New round of pension reforms advance in Oklahoma House

A constitutional amendment advocated by state Rep. Randy McDaniel aims to enshrine in fundamental state law firm protections of sound principles of financial management. Additional reforms advancing through two new laws could provide another new round of actuarial improvements for state government retirement systems.

Over the past three weeks, the proposals have been processed through the House and now await Senate deliberation. 

While not as dramatic as the historic pension reforms enacted in 2011, House Joint Resolution 1091 – which this week passed with a 65-24 bipartisan majority – is the lead element in the new round of proposals aiming to build on the shift of Oklahoma’s tax-financed pension programs from ranking among America’s worst to the middle of the pack or better. 

In a statement provided to CapitolBeatOK after the amendment passed and headed to the Senate, McDaniel said H.J.R. 1091 “places the fundamental principles of proper pension oversight into the Oklahoma Constitution. We need a higher law that takes into consideration the future generations of Oklahomans.”

Among provisions of the constitutional measure are a ban on “raids” of pension plan assets for any use other than retirement benefits, a requirement that all pension plan investments be diversified and professionally managed to limit risk (the “prudent investor rule”), a mandate that actuarially required contributions (ARCs) be made for all government pension funds each year (with limited exceptions), and a mandate for legislative actuarial investigations before any future benefit hikes.

McDaniel, chairman of the Pension Oversight Committee and author, with state Sen. Mike Mazzei, of the 2011 reforms that garnered nationwide praise, said, “Laws can change at any time. Constitutional amendments are long-lasting. Long-term promises need long-term solutions.”

He noted the state’s Balanced Budget requirement “has been critical for the state’s operating budget. We also need reasonable safeguards for the pension plans. The future generations are counting on us.”

Also this week, the lower chamber approved House Bill 2319, increasing employer and employee contributions for police participants in the Oklahoma Public Employees Retirement System (OPERS). 

In a move he has characterized as “shared sacrifice,” the envisioned law would raise by 1 percent the amount paid for actual base salary for participating groups. The measure boosts the portion of the insurance premium tax allocated to OPERS from its current 14 percent to 15 percent. 

These revisions, involving no state tax increase, total $2.58 million a year for both employer (municipal governments) and employees (local police). The boost in share of the premium tax would add another $1.76 million to the system. 

Last year’s reforms to police pension systems (primarily a mandate that required funding for all future cost-of-living adjustments, or COLAs) were worth $450 million, according to actuarial analysis. The police system went from 75 percent adequacy to 93 percent adequacy of funding. 

McDaniel contends that approval of H.B. 2319 will efficiently raise the plans funded status to 100 percent. The measure is now before the state Senate.

In a prepared statement after a 87-3 vote in favor of the measure, McDaniel said, “Every day we read a new headline about the European debt crisis and resulting protests, but we are taking a different approach. The Oklahoma standard is to bring all parties together and work out an agreement that is fair to all. Under this bill, the system will become debt free. I like the way that sounds.”

Two weeks ago, members of the House approved H.B. 2320 in a 93-1 vote. That bill, now in the Senate, stipulates that the rate of return in the Oklahoma Firefighters Deferred Option Plan (DROP) is held at no more than 7.5 percent, rather than occasionally higher rates now allowed.

According to a House summary of provisions, “The measure also increases the employee contribution rate from 8 percent to 9 percent of gross salary and raises the employer contribution rate from 13 percent to 14 percent of paid gross salaries.”

McDaniel says the higher contributions are worth $2.5 million from both employees and employers, i.e. $5 million in all.

Further, without a state tax increase, H.B. 2320 allocates 36 percent from the insurance premium tax, rather than the current 34 percent. That shift is worth an additional $3.5 million to the retirement system’s bottom line.