Audit finds Omaha schools pension plan has $1 billion-plus shortfall, 'significant' issues

LINCOLN — The pension plan covering current and former Omaha Public School employees closed out 2022 with more than $1 billion of unfunded liabilities.

That represents the largest shortfall in nearly a decade and a $269 million jump in one year, according to a state audit and management letter released Thursday.

The reports also cited "significant weaknesses" in the plan's financial management, prompting State Auditor Mike Foley to express concerns about the "error-ridden" system that handles the retirement accounts of more than 15,000 current, inactive and retired OPS staff.

"Not only have serious findings from last year's audit remained uncorrected, but also new, no less significant, problems with (system) operations have been discovered," he said in a statement.

Shane Rhian, OPS chief financial officer and the pension plan administrator, offered reassurance about the district's commitment to "a strong and stable retirement system for the dedicated staff of Omaha Public Schools."

He said the audit findings would not affect employees' eligibility, contributions or retiree benefits and pledged that the district would continue to make additional contributions to the pension system to fulfill its obligations.

The Omaha School Employees Retirement System has faced troubles before. In 2021, the fund had an almost $1 billion shortfall that a World-Herald investigation traced largely to mismanagement and investment blunders by the plan's trustees.

OSERS is the only single-district pension plan in Nebraska and one of only a handful nationally. Starting next year, the system will be managed by the Nebraska Public Employees Retirement Systems, the state agency that already runs pension funds for state employees, employees of other school districts and county workers.

The responsibility for investing OSERS funds already has been transferred to the Nebraska Investment Council. The audit cited "overall unfavorable market conditions" for last year's losses. The OSERS losses were comparable to those for other funds managed by the state council.

Rhian also cited market conditions for the losses, noting that people with personal investment accounts saw the same results in their accounts.

The state audit did not say how much additional money would be needed to make the plan healthy. However, an actuarial study dated May 19 called for a $29.4 million contribution from the district this year, with larger amounts in the future.

Foley noted that the district has made $128 million of additional contributions to the plan over six years in an attempt to catch up with future needs. But even including the $29.4 million contribution, last year's investment losses left the plan at only 57.7% funded, its lowest level in nearly a decade. The highest level was 67.13% for 2021.

By contrast, the school employees retirement plan managed by the state and covering teachers and other school employees outside of OPS is 94.55% funded.

Rhian said the district would continue to make the additional contributions to build the long-term health of the plan. OPS officials have committed to making the payments needed to cover its past liabilities, even after management switches to the state.

The management letter pointed to several other problems with the Omaha system.

Most significant was the retirement of two key employees, who took 31 years of experience with them, along with turnover among OPS accounting staff who provide support to the pension plan. In addition, the OSERS Transition Board of Trustees met only twice during the year.

The combination led to significant delays in providing information to auditors, failure to address and correct problems found in the 2021 audit and several additional errors in financial accounting for the system, the auditors said.

One issue arose late last year, when changes were made to the computer application used to update member accounts. The changes produced inaccuracies in how interest was calculated for member accounts. The inaccuracies were not caught during testing and were only corrected after being found by the auditors.

The inaccuracies in interest calculations affected 24 of 25 sample accounts checked by the auditors. They estimated the errors added about $8.4 million total to account balances and, in some cases, meant that departing employees were refunded the wrong amounts.

Among other accounting issues were errors in financial statements, deaths of members not being caught in a timely manner and incorrect service credits posted to accounts.

In responses included with the audit and management letter, OSERS officials said they would review each of the issues and address them.