|Rep. Randy McDanial|
“For decades, this problem has been passed on to future generations to address,” said state Rep. Randy McDaniel, who has nearly 20 years’ experience in the financial services industry. “No more. This year we will finally begin addressing one of the state’s most significant financial challenges.”
Many important reform bills have been filed and will be heard. Nonetheless, House Speaker Kris Steele and McDaniel have filed four major bills to reform state pensions.
“This is a fair and comprehensive approach,” said Steele, R-Shawnee. “We must take action on this issue. Reforms must be implemented if we are going to improve the state pension plans and fulfill our obligation to current retirees.”
House Bill 1004, by McDaniel, creates the “Leadership by Example Act” and would place all new members of the Oklahoma Legislature and statewide officials into a new defined contribution plan.
“As we reform the system, I believe legislators should lead by example,” McDaniel said. “Some groups oppose reform, especially if it requires moving their future employees into a defined contribution plan. The Legislature should not ask other groups to do something that we are not willing to do ourselves. Defined contribution plans provide workers greater control and personal choice. I believe affording that freedom to workers is a key component of reform.”
The new defined contribution plan, “Save Oklahoma,” will build on the existing and successful SoonerSave program. As of June 30, 2010, it had 35,134 participants with net assets of $458 million and no unfunded liability.
Another pair of bills would significantly improve the financial standing of state pensions in future years.
House Bill 2132, by Steele, would require that all COLAs be fully funded when authorized.
House Bill 1006, by McDaniel, would help stabilize state pensions by requiring that a pension system be at least 80-percent funded before a cost-of-living adjustment (COLA) can be authorized for the system.
“One of the major causes of the current unfunded liability is that past COLAs were enacted without actually paying for them,” McDaniel said. “As a result, money was drained from pension systems, leaving them in an increasingly precarious position for future generations. Under the reforms we are now advancing, we will focus on paying current obligations first and then making sure we actually pay as we go when enacting future COLAs.”
House Bill 1011, by McDaniel, would provide a funding source for COLAs. Under the bill, a portion of the revenues received by the Commissioners of the Land Office would be dedicated to funding COLAs for retired teachers. If enacted into law, House Bill 1011 would be the first dedicated funding source for COLAs in state history.
The Commissioners of the Land Office, also known as the “School Land Trust,” manages state-owned public lands to produce income for education.
“While these four reform measures will not eliminate the system’s problems overnight, they will significantly improve the financial soundness of the retirement systems,” McDaniel said.
McDaniel noted that 10 years ago the state’s unfunded pension liability was just over $6 billion. According to official actuarial reports, the unfunded liability now totals more than $16 billion – more than twice the size of the entire state budget.
With a growing portion of the state’s budget being needed to fund retirement plans, there are fewer tax dollars available to support core government services, he noted.
In addition, the unfunded liability threatens the state’s bond rating.
“Failure to address Oklahoma’s pension problems will result in growing budget challenges in the future,” McDaniel said. “We cannot continue doing business as usual. The reforms we are advancing this year are a serious response to a serious financial problem.”
All four of these measures, along with several other important reform bills, will be heard today in the House Economic Development, Tourism and Financial Services Committee. The executive directors of the major pension plans are invited to make public comment regarding these reform proposals.