Budget & Tax

Pension-reform rollback puts taxpayers at risk

April 1, 2022

Curtis Shelton

“House lawmakers voted to roll back a 2014 pension reform that was projected to save taxpayers $3.8 billion over 30 years and instead provide state workers retirement benefits that are not available to the typical private-sector worker in Oklahoma,” my colleague Ray Carter recently reported (“House votes to roll back Oklahoma pension reforms”). “House Bill 2486, by state Rep. Avery Frix, eliminates a defined-contribution retirement plan, similar to a 401(k) plan in the private sector, and instead places most state government workers in a defined-benefit plan.”

HB 2486, which is co-authored by state Sen. Dewayne Pemberton (R-Muskogee), a retired public-school educator, places future generations of Oklahomans in financial jeopardy.

Nearly a decade ago, state lawmakers embarked on the task of reforming the state’s retirement system. In 2011 the state’s pension systems had a funding ratio of just over 50 percent—uncomfortably close to the current level seen in Illinois, where the pension crisis has resulted in nearly a quarter of every tax dollar going to fund the system.

By 2019 it was clear the reforms had worked, with the funding ratio growing to 81 percent. Now all that work is being threatened. A defined-benefit plan is inherently riskier than a defined-contribution plan. There is a reason professional financial advisors don’t guarantee returns for their clients: it’s because they can’t. It’s foolish to make a promise to state employees we know we can’t keep. If the funding ratio were to fall to previous levels, state officials would be put in a position to make a lose-lose decision: either break a promise to state employees and cut benefits, or raise taxes. In all likelihood, the latter option is the only option politically.

Current lawmakers, however, aren’t worried about this decision as it will take years for the pension system to deteriorate. Instead, all HB 2486 does is saddle future lawmakers and future taxpayers with the burden of their mistake. It is easier than ever for young people to pick where to live and what to do for a living. Illinois has already shown us what happens when you throw an ever-increasing tax burden on a younger generation just to pay off past debt. With no-income-tax states like Texas and Tennessee close by, there is no guarantee that they will stick around to carry that burden.