“Common sense” suggests “significant savings in investment management fees could be achieved by combining administration of the plans,” he said.
Miller said he initially estimated $120 million to $150 million in such costs could be saved over 10 years, but also quoted from a study that indicated $15 million to $50 million a year might be saved. Critics have challenged those numbers and the assumptions on which they are based.
Switching future employees to a 401(k)-style plan would provide future workers with a plan that is more portable, more flexible and “fairer to the taxpayers … , most of whom have an employer-sponsored defined contribution plan, if they are lucky,” Miller said.
Miller acknowledged the Oklahoma Education Association has opposed the plan as an attempt to save the state money “on the backs of teachers,” but contended the proposed changes “would only affect future hires, but could provide for increased funding for current classrooms and teacher salaries.”
“I do not believe the share of state dollars going to education should be reduced, but allocated more effectively to provide a fair retirement, better take-home pay and more money in the classroom,” he said.
The state auditor said he doesn't see how the proposal will fix the pension system.
“The problem we've got today with this $11 billion unfunded situation is the proposals out on the table today don't fix the problem,” Jones said. “I've been good with math since I was little and I will tell you folks, the numbers don't add up.”
Switching future employees to another plan doesn't provide the extra money to pay off the current unfunded obligations, he said.
Miller bristled at Jones' remarks.
“One can't say the math doesn't work when there is currently no math to disprove,” Miller told The Oklahoman later.
Miller said details of the plan are yet to be worked out, but one way to come up with money to pay the accumulated $11.4 billion pension liability would be to have the state pay less employer contributions into the new plan in the form of matching funds for employee 401(k) contributions and use the savings to reduce the unfunded pension liability.
However, Jones questioned how the state could do that while using those same savings to provide teachers with better take-home pay and more money for their classrooms.
Jones acknowledged the state could save some money on management fees by consolidating funds but cautioned the pension funds could quickly lose any potential savings if investments made under a new board do not perform as well as they have in the past.
“The investment strategies of our pension plans have been very good. They've been some of the top in the nation,” he said. “If we change those boards and we change those investment strategies, .5 percent difference in earnings takes us from being high to being average, or a little above average.”
That much difference in investment earnings would cost pension systems $110 million a year, he said.
“So when we look at changing the makeup of these pension boards, let's keep in mind, we're going to lose a lot of expertise and a lot of knowledge that people have used in those investment strategies,” Jones said.