Under the present Oklahoma Public Employees Retirement System plan, state employees contribute 3.5 percent of their pay and the agency contributes 16.5 percent. Under the defined contribution system, the state match would be about 6 percent, Miller said.
Some of the 10.5 percent differential would go to help shore up the pension plan's unfunded liability, he said. Once that's done, the money could be used for cost-of-living adjustments for those on the pension plan.
“We shore up the unfunded liability much, much quicker, “he said. “Then you have money to pay for COLAs.”
Fallin also wants to consolidate the staff, boards and offices of several pension plans into one. Oklahoma has seven pension plans, six of which have independent boards, staff, offices, consultants and investment managers.
About 220,000 employees and retirees are part of the state's pension system; those covered include teachers, agency workers, police, troopers, firefighters and judges.
The state spends $80 million to $100 million each year to administer the pensions; Fallin and Miller estimate the state could realize at least 15 percent in savings by consolidating the pension plans. A large part of the savings, from $15 million to $50 million, would be a reduction in fees charged by each of the pension plan's investment managers.
Two years ago, the state's pension system had a $16.5 billion unfunded liability, making it among the worst in the country. New laws passed in 2011 reduced the unfunded liability by nearly one third or about $5 billion.
Most of the savings came from a measure that requires the Legislature to fully fund cost-of-living adjustment increases for those on the state's pension system. Sluggish market returns were key factors in increasing the liability by $1 billion last year, putting the unfunded liability at $11.5 billion.
Miller said the state's pension funding rate remains the biggest obstacle to Oklahoma obtaining a top AAA credit rating. Oklahoma has an AA2 rating.
“We have a balance sheet problem because of pension debt and we have to fix that,” he said. “What we've seen the private sector do and what we see state after state after state begin to do is move away from defined benefit to defined contribution of some type.”