel for the Nebraska Public Employees Retirement Systems.
In addition, senators wanted a more stable retirement plan for employees, Bruning said.
“We didn’t want employees betting their retirement savings on the stock market,” Bruning said. “We wanted to have it more stable than that.”
If the market continues to fall, the Legislature could be required to make up the difference for the defined benefit plans and for the cash balance option.
The Legislature has always pitched in to maintain the soundness of the defined benefit plans of teachers, judges and patrol when the market dropped.
This would be the first time taxpayers are asked to help on the defined contribution plan, said Chambers, director of the state retirement system.
State contributions are based on annual actuarial reports for each plan, she explained.
The state’s costs are calculated using a five-year rolling average, which smoothes out the state’s costs related to dips in the market.
The Legislature spent about $15.6 million in fiscal years 2007 and 2008 helping the defined benefit plans meet actuarial requirements after the market dip in the early 2000s, according to budget documents.
Reach Nancy Hicks at 473-7250 or nhicks@journalstar.com.
But not because her retirement funds tanked in recent days.
Last year, Schuttler switched from a 401(k)-type plan for state workers to a plan that guarantees her at least 5 percent earnings on her retirement nest egg.
“It’s guaranteed, and it’s not going to go away,” she said.
And this week she’s ever so glad a friend convinced her to switch.
“I can’t thank her enough.”
Sixty-eight percent of state and county workers — 18,830 people — are in the guaranteed plan and don’t have to worry as the market sinks.
In 2002, the Legislature changed the retirement plan for the bulk of state and county employees. It had been a more traditional “defined contribution” plan, through which employees make their own investment decision, much like private company 401(k)s. Both employees and employers contribute to the retirement account.
The new plan, begun in 2003, guarantees a return of at least 5 percent on the retirement accounts. Employer and employee still contribute to individual accounts, but the state’s investment agency makes investment decisions.
Ideally, higher interest earned during good years by the state investment council will make up for bear markets.
But the guarantee means that state government, thus state taxpayers, will make up the difference when the market tanks, as it is right now.
Other state employee groups, including the Nebraska State Patrol, judges and school teachers and staff, have a “defined benefit” retirement plan through which they are guaranteed a specific monthly pension based on their salary at retirement and years of service.
“Nebraska is a bit unusual,” said Keith Brainard, an expert on public employee retirement programs, about the cash balance plan.
The defined benefit plan is the prevailing state and local government retirement program, he said.
Some states also offer a garden variety 401(k)-type plan, said Brainard, research director at the National Association of State Retirement Administrators.
Texas and Nebraska are the only states with the cash balance plan as their sole retirement plan, and Nebraska has the most pure cash balance plan, Brainard said.
All new Nebraska state and county employees automatically go into the cash balance retirement plan, said Phyllis Chambers, director of the Nebraska Public Employees Retirement System.
Long-term employees had a choice: They could stay with the old plan and make their own investment decisions and take the risk, or join the guaranteed plan.
“At the moment, it appears to have been a very good decision,” Gerry Oligmueller, the governor’s budget director, said of his decision to move to the cash balance plan five years ago, the first of two option periods.
“But it wasn’t an easy decision. I thought about it for a considerable period of time. You are effectively giving up control,” he said.
The Legislature’s decision to move to a plan that guaranteed the interest showed foresight, said Nebraska Attorney Gen. Jon Bruning, who was a state senator and chairman of the Legislatures’ Retirement Committee when the cash balance plan was put into law.
“I have to give (former Sen. Bob) Wickersham the credit,” Bruning said. “I just happened to be the committee chair.”
A study of the retirement plan showed that many employees weren’t very knowledgeable about investments and were not moving their money around to take advantage of growth opportunities, said Joe Schaefer, legal counsel for the Nebraska Public Employees Retirement Systems.
In addition, senators wanted a more stable retirement plan for employees, Bruning said.
“We didn’t want employees betting their retirement savings on the stock market,” Bruning said. “We wanted to have it more stable than that.”
If the market continues to fall, the Legislature could be required to make up the difference for the defined benefit plans and for the cash balance option.
The Legislature has always pitched in to maintain the soundness of the defined benefit plans of teachers, judges and patrol when the market dropped.
This would be the first time taxpayers are asked to help on the defined contribution plan, said Chambers, director of the state retirement system.
State contributions are based on annual actuarial reports for each plan, she explained.
The state’s costs are calculated using a five-year rolling average, which smoothes out the state’s costs related to dips in the market.
The Legislature spent about $15.6 million in fiscal years 2007 and 2008 helping the defined benefit plans meet actuarial requirements after the market dip in the early 2000s, according to budget documents.
Reach Nancy Hicks at 473-7250 or nhicks@journalstar.com.
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