Culture & the Family

| March 6, 2014

YOU GUEST IT: Retirement reform: A generational opportunity

There are few issues facing my fellow lawmakers and me as crucial as the condition of our state retirement systems. Our six active defined-benefit retirement plans have debt totaling more than $11 billion, which is staggering considering this is more than total annual state tax collections and more than the state appropriated budget. Over the last 10 years, only one plan has maintained its assumed rate of return, and for decades the state failed by hundreds of millions of dollars to make actuarially required contributions.

The problems facing our pension systems are not unique to Oklahoma. Defined-benefit plans are highly susceptible to political mismanagement because it is very easy for lawmakers to make promises today and leave to future legislatures the responsibility for paying for those promises. This is exactly what has happened in Oklahoma for decades. Cost-of-living increases were granted without proper funding; too many participants were added to the system considering the contribution levels the state could afford to pay; special perks and benefits were added without concern for future costs; and the systems have all relied too much on higher-risk investment return rates to make up for the lack of adequate contributions.

Over the last several years, lawmakers have made efforts to more responsibly govern the state retirement plans, but the inherent flaws of defined-benefit systems make them impossible to manage on a large scale. Each year, debt continues to grow over the prior year. The only way to solve the problem is to stop adding non-hazard-duty participants to the broken system.

When I think about our pension systems, I think about the promises we must keep to current employees and retirees, the future needs of core government services, and future generations. This is why I have joined many lawmakers and am helping lead an effort to move a portion of our state’s retirement system to a defined-contribution plan, just like what most Oklahomans receive.

The legislature is considering proposals that will change only retirement plans for new, non-hazard-duty employees eligible for the Oklahoma Public Employees Retirement System. By modernizing our retirement compensation for these non-hazard-duty employees, we can dedicate savings to pay off the debt we owe so that we can keep our promise to current employees and retirees. Also, this will free up funds to provide for the core functions of government in the future and reverse the current imbalance of too many state taxpayer dollars going to broken benefit plans. This change will also protect future employees from the political problem inherent with defined-benefit plans by providing them an asset they actually own.

It is important to note that if the state does not offer a modern retirement system to the next generation of employees, we will not be able to compete for the best and the brightest. Many people opposing pension reform argue that pensions keep employees working for the state; however, this is not true. Of those hired by the state from January 1, 2003, to December 31, 2012, only about 50 percent of those employees are still employed by the state. This means the vast majority of those employees worked without receiving any state retirement benefit. At the same time, their counterparts in the private sector worked at a company where they received a 401(k) benefit that has helped the employees build their own retirement. The state legislature must govern in such a way that the future employees have a voice. Right now, they do not.

Retirement reform is most certainly a heavy lift, but it is necessary. States like Illinois, California, and New Jersey — as well as the federal government — have shown what happens when you kick the can down the road and refuse to acknowledge mathematics and reality. Retirement reform is an opportunity to keep promises, and make government work better for both employees and taxpayers. It is a generational opportunity to pass on to the future a sustainable and better-functioning government.

[Sen. Brinkley (R-Owasso) is chairman of the Senate Pensions Committee.]

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