At the beginning of November, the Tulsa World published an article entitled Regular boosts to retired teachers’ income would derail progress toward fully funding OTRS, legislators told. Unfortunately, the reporter missed some critical points from the important interim study conducted by the Oklahoma House of Representatives on the effectiveness of public employee pensions in the state. In response, Keep Oklahoma’s Promises coalition member Sabra Tucker, wrote the below piece.
Sabra Tucker is the Executive Director of the Oklahoma Retired Educators Association.
On November 4th, the Oklahoma House of Representatives held an interim study committee meeting on the effectiveness of pensions in the state of Oklahoma. Hosted by Representative Avery Frix, the committee heard from pension system executive directors, membership organizations, and the National Institute on Retirement Security (NIRS). In the article entitled, “Regular boosts to retired teachers’ income would derail progress toward fully funding OTRS, legislators told,” the reporter missed the overall conclusion of the study: Oklahoma’s pension funds are on solid financial footing, they provide an essential benefit to our state’s local economies, and are far better than defined-contribution 401(k)-style plans.
Oklahoma’s public pension systems have a profound impact on our local economies. Tyler Bond, research manager at NIRS, testified before the committee. According to NIRS research, Bond noted that in 2018, 131,399 Oklahoma residents received benefits from public pension plans, which totals $2.6 billion in benefit payments. These benefits, earned by public employees after a career spent in service to their community, supported $4 billion in total economic output in the state – supporting 23,789 jobs and generating $296.3 million in tax revenue. These are real dollars that are invested in communities across the state that support small businesses and jobs. As the Oklahoma Teachers’ Retirement System (OTRS) Executive Director Sarah Green noted, OTRS on its own paid nearly $1.3 billion in benefits to 59,000 retired public employees. In comparison, that would make OTRS the second largest employer in the state, greater than Wal-Mart and less than the Department of Defense.
As noted in the article, no change should be made to existing defined-benefit plans in the state of Oklahoma. As the Oklahoma Public Employees Retirement System (OPERS) Executive Director Joe Fox mentioned, OPERS is struggling with its PathFinder plan. In 2015, state lawmakers moved all future OPERS participants into a defined-contribution 401(k)-style plan called PathFinder. Since then, OPERS has found that its PathFinder plan is ineffective at providing retirement security and costing the state more money. Additionally, as Fox noted, nine out of ten public employees leaving public employment are cashing out their retirement plan instead of rolling it over to another plan – taking a significant tax burden. This is a substantial problem for retirement security.
Unfortunately, the reporter focused on a single exchange from the three-hour interim study, in which the OTRS Executive Director mentioned that year-after-year cost-of-living adjustments (COLAs) that are not funded by the legislature would increase the unfunded liability of the pension system. In 2018, a small stipend was granted and in 2020 a COLA was issued by the legislature. However, as the reporter notes, these COLAs did not make a dent in the system’s assets or liabilities. The pension systems, not the legislature, funded these COLAs. If the legislature decided to make COLAs permanent and forced OTRS (and other pension systems) to fund the increased benefit themselves, yes, the unfunded liability would increase – that is the point OTRS was trying to make.
Lastly, the article mentions OTRS’s funded status of 71.5%, which is up from 67.3% last year. This was due to the strong 33.3% investment return from over the 2021 fiscal year. That said, it’s important to note that according to OTRS if measured on the market value of assets, the funded ratio would increase to 81.6%. Currently, the system is on sound financial footing and is on pace to eliminate its unfunded liability within the next 17 years.
The critical takeaway from this interim study committee is that our state’s pension systems provide an outstanding benefit – not just to public employees but to the state’s economy as a whole. State lawmakers need to stay the course and not consider moving newly hired public employees to a defined-contribution 401(k) system as OPERS has. We need to learn from our mistakes and be sure to protect our public employees’ hard-earned pensions.