“We already have the infrastructure in place,” he said. “We have the ability to do that probably a lot quicker than some other agencies might.”
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 minimum employee contribution is 3 percent with contributions up to 10 percent matched by the state, McDaniel said. The match ranges from 3 percent to 6.5 percent.
If the measure passes, statewide elected officials and legislators elected after it took effect would have no choice, he said. Their pension would be a defined contribution plan.
McDaniel said he decided to try the option with the Oklahoma Public Employees Retirement System because it is among the better funded of the state's seven pension systems and it is the second-largest state pension system. Also, some members of the system have said they would have liked to have the choice.
“They want choices,” he said. “We want to give people mobility. We want to give them opportunities for economic prosperity and we believe in individual responsibility.”
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.
The changes helped improve the state's pension system to 33rd in the country, McDaniel said.
Sluggish market returns were key factors in increasing the liability by $1 billion last year, putting the unfunded liability at $11.5 billion.
The state's pension system had its funding ratio improve from 56 percent in 2010 to 67 percent in 2011, McDaniel said. Its funding ratio for 2012 was 65 percent; meaning that if all current and retired state employees cashed in their pensions at once, the pension plan generally could pay 65 cents on the dollar; the actual amount varies among each plan.
McDaniel said that for decades previous legislatures granted benefits to state retirees without funding them. The money to pay for them has mostly come out of the pension systems.
Also demographics are working against the defined benefit system, he said. The state has fewer new workers while the number of retirees is increasing.
“The trend is definitely moving in the private sector away from the defined benefit plan to defined contribution plan,” McDaniel said.