Gov. Fallin vetoes pension reform bill, H.B. 2077
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Published: 14-May-2013

OKLAHOMA CITY -- Gov. Mary Fallin wanted to consolidate Oklahoma's half-dozen employee pension funds, but that goal did not advance this year.

Failure of that gubernatorial objective likely contributed to a decision to veto a reform that for the first time in state history would have shifted some government employees away from the defined benefit system pension many analysts contend is unsustainable. An attempt to override her veto may seem like a long-shot, but is not out of the question.

Fallin made the case for administrative consolidation in February, but did not press the issue until March. 

Consolidation never made it into a “live round” bill during this year’s process. Fallin and state Treasurer Ken Miller estimate the Sooner State could save 15 percent by establishing one set of managers across the seven government pension funds. State employee groups were uneasy, with firefighters the most vocal in direct opposition. This month, Miller told reporters consolidation would have to wait until 2014 because time had run out. 

In a surprise, Fallin last week vetoed House Bill 2077, a measure which would have put all elected officials in a defined contribution plan – and allowed new state employees that option. A defined benefit system typifies the vast majority of current state employees, but some younger workers want choice.

A news story in The Oklahoman hinted the veto was driven by her frustration over lack of progress for consolidation.

This week, most legislative Republicans are reluctant to talk about the veto, and spokesmen for the legislative leadership would not comment Tuesday (May 14) on the likelihood of a veto override. 

However, Rep. Randy McDaniel, R-Oklahoma City, sponsor of H.B. 2077, told CapitolBeatOK the governor’s veto was “disappointing. The bill offered a new defined contribution plan available to all future state employees that participate in OPERS (the Oklahoma Public Employees Retirement System), the state’s largest government pension fund.” Many younger workers want the portability of a 401-K style system, and do not plan to spend entire careers in public service. And, such plans are on sounder actuarial footing. 

Pension portability was the key feature of H.B. 2077, which McDaniel said was designed “to improve mobility, freedom and economic opportunity.” In the wake of 2012’s grim actuarial reports – when it was revealed that unfunded pension liabilities had jumped nearly $1 billion -- employee groups actually supported McDaniel’s option for new hires. 

In its final form, H.B. 2077 had 72-20 backing in the House and unanimous support in the Senate. McDaniel crafted historic reforms Fallin signed two years ago, trimming unfunded liabilities from more than $16 billion to under $11 billion. Then, liabilities jumped last year due to poor stock market performance.

Fallin’s spokesman Alex Weintz explained her veto of H.B. 2077 this way:

“Governor Fallin believes that addressing the $11 billion of unfunded liability in Oklahoma state pension systems is critical. The governor feels that state leaders have an obligation to ensure that our employees have a fiscally sound retirement, which they have earned and deserve.

“Failing to address this issue also stands in the way of Oklahoma achieving a AAA bond rating. In fact, it puts the state in jeopardy of being downgraded by rating agencies, which will cost the state additional dollars. For all of these reasons, Governor Fallin is and will remain a strong advocate for significant pension reform.

“Unfortunately, HB 2077 qualifies as window-dressing, not real reform.”

The state’s leading conservative policy think tank, the Oklahoma Council of Public Affairs, would not comment for or against the chief executive’s veto of H.B. 2077.  In a May 14 “blog post” OCPA commented:

“Had the bill become law, [new] employees would have had the opportunity to choose between this new defined-contribution plan and the current Oklahoma Public Employees Retirement System (OPERS), a defined-benefit plan.

“For years OCPA has made the case for a defined-contribution plan. We believe that pension reform must:

• Ensure that current OPERS employees and retirees get the retirement they were promised;

• Set in motion a plan to pay down OPERS’ unfunded liabilities, ensuring that funding for core government services is not endangered by out-of-control retirement debt; and 

• Establish a new retirement savings plan for state employees that fairly compensates them, ensuring that the state’s retirement contribution is comparable to that of private-sector employers.

There is no doubt that pension reform will continue to be discussed in 2013 and will be a hot topic during the 2014 legislative session. The question is whether the solution that emerges will be a half-measure (such as a “cash balance” plan, or a defined-contribution plan which is merely optional) or a robust solution that brings Oklahoma into the 21st century: a defined-contribution plan.”  

Fallin’s veto means that the incremental reform envisioned in H.B. 2077 will be delayed – unless legislators attempt to override her veto. In any case, the stage is getting set for a higher stakes battle over consolidation – and its potentially greater savings -- next legislative session.

You may contact Patrick B. McGuigan at Patrick@capitolbeatok.com and follow us on Twitter: @capitolbeatok.

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