| February 24, 2011
Pension reform now
The state of Illinois recently raised its state income tax 66 percent and its corporate income tax nearly 40 percent, largely due to its pension funding crisis. Wisconsin, Indiana, New Jersey, Oregon, and many other states are also taking major steps to stop the grotesque overspending and debt accumulation that is due in large part to ballooning state pension and employee-benefit costs.
Oklahoma is not immune to these problems. Our largest state pension system, the Oklahoma Teachers Retirement System (OTRS), has an unfunded actuarial accrued liability (assets included) of $10.4 billion. Also troubling is the funded ratio of OTRS, which is 47.9 percent. Moreover, the Oklahoma Public Employees Retirement System (OPERS) has an unfunded actuarial accrued liability (assets included) of $3.2 billion, and a funded ratio of 66 percent. These numbers are staggering, considering the entire state appropriated budget is about $6.4 billion a year. Each of Oklahoma’s six major pension funds has experienced a significant decline in its funded ratio over the last decade. The dire financial condition of Oklahoma’s pension systems is due to numerous factors, including irresponsible legislative action, employee union lobbying, lack of transparency in reporting the conditions of the systems to the public, and overextension of benefits to beneficiaries.
Yesterday, the Associated Press reported that a recent independent study by Goldman Sachs for Oklahoma state Treasurer Ken Miller found that our state ranks seventh in the nation in unfunded liability per capita.
Eligible to be heard today on the House floor are two bills that would increase the fiscal soundness of Oklahoma pensions. House Bill 2132 by Speaker Kris Steele requires permanent benefit increases to be fully funded at the time they are granted. House Bill 1006 by Representative Randy McDaniel requires state pension plans to have a funded status of 80 percent before a permanent benefit increase can be granted.
The time is now for major reform to Oklahoma’s state pensions. Just last fiscal year, the state pumped in more than $1 billion dollars to existing state pension systems, yet the systems had a combined unfunded liability of more than $16 billion. It is abundantly clear that the problem with our pensions is not a lack of funding.
Lawmakers, agency directors, employees, and beneficiaries need to understand that retirement is primarily the responsibility of the retiree—not the employer, the government, or society at large. Reforms must be enacted now to bring state spending on pensions back to reality, and the aforementioned measures will help to do just that.