For years, lawmakers had a simple but counterproductive response when asked to increase benefits for retirees in state pension systems: They simply increased benefits without an associated increase in funding, meaning they rapidly depleted state pension assets and ultimately left Oklahoma pensions among the worst-funded in the nation.

That substantially changed when a series of reforms were enacted starting in 2011 that included a ban on “cost of living adjustments” (COLAs) unless associated funding was provided.

Today, Oklahoma state pensions’ financial stability is night-and-day different from the pre-2011 years.

However, that improvement has meant few COLAs have been provided to state retirees in recent years. Now, lawmakers are considering ways to boost retiree benefits to offset the impact of inflation without returning to the bad habits of the past.

During a recent study conducted by the House Banking, Financial Services, and Pensions Committee, pension officials and financial experts told lawmakers past reforms have dramatically improved the long-term outlook of state pension systems.

“You’ve seen substantial improvement since FY10,” said Alex Brown, research manager for the National Association of State Retirement Administrators. “I look at a lot of pension plans and it’s hard to find others that replicate anything close to this experience.”

One possible way to boost future pension payments without rolling back financial progress would be to duplicate South Dakota law, Brown suggested.

South Dakota law does not allow pension systems to enact COLAs if the benefit increase reduces the system’s funded status to less than 100 percent. If a benefit increase would violate that threshold, the law requires either that the benefit increase be pared back or that contributions to the system be increased to offset the higher liability created. And South Dakota caps COLAs at a maximum of 3.5 percent in a year.

Even with those restrictions, South Dakota has provided regular COLAs in recent years without wrecking the funded status of its pension systems.

“That policy has worked to keep the plan funded at the legally required 100-percent level,” Brown said.

While the Great Recession forced South Dakota officials to suspend COLAs around 2010, Brown said reforms have since allowed South Dakota’s state pensions to increase benefits to account for inflation without leaving the core assets depleted to the point a pension system cannot cover all its obligations.

“They were able to reintroduce inflation protection, but they did so in a way that preserves that benefit for the future so that they don’t have to, every time there’s a market decline, keep taking away and then reinstating the COLA later,” Brown said. “Instead, they just created this model that essentially absorbs any adverse experience into the COLA.”

However, several major Oklahoma state pension systems will not be able to cover the cost of any new COLA for several years under the South Dakota model unless lawmakers direct additional funding to the systems.

The Oklahoma Firefighters Pension and Retirement System (OFPRS) is now 74.6 percent funded. However, that is a major improvement from 2010, when the system was only 53.4 percent funded.

“I can remember that actuary report that year, and it felt very bleak,” said Chase Rankin, executive director of the Oklahoma Firefighters Pension and Retirement System. “Things were in a bad place. We were not on the right trajectory.”

He said the decision to end the practice of mandating unfunded COLAs every few years had the “single largest impact” when it came to improving the OFPRS’ funded status. The system is now on path to reach 100 percent funded status in 19 years.

The Oklahoma Law Enforcement Retirement System (OLERS) is now 81.4 percent funded and projected to reach 100 percent within 15 years.

A presentation given to lawmakers by Duane Michael, executive director of the Oklahoma Law Enforcement Retirement System, noted that if the Oklahoma Legislature had not imposed unfunded COLAs in past decades that system would be 100 percent funded today.

Sarah Green, executive director of the Oklahoma Teachers Retirement System, told lawmakers the teachers’ system is now 80 percent funded, the highest level achieved in its entire history. She said the teachers’ retirement system is on pace to be 100 percent funded by 2034.

Lawmakers’ past practice of mandating cost-of-living adjustments without funding the extra benefits caused significant financial harm to the teachers’ system in prior decades, she noted.

“We had unfunded COLAs for our membership given in 2000, 2002, 2004, 2006 and 2008, which contributed $1.5 billion to the unfunded liability of the plan,” Green said.

She said OTRS officials are studying the South Dakota model to determine how to best fund COLAs in the future.

Other state pension systems, however, are at the point, or the near the point, that a South Dakota system could be implemented without requiring lawmakers to provide significant additional funding.

Joe Fox, executive director of the Oklahoma Public Employees Retirement System (OPERS), said that system is currently 107.8 percent funded. In 2010, before pension reforms were enacted, it was only 66 percent funded.

Similarly, the Oklahoma Police Pension and Retirement System is now 97.6 percent funded.

Numerous bills were filed in the 2025 legislative session that would increase pension benefits for various state retirees. Those bills carry over to the 2026 legislative session and could be considered next year.

State Rep. Mike Kelley, a Yukon Republican who requested the pension study, said lawmakers must find a way to address the demand for inflation adjustments to state-pension benefits while still maintaining the systems’ financial undergirding.

“That’s our goal: To work to a sustainable system where we can continue to offset the increase in the cost of living to our retirees,” Kelley said.

Green warned lawmakers that boosting benefits without funding only delays and magnifies the financial impact on taxpayers.

“If you don’t voluntarily make these contributions to the plan in present years, you’ll be involuntarily making them in very large sums in subsequent years,” Green said. “Because, again, this is an obligation of the state ultimately.”