Pension reforms advance, including the firefighters fund
Published: March 19th, 2013
OKLAHOMA CITY – A fresh push for pension reform is underway at the state Capitol. After notable progress three years ago, estimates of unfunded liabilities jumped in Fiscal Year 2012. The state now has at least $11 billion in unfunded pension liabilities.
Poorest performer of the seven state retirement systems is the firefighters’ fund, the
Firefighters Pension and Retirement System, which now has at least $1.1 billion in unfunded liabilities. In fact, the system lost $100 million last fiscal year alone.
Even as state firefighter unions rallied March 18 (Monday) against a pension consolidation idea floated by Gov. Mary Fallin, many seemed ready to support new proposals advanced by state Rep. Randy McDaniel, R-Oklahoma City.
McDaniel’s 2010 reform closed about one-third of the state’s unfunded pension liabilities. He is pressing further changes after so-so investment performance yielded a negative picture.
In fighting past reform efforts, 38 to 42-year-old firefighter retirees worked the halls and offices at the Capitol, threatening retribution against any politician that changed their system. One proposed reform could eliminate, for future employees, a repeat of that scenario.
The state House has advanced to the Senate four McDaniel bills to bring state pensions, including the firefighters, closer to solvency. Driving reform is awareness that the present average across the funds is an anemic 65 percent of adequacy. Financial planners contend funds need to finance up to 80 percent of long-term burdens.
Fallin backs McDaniel’s plan to increase some state employee contributions to government pension systems and allow new government employees the option of joining a defined contribution (DC) rather than defined benefit plan.
Another McDaniel proposal would reduce unfunded liabilities in the firefighter retirement fund through reallocation of existing financing and an increase in employee contributions.
Pension portability, in the form of defined contributions, is already part of House Bill 2077, pushed by Rep. McDaniel. In the wake of 2012’s grim actuarial reports, state employee associations have given qualified support to a DC system for new hires. The legislation makes changes in the Oklahoma Public Employee Retirement System (OPERS), the state’s largest pension fund.
The measure passed 65-22 several days before this month’s deadline for House action. It would create a DC option for new state employees, rather than the defined benefit system now pervasive. “DC” accommodates young workers, McDaniel says, who want the portability of a 401-K style systems and do not plan to spend entire careers in public service. Further, DC plans are on sounder footing than defined benefit systems.
Significant reforms would flow from McDaniel’s House Bill 2078, focused on the Firefighters’ system. It easily prevailed in a 90-6 House vote. McDaniel calls it as “a difference-maker” for a fund with over $1 billion in unfinanced liabilities. Losses of $100 million last fiscal year alone have shaken defenders of the status quo.
H.B. 2078 includes a requirement for new firefighters to put in 22 years of service (rather than 20) before retirement eligibility. Further, a retiree must be at least 50. Further, new hires would not be eligible for the Deferred Retirement Option (DROP) plan, which for current workers guaranteed high returns after five years of employment. DROP allowed employees to “retire,” collect benefits, then return and earn new retirement credits. The new standard for payout will be the average plan performance minus 1 percent. Vesting would occur after 11 years, rather than the present 10.
For all employees, H.B. 2078 would increase the insurance premium allocation to 36 percent, from 34 percent of tax collected. Municipal employers would see their share of financing rise to 14 percent of pay, from the current 13 percent. Fire employees would see their financing share increase to nine percent, from the present eight. The bill reallocates burdens, without a state tax increase.
House Bill 1383, the Pension Benefit Fairness Act, would affect only the Law Enforcement Retirement System (popularly dubbed the Troopers’ system) – a plan that includes campus police. It builds on reforms that eliminated average pay enhancements that boosted benefits, and ends automatic cost-of-living adjustments (COLAs).
Previous troopers’ “technical” reforms cut the annualized loss from $217 million in 2011 to $190 million in 2012 – making it the only system that did better last fiscal year than the year before. H.B. 1383 passed easily, 71-19, after last month’s debate.
In raw support, the strongest McDaniel bill was House Bill 2070, which gained a 93-2 margin for technical changes to the Oklahoma Teacher Retirement System, allowing earlier acceptance of retiree contracts. OTRS is the weakest of the state retirement systems, but has outperformed all the rest over the past few years.
You may contact Patrick B. McGuigan, Oklahoma City bureau chief for Watchdog.org, at Patrick@capitolbeatok.comand follow us on Twitter: @capitolbeatok.