Stillwater News Press

September 7, 2013

Pension reform debate heating up

By Chris Day
Stillwater NewsPress

STILLWATER, Okla. — Oklahoma doesn’t have enough money to fulfill the retirement promises it has made to state employees.

Oklahoma isn’t the only one state struggling to meet its obligations.

The Pew Center on the States reported in 2010 that only four states — Florida, New York, Washington and Wisconsin — had fully funded pension systems. The report also indicates the gap between the amount of money the states have set aside to pay employee retirement benefits and the money needed to meet their obligations has reached $1 trillion.

Oklahoma’s funding gap was $16 billion in 2010. Two years ago, state statutes were revised to prevent legislators from scheduling cost of living adjustments without appropriating money to fund them.

In March, State Treasurer Ken Miller told the NewsPress those changes had trimmed that gap to $11 billion. More reform was needed. The state has seven separate pension boards, which should be consolidated into one. It also needed to switch from plans that specified a monthly retirement payment based on an employee’s earning history and years of employment, which is called a defined benefit plan, to an employee contribution plan with a state match, similar to a 401K plan, which is called a defined contribution plan.

In May, Gov. Mary Fallin vetoed a pension reform bill that let new state employees select either a defined benefit plan or defined contribution plan. The governor said the bill was window dressing instead of real reform.

Pension reform will be a key issue when the legislature returns for the 2014 session in February, Oklahoma Council of Public Affairs, Inc. President Michael Carnuccio said last week.

The Oklahoma Council on Public Affairs is an independent, nonprofit public policy research organization — a think tank — based in Oklahoma City. It primarily focuses on state issues.

Carnuccio received a bachelor’s degree in broadcast journalism and master’s degree in political science from Oklahoma State University.

Carnuccio and Director of External Relations Dave Bond discussed pension reform, Medicare funding and worker’s compensation during an interview at the NewsPress Thursday.

“We are now growing back up. We are north of $11.5 billion now — heading toward $12 billion pretty quick because we still have a defined benefit system,” Carnuccio said.

The state needs an 8 percent return on its retirement system investments to pay for its commitments. The state hasn’t come close to having an 8 percent return, he said.

The funding gap has harmed the state’s credit rating and bonding capabilities, he added.

“We also have public employees that are starting their services to the state that ... are not guaranteed to receive that. ... Their pension is not guranteed. Mathematically, it’s not possible to meet that benefit unless the state drastically increases taxes or cuts out funding for schools or something else to meet those obligations,” Carnuccio said.

The private sector has moved from direct benefit pension plans to 401K plans with employer contributions since the 1960s, he said. The state needs to do the same.

“The catch is how do you get there in an election year,” he said. “What our position at OCPA is ‘you have to stop the bleeding.’”

All new hires would join a defined contribution system and the defined benefit system would be phased out, he said.

“It stops the state from continuing to go further in debt,” he said.

It will be a battle.

Recently, a group called Keep Oklahoma’s Promises issued a news release that said a move away from a direct benefit plan would “retire a generation of Oklahomans into poverty.”

“Fallin has partnered behind closed doors with big-money outsiders and hedge fund managers who want to send the life savings of working Oklahomans to the same Wall Street gamblers who crashed our economy in the first place,” the release states.

Keep Oklahoman’s Promises is comprised of teachers, firefighters, police, nurses and others.

Retirees or state workers close to retirement could be grandfathered into the system, Carnuccio said. The big question is how will the state handle workers in the middle of their employment?

“Anything the state does short of a defined contribution system for new employees would continue to be a failure and continue to lead us to a condition where the state can’t afford its obligations and state employees do not have a future they can count on,” he said.