Oklahoma policymakers wise to pursue additional pension reform
UNFUNDED liabilities of public employee pensions continue to threaten the long-term financial stability of Oklahoma's state government in spite of recent improvements.
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From 2000 to 2010, the unfunded liability of Oklahoma's state pension systems increased from $6 billion to $16 billion, about $1 billion per year. Reforms passed in 2011 reduced the unfunded liability by about $5 billion, thanks mostly to requiring that cost-of-living adjustments be fully funded.
Unfortunately, underwhelming market returns caused the liability to increase another $1 billion in 2012, putting the unfunded liability today at $11.5 billion. Without further reform, that liability will likely continue to grow with serious long-term consequences.
In a recent meeting with The Oklahoman's editorial board, state Finance Secretary Preston L. Doerflinger said the pension systems' unfunded liability is the “true debt issue” facing Oklahoma government. He noted Oklahoma's pension debt is routinely cited by ratings agencies, impeding efforts to improve the state's credit rating. Lawmakers are quietly working to address that challenge.
State Rep. Randy McDaniel, an Edmond Republican who chairs the House Pension Oversight Committee, has filed legislation to allow most state and county workers the opportunity to transition to defined contribution plans, moving to the 401(k)-style model common in private business. That's a step in the right direction.
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. That allows state savings while long-term market returns typically increase employee benefit.
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