Comprehensive pension reform is needed for city government and city employees alike. However, it is critical that any discussion of pension changes be comprehensive — not an incremental approach that further endangers the funds in the future.
Merely increasing the contributions to the plan without reform will not solve the problem. The system is fundamentally flawed. The benefits exceed the income and that cannot be sustained over the long term, regardless of the rate of return.
Pension reform was an issue that was heavily debated during the 2012 legislative session. Unfortunately, cities and towns were not allowed to be involved in the dialogue leading up to the bill being drafted. The Oklahoma Municipal League didn't support the legislation from last session as introduced and the official position of the OML board of directors was to support the intent while not supporting the bills in their current form. The suggested amendments supported by the league that would lead to true pension reform included, but were not limited to the following:
Years of service.
Minimum retirement age.
Determination of true disability benefits.
Limitations on the Deferred Retirement Option Plan (DROP).
Defined benefits vs. defined contributions.
Guaranteed interest on contributions.
That beneficiaries who have equity in the plan assume some responsibility
As a result of the proposed legislation failing to make it through the legislative process, OML developed a pension reform working group that has been meeting regularly to develop general principles that we believe should be in place in any pension reform measure. We also have been meeting with legislative and executive leaders to try and work toward a consensus to ensure these systems are reformed in such a way to protect the public safety employee's pension, which includes ensuring they are sustainable.
We maintain a similar position on pension reform this year; however, we will be looking to initiate and support issues that lead to true pension reform, including but not limited to those issues listed above. More specifically:
Extend the required age and years of service.
Consider the effect of full survivor benefits and disability laws.
Another critical issue that shouldn't be overlooked is the new accounting standards announced by the Government Accounting Standards Board that will require the state and potentially municipalities to show the total unfunded liability of the plan on its balance sheets. This will no doubt affect the bond rating for the state and municipalities. Poorer bond ratings would price almost all types of infrastructure development out of reach for municipalities.
This is a complicated issue that will require all affected parties to come to the table and work together to solve. We stand willing and able to be a part of that ongoing conversation.
Stager is executive director of the Oklahoma Municipal League.