LINCOLN, Neb. (AP) — Nebraska Gov. Dave Heineman issued his first veto of the session on Monday, rejecting an increase in the state’s contribution to underfunded teacher and school employee retirement plans.
Heineman argued that the additional state funding was unsustainable, but said he’d sign an embedded short-term fix if lawmakers passed it as a standalone measure. He called on lawmakers to conduct a six-month review of how to make Nebraska’s public employee retirement system for teachers, state troopers and judges more sustainable, so they can address it next year.
The changes are designed to trim a $108 million, two-year gap in state pension funding.
“This is one that really needs further study,” the Republican governor said. “I want to understand the full, comprehensive nature of the challenges we face,” noting he was concerned about the potential long-term cost for state taxpayers.
Bill sponsor Sen. Jeremy Nordquist, of Omaha, said he will file a motion to override the veto, saying it was a compromise, since teacher and school district contributions have increased 28 percent since the economic downturn hit the state four years ago. Employees are now required to put nearly 10 percent of their pay into the retirement plan, he said.
In his veto message, Heineman pointed to estimates that the state’s increased contribution — from 1 percent to 2 percent — would cost taxpayers more than $500 million over the next 25 years. The employee contribution would remain the same.
“The bill does not present comprehensive, long-term solutions to the defined benefit pension plans,” Heineman said.
He also took issue with assumptions that the plan will see 8 percent yearly investment returns. Heineman said the study should include the cost of a more realistic rate of return — 6 percent or 7 percent — so lawmakers and the public can better understand the system’s liabilities.
Heineman said he supports a short-term fix within the legislation, which would change employee contributions from a specific dollar amount to a percentage of their overall pay. As employee salaries increase, the amount contributed to retirement would increase in tandem.
Heineman’s budget recommendations did not include a solution to the projected shortfalls in the school, judges’ and troopers’ retirement plans. Nordquist said past governors have worked to address state-pension shortfalls.
“It is something every governor has taken on, except this governor at this budget time,” Nordquist said.
Nordquist will file a motion to override the veto, which requires 30 votes. The bill won final approval in the Legislature with 34.
Nordquist said the short-term fix would only postpone the state’s liability. He said lawmakers studied the retirement system two years ago, which concluded that switching to a cash-balance retirement plan was too expensive to be feasible.
The bill is LB553.