The new year brings a renewed sense of opportunity. Resolutions are abundant. As legislative resolutions are made for the coming session, the impetus for more pension reform is building.
The need is clear. The new actuary reports are completed. The unfunded liability of Oklahoma's public pension system increased by a billion dollars last year. Moreover, several structural deficiencies still exist, especially regarding the firefighter retirement plan.
Pension obligations are one of the most challenging fiscal issues confronting every state government. For decades, decision-makers authorized more benefits without providing the necessary funding. As a result, most state governments were struggling to meet their pension funding requirements prior to the economic downturn.
The investment losses endured during the recession exacerbated the problem. Debts soared. So did the required pension contributions. Meanwhile, state governments faced other important fiscal issues, such as critical infrastructure needs that were postponed. In response, most states are making changes to their pension plans to reduce costs and risks. The wide spectrum of legal opinions and challenging demographic trends complicate reform efforts. However, worthy goals of financial sustainability and intergenerational fairness necessitate legislative action.
Illinois provides an example of the economic consequences of inaction. The state is on track to spend more on its government pensions than on education by 2016. “Under current actuarial assumptions,” Illinois Gov. Pat Quinn said, “required state pension contributions will rise to over $6 billion in the next few years if no comprehensive pension reform is enacted, which will continue to result in significant cuts to education.”