Oklahoma teachers' retirement fund lags, but still on target to be fully funded

The funded ratio of the Oklahoma Teachers Retirement System dropped slightly in the past year from, 56.7 percent to 54.8 percent, a report released Wednesday shows. The pension plan still is on track to eliminate its unfunded liability in 22 years.
BY MICHAEL MCNUTT mmcnutt@opubco.com Published: November 28, 2012

The unfunded liability of the retirement fund for Oklahoma public school teachers, which just two years ago was one of the most underfunded plans of its type in the nation, went up slightly in the past year.

But the Oklahoma Teachers Retirement System still is on target to eliminate its unfunded liability in 22 years, according to a report presented Wednesday to the system's Board of Trustees.

“We're still on the path towards 100 percent funded,” said James Wilbanks, the executive director of the state agency. “We are on the right path. We're moving towards a fully funded status.”

The increase in the system's unfunded status from $7.6 billion to $8.4 billion, as of June 30, is based on investment losses incurred during the stock market downturn in 2008, he said.

As a result, its funded ratio dropped from 56.7 percent on June 30, 2011, to 54.8 percent a year later. That means that if all teachers and retired teachers cashed in their pensions at once, the pension plan could pay 55 cents instead of 57 cents on the dollar.

The Teachers Retirement System, in which retirees receive a set monthly amount based on time of service and salary, has nearly 158,000 members. About 88,000 are active teachers and about 53,000 retirees and beneficiaries.

The downward numbers are attributed to the system's practice of adjusting losses and gains in investments over a five-year period, Wilbanks said.

“We're still recognizing losses from the fiscal year 2008 and fiscal year 2009,” he said. “We defer those losses over a five-year period and that's done to smooth out the value of assets so that the funding ratio never gets whipsawed from one year to the next.”

Wilbanks said he's encouraged that the Teachers Retirement System, which two years ago was projected to never reach a fully funded status, still is expected to be 100 percent funded in 22 years.

A report prepared by Gabriel Roeder Smith & Co., of Irving, Texas, states that projections show it will take about 15 years for the pension fund to reach 80 percent funding. Most experts prefer plans to be funded at 80 percent.

The projection is based on an 8 percent market growth on investments each year and no changes being made to the contribution and benefit provisions of the plan, according to the report.

Legislature's action

The pension fund's unfunded liability improved dramatically two years ago after legislation was passed and signed into law that reduced its unfunded liability from more than $10.4 billion to $7.6 billion. Key to shoring up the teachers' retirement pension, the state's largest defined benefit plan, was passage of House Bill 2132, which requires the Legislature to fully fund cost-of-living adjustment increases for those on the state's pension system.