Actuaries recommend modest assumption tweaks for Omaha school retirement plan; keep 7% return, change smoothing method

Actuaries for the Omaha School Employees Retirement System (OSERS) presented highlights of a four‑year experience study to the Nebraska Legislature Systems Committee, recommending a small set of assumption and method adjustments and explaining the funding effects for the 2026 valuation.

Patrice Beckham and Aaron Schochon of Kavanaugh McDonald (retained actuaries for NPERS) summarized the study’s role: experience studies compare what actually happened during the study period (calendar years 2021–2024) with prior actuarial assumptions and assess whether changes are warranted. They cautioned the committee that the study period includes the COVID era and atypical salary and funding patterns that reduce the credibility of some observed experience.

On asset valuation methods, the actuaries said the OSERS board moved from a 75% expected value / 25% market weighted approach to a closed five‑year smoothing method to align with other Nebraska plans. The change primarily alters the timing of recognizing investment gains and losses; because calendar‑year 2025 returns were unusually strong (the presenters cited about 15.6% for 2025), the method change had a material effect on recognition this year.

The actuaries recommended retaining a 7% nominal investment return assumption (composed in their presentation of a 2.35% price‑inflation baseline and a roughly 4.65% real return). They noted that Aon’s 30‑year capital market median in their slides was about 7.11% and explained that, given the inflation baseline, a 7% assumption is within the modeled distribution.

On wage and payroll assumptions, the presenters recommended a modest increase to the productivity component of the general wage inflation assumption (spoken in the presentation as "from point 5% to point 6%"), intended to reflect persistent wage pressure for teachers and a tight labor market without overreacting to the atypical 2021–24 period. They recommended no change to the administrative expense assumption (0.24% of covered payroll).

Beckham told the committee that recent recognition choices and the smoothing change reduced the plan’s reported asset value by about $32,000,000, lowered the funded ratio by roughly 1.1 percentage points, increased the unfunded actuarial liability by about $32,000,000, and changed the contribution rate by about 0.41 percentage points — increasing the district’s additional contribution by roughly $2,000,000.

The actuaries emphasized the long‑term nature of the obligations and their professional judgment to avoid overreacting to an atypical study period; they said changes are designed to improve fit and credibility rather than to produce abrupt swings in contribution requirements. Committee members asked clarifying questions about tables and the smoothing methods; the presenters offered to follow up on specific smoothing calculations if the committee requested them. The hearing closed with thanks to the presenters.