Budget & Tax, Law & Principles

Senate analysis refutes House member claims on pension bill

April 14, 2022

Ray Carter

Legislation that would increase the state employer match for government workers’ retirement contributions has won approval in the Senate Appropriations Committee and now awaits a vote from the full Senate.

But that measure, House Bill 2486, has been completely overhauled in the Senate to address concerns about taxpayer impact and legislative self-dealing associated with the initial version of the bill passed by the Oklahoma House of Representatives.

Notably, the original version of the bill passed by the House could have significantly boosted the retirement benefits of some state lawmakers.

As originally passed by the House in March, HB 2486 eliminated a state defined-contribution retirement plan, similar to a 401(k) plan in the private sector, and instead placed most state government workers into a defined-benefit plan. The latter system previously resulted in billions of dollars in unfunded liability for state taxpayers until reforms were enacted in 2014 when the 401(k)-style plan was created.

The changes endorsed by House lawmakers would wipe away an estimated $3.8 billion in projected taxpayer savings over a three-decade period, increasing financial stress on state government.

Under the House version of the bill, members of the Legislature were among those shifted to the defined-benefit plan, increasing retirement benefits for many legislators.

One member of House leadership, state Rep. Josh West, publicly denied lawmakers would benefit from passage of the House version of HB 2486.

In a Facebook post, West claimed, “The legislature was not included in this bill ...” West also insisted any reports that House lawmakers voted to boost their own retirement benefits were “misleading,” “false,” and “BS.”

West serves as a majority leader in the Oklahoma House of Representatives.

But an analysis by Senate staff found that under the bill advanced by House members, “legislators would have been impacted similar to all other state employees.”

A Senate staff review found multiple provisions in the House version of the bill that related to legislators’ own retirement benefits.

Page six, line 16 of the bill provided “for the termination of the defined contribution retirement plan” that all legislators have been in since 2015.

Page eight, line 23 through page nine, line two, stated that provisions of existing law (which apply to legislators’ retirement benefits) will “cease to have the force and effect of law.”

The 2014 reforms (the “Retirement Freedom Act”) created the state’s “defined contribution system,” the 401(k)-style plan, for all state employees hired on or after Nov. 1, 2015. Existing law states that “state employee” means any officer or employee of the executive, legislative, or judicial branches of the government.

Page nine, line three of the House version of HB 2486 stated that each member of the defined-contribution plan—which includes legislators—“shall cease making employee contributions and shall begin participating in the defined benefit plan” pursuant to the provisions of Section 902 et seq. of Title 74. The referenced section of law includes legal definitions regarding the state’s defined-benefit plan, including that “member” is defined to include elected officials or former elected officials. “Elected official” is defined to include individuals serving in the legislative branch of state government.

Page nine, line 15 of the House version of the bill states that employer contributions for individuals in the current 401(k)-style plan “shall cease” and employer contributions shall instead be directed in accordance with Section 920 or 920A of Title 74—provisions directing employer contributions to the prior defined-benefit plan.

Page 46, lines three through 13 of the House version of HB 2486 also repealed a section of law regarding the defined-contribution plan.

Page 11, line seven referenced the termination of the defined-contribution plan in which legislators are currently enrolled.

Page 37, lines 15 through 21, repealed current law that specifically requires an “elected official or legislator” who assumes office on or after Nov. 15, 2015, to be a part of the defined contribution system.

Page 46, lines three through 13, repealed existing law regarding the employer’s match for all employees participating in the defined contribution system, a group that includes legislators.

Senate staff determined that the “stricken language and other enacting language terminating provisions of the Retirement Freedom Act (aka defined contribution plan) in Engrossed HB 2486, leaves no option but for elected officials, including legislators, to move to the existing defined benefit plan …”

Because of all the problems identified in the House version of HB 2486, members of the Senate Retirement and Insurance Committee gutted the bill and passed a new version. The Senate version of HB 2486 maintains the state’s 401(k) system and does not shift any employees—including members of the Legislature—from the 401(k) system into the old defined-benefit plan.

Instead, the Senate version of the bill bumps the state employer match for workers’ retirement contributions.

When HB 2486 came before the Senate Appropriations Committee, Sen. Dewayne Pemberton stressed that the legislation no longer eliminated the 401(k) plan.

“I want to make sure I make that very clear: It relates to the state employees that are in the defined-contribution system, not the defined-benefit” system, said Pemberton, R-Muskogee.

By simply increasing the state employer match, rather than eliminating the 401(k)-style system, Pemberton said the Senate version of HB 2486 “would make the plans much stronger for our employees’ retirement plans, help with recruiting and retention.”

The overhauled Senate version of HB 2486 passed the Senate Appropriations Committee on a 17-1 vote.