“The Trillion Dollar Gap,” a recent national report from the Pew Center on the States, critiques Oklahoma government for increasing pension and retirement benefits in the 1980s and 1990s while not boosting deposits into the state-administered pension programs.

A respected national analyst took note of the Pew data in communications with CapitolBeatOK, saying it bore out the tendency of public officials to use “deferred compensation gimmicks” to avoid political conflicts.

According to the Pew
study, Oklahoma’s “seven state-administered pension systems had a combined funding level of 60.7 percent in fiscal year 2008, a total liability of $33.5 billion and an unfunded liability that was 219 percent of total payroll. During the 1980s and 1990s Oklahoma increased benefits, but did not boost contributions enough to offset those increased liabilities.”

Further, “By pushing the costs into the future, the state’s actuarially required contribution has risen to almost 21 percent of payroll, annually. In addition, the state has lagged in making the required contributions, so funding levels would likely have continued on a downward path even without investment losses.”

Breaking down the $33.5 billion, and separating out the 40% that is unfunded, the state’s shortfall, as of 2008 data, is a bit under $13.2 billion. The required annual contribution is $1.245 billion, but the most recent actual contribution was only $986 million, the Pew report details.

The Institute for Truth in Accounting, a Northbrook, Illinois research group (http://www.truthin2010.org/) said the 61-page Pew report illustrates problems in state pension and retirement systems. Sheila A. Weinberg, founder and CEO of the Institute, says Pew’s findings are typical of patterns across the nation.

In a comment sent to CapitolBeatOK, Weinberg said, “Unfortunately, state and local government officials determined long ago that if they paid their employees more salaries there would be an impact on their current budgets and financial statements. The cash basis method used to calculate state budgets allows governmental officials to use deferred compensation gimmicks to avoid such negative impacts and keep their workforces happy. So, during labor negotiations, governmental officials just keep promising employees more pension and retiree health care benefits. None of these deferred costs appeared on the budget so politicians do not have to cut other programs to provide for these benefits, nor do they have to raise taxes to fund these future promises.”

In the Pew report, authors noted, “[W]hen Oklahoma increased benefits in the 1980s and 1990s, leaders simply did not focus on the size of the unfunded liability that was building up, according to Tom Spencer, executive director of the Oklahoma Public Employees Retirement System. ‘Frankly, I don’t think our legislature was paying attention to the actuarial statistics when passing legislation. It is obvious that in some local plans and some state plans, the benefits have just gone way too high,’ Spencer said. ‘[E]very government needs to be able to afford the pensions they’ve promised. In Oklahoma, there’s been a gigantic disconnect between what’s been promised and what they’re willing to pay.’ ”

Distilling 50-state data, Pew authors wrote: “To a significant degree, the $1 trillion gap reflects states’ own policy choices and lack of discipline: failing to make annual payments for pension systems at the levels recommended by their own actuaries; expanding benefits and offering cost-of-living increases without fully considering their long-term price tag or determining how to pay for them; and providing retiree health care without adequately funding it.”

The authors continued, “States know how much money they should be putting away each year to cover pension obligations for current and future public sector retirees. The ‘actuarially required contribution’ is the amount of money that the state needs to pay to the plan during the current year for benefits to be fully funded in the long run, typically 30 years.”

Pew analysts further noted, “Unfunded liabilities develop when governments fail to provide funding as benefits are earned and also when inaccurate assumptions are used to calculate payment amounts.”