Is Nebraska's Cash Balance Pension a Model?

Stephen C. Fehr
Publication Date: 
July 25, 2011

Nebraska takes an approach to managing its public pension system that is unusual among the states. It does not offer its employees and legislators a traditional fixed-benefit pension or a health care plan when they retire.  

Instead, Nebraska state employees hired since 2003 join what public pension analysts call a "cash balance" retirement plan , which includes features of both a traditional defined benefit pension and a 401(k)-style system. The hybrid plan is getting new attention from other states searching for alternatives to the decades-old defined benefit system whose cost is rising as Baby Boomers retire and pension portfolios recover from record losses during the Great Recession.  

Cash balance plans, which are more prevalent in the private sector, are a compromise between defined benefit and 401(k)-style plans. Under the typical defined benefit pension system, the state government and employees contribute to the plan at a fixed percentage set by the legislature. The retirement system manages the investments and assumes the risks. Upon retiring, employees receive guaranteed monthly checks for life based on a specific formula based on final average salary, number of years worked and age.