Members of the state House of Representatives would like a commitment from the governor and Senate to fund targeted pay increases this year before signing off on a pension overhaul bill, state Rep. Leslie Osborn, R-Mustang, said.
“I think the dollars are there. We may just have to make some hard decisions in other areas,” said Osborn, author of a bill to revamp the state’s employee compensation system.
Osborn has the support of House Speaker Jeff Hickman.
“I don’t think we can simply reform the pension plans now and tell our state employees, ‘We’ll get to the salary issue later,’” said Hickman, R-Fairview.
Hickman said he would like to see House members consider the pay raise bill and pension bill one right after the other on the House floor.
“I think we need to be talking about running those together,” Hickman said. “Perhaps we don’t have one without the other. That may be what we have to ultimately decide to do.”
Both bills may be taken up on the House floor as early as this week, but even if they pass, the House will get a chance to vote on them again before they become law because of procedural steps that have been taken, Osborn said.
Osborn said the goal of her employee compensation bill, House Bill 3293, is to raise state employee salaries to 90 percent of the private market within four years by setting aside 3 percent of the previous fiscal year’s payroll costs for salary adjustments each year.
Oklahoma state employees, in general, are currently paid about 20 percent less than the private market, according to the Oklahoma Public Employees Association.
Three percent of last year’s payroll would amount to about $40 million a year, according to John Estus, spokesman for the Oklahoma Office of Management and Enterprise Services.
The plan is not to give every employee a 3 percent pay raise, however.
Instead, Osborn said she wants to see targeted raises given each year, starting with the most underpaid employees who would receive raises much higher than 3 percent, while others wait their turn.
Osborn said public safety employees, corrections employees and some Department of Human Services jobs should be first in line.
“The understanding I have with House leadership and with most members that I have visited with is that they, in general, are in favor of some pension reforms,” she said.
However, those members would like “solid assurances” from the governor that the money will be there for pay raises this year before being asked to cast a final vote for pension changes, she said.
Osborn said separate pay raise bills for troopers and some other groups are making their way through the Legislature, but she hopes her bill will be approved and funded and the other bills won’t be needed.
System change proposals
State Rep. Randy McDaniel, House author of a bill to overhaul the state pension system, said the pension system and employee compensation are linked, regardless of whether anyone wants them to be, because the high cost of supporting the current defined benefit plan crimps the state’s ability to fund other priorities such as raises and education.
Under the current defined benefit system, employees who retire after working at least 7.5 years for the state are promised a set amount, depending on their salaries and years of service.
Employees are required to pay 3.5 percent of their salaries into the system, while the state is currently kicking in 16.5 percent to meet current requirements and make up for past years when the system was underfunded.
About half of the money going into the pension system this year is going to pay for past debt.
McDaniel’s proposal calls for leaving current employees on the existing system, but putting new employees under a 401(k)-style defined contribution system where the employees would be required to contribute 3 to 7 percent of their salaries into the system and the state would be required to match those contributions dollar for dollar.
The Oklahoma Public Employees Association and other employee groups have come out in opposition to the change because the employees would be required to contribute a greater percentage of their retirement costs and would take on investment risks currently taken on by the state.
McDaniel, however, said a defined contribution plan also has advantages.
“It helps the existing system,” he said.
“We have predictable costs so we can budget better in the future. And there are benefits to the employees — sovereignty over their retirement assets, more mobility and the opportunity to create personal wealth.”
“The straightest path to better wages and to greater financial security for both the pension system and employees is to have a plan designed that doesn’t create unfunded liabilities,” he said.
In addition, any employee who works less than 7.5 years for the state would have a huge advantage under the proposed system.
Under the existing pension plan, the employee would not be vested and would only receive back the 3.5 percent that the employee paid, with no interest or state contribution.
However, under the proposed defined contribution plan, the employee would be 20 percent vested after the first year, 40 percent after the second year, 60 percent after the third year, 80 percent after the fourth year and 100 percent after the fifth year.
That means that in addition to getting their own money back, employees would be entitled to receive a percentage or all of the state’s contribution, plus investment earnings, depending on how long they worked for the state.
Employees have concerns
Although the Oklahoma Public Employees Association has been lobbying against the pension overhaul bill, its leaders have voiced a willingness to consider change if pay raises are addressed.
“Until lawmakers take steps that will result in meaningful improvement in state employee salaries, OPEA will oppose changing the current employee benefit structure for benefits like longevity, retirement and dependent health care,” Sterling Zearley, OPEA executive director, said in a prepared statement.
“People are concerned,” acknowledged McDaniel, R-Edmond.
“We want to make sure we are doing the right thing for employees, for future employees and for the future of Oklahoma. There will be a lot of voices involved in the discussion. I think that’s healthy.”