Gov. Henry Bellmon warned the 1988 Oklahoma Legislature that an action it was about to take could “destroy the sound financial health of the state's retirement systems.”
The Legislature ignored Bellmon's advice and passed the bill over his veto.
That was the first of several fiscally unsound legislative decisions over the following 25 years that have left the state's seven pension funds with $11.4 billion in unfunded obligations, according to state Auditor and Inspector Gary Jones.
The bill the Legislature passed that day boosted the pension benefits of 500 to 600 elected officials who had held other state jobs before being elected, Jones said. Those who benefited include many state lawmakers who voted for the change. The elected officials were not required to make additional payroll contributions to help fund their future benefits.
The pension boost was so great that many retired elected officials are now receiving annual pensions that exceed their former pay and some are getting pension payments that exceed $100,000 a year, records show.
Jones estimates the cumulative impact of those pension boosts over the past 25 years to be in the range of $1 billion.
Some other officials privately have questioned whether that estimate is too high. However, there is agreement that the 1988 pension boost and other legislative actions, like the lifting of salary caps upon which benefits would be paid and the granting of cost of living increases to retirees without providing additional funds, have contributed to the $11.4 billion in unfunded pension obligation that exists today.
Jones says the state could have avoided the pension crisis if it had paid its actuarially required contribution each year to keep the systems healthy, but chose to spend the money on other priorities.
“One of the main problems we've had in the state of Oklahoma … is we have treated pension obligations as if they were not a true obligation,” Jones said at a recent state House committee meeting. “When you owe a bill, you pay a bill.”
“The state of Oklahoma says we have a balanced budget,” he said. “If we ignore the pension obligation each year that we owe to fulfill those requirements, we have not balanced our budget.”
Jones said the state failed to meet its pension obligation in 11 of 12 recent years, which allowed the unfunded pension obligation to balloon to more than $16 billion in 2011 before a series of reforms passed by the Legislature and some good recent investment years began cutting into the unfunded liability.
How to deal with the remaining $11.4 billion in unfunded liabilities is currently one of the hottest issues at the state Capitol.
State Treasurer Ken Miller and Gov. Mary Fallin are pushing for drastic changes that include consolidating administration of the state's seven pension systems under one board and requiring future state employees, with the exception of hazardous duty workers like police officers and firefighters, to participate in a 401(k)-style defined contribution plan rather than the current defined benefit plan. Miller and Fallin's plan would allow all current state workers to continue under the defined benefit plan.
Many state employees are opposed to the plan, contending it would reduce future employees' benefits.