Four reasons to finish the job on retiree cost of living adjustment

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As the Oklahoma Legislature returns to adopt a budget and pass other priority legislation, it should quickly approve retiree cost of living adjustments. The House of Representatives already unanimously passed HB 3350, which was authored by Rep. Avery Frix, R-Muskogee, seven House co-authors, and Sen. Dewaye Pemberton, R-Muskogee. This bill would give more than 120,000 retired teachers, police officers, firefighters, and state employees up to a four percent cost of living adjustment (COLA). This increase in monthly retirement benefits would be the first since 2008. Since then, retirees have lost 20 percent in general buying power due to inflation and have seen health insurance costs rise 42 percent. All that’s needed to help retirees’ income keep up with their costs is for the Senate to approve and the Governor to sign HB 3350. Oklahoma must act now to support those who have served the state for decades. Here are some reasons why.

1. COLAs will have no impact on the budget; they’ve already been funded

A COLA will have no direct impact on the current state budget because pensions are funded in advance by a combination of employer and employee contributions, state taxes, and investments of those funds. In fact, the ability of the state to pay all retirees their full benefit amounts, known as funded ratios, are at a ten-year high for all six of the state retirement systems. Indeed, the highlighted line shows systems are now 81 percent funded, compared to 56 percent funded in 2010. This 81 percent funding ratio means that Oklahoma’s systems are better funded than the national average of government pension systems, which is 72.5 percent

The healthy condition of our retirement systems means that COLAs are already funded. One reason that system funding has improved so dramatically is that benefits have not increased for 10 years. Now that systems are exceptionally well-funded, a COLA is long overdue, and we are in the ideal position to make it happen.

2. Retirement payments support our state’s economy

The COLA in HB 3350 will inject millions of dollars into our state’s economy at a time when it is clearly needed. The COLAs represent dollars that will be spent rather than saved, therefore providing a boost to Oklahoma’s economy without impacting the current state budget. This new spending will reach every county of the state, according to maps created by OK Policy and the Oklahoma Public Employees Association. In Rogers County, for example, the 1,720 state retirees make up two percent of the population and receive an average benefit of $22,903. The COLA will add more than $1.3 million in spending in this county every year. Retirement benefits have an even bigger economic impact in rural areas. In a time when Oklahomans are facing a recession, injecting these funds into the economy without impacting the state budget is a must. HB 3350 will achieve both goals.  

3. Oklahomans’ pensions fall significantly behind the rest of the region’s

Teachers invest their careers in the lives of Oklahoma’s children, and yet when they retire they often struggle to meet basic needs. Despite the fact they have paid into their defined benefit plans throughout their lives, Oklahoma teachers have smaller pensions than teachers in every single surrounding state. The average teacher in Oklahoma receives an annual benefit of $20,690. The same teacher in Missouri receives a pension that’s twice that size: $41,183. 

While some of Oklahoma’s public employees fare a bit better than our teachers, their benefits are still less than half of the region’s leader, Colorado. Retired public employees in Oklahoma receive larger benefits than those in three surrounding states, but this is no cause for celebration. Colorado retirees see pensions averaging $40,034 annually, compared to the average Oklahoman’s benefit of $16,883. After our public employees have dedicated so much of their lives to serving our state, we should be striving to match the leader of the region, not settling for the average. 

Low wages during working years have a direct impact on pension amounts during retirement. Oklahoma firefighters make on average $7,650 less than the national average each year. Our police officers make less than those in every surrounding state except Arkansas and Louisiana, and those salaries also fall below the median on the national and regional levels. In 2018, the average teacher salary in Oklahoma of $48,431 was more than $14,000 less than the national average, ranking Oklahoma 49th among the states. 

4. Retirement benefits partly make up for low pay during the years of service

Public servants spend their lives working in our state and local governments, often sacrificing the higher wage that they could have seen in the private sector. Oklahoma state employees make an average of 17 percent less than their private counterparts, with the average salary for a public employee sitting at $47,999 compared to $57,875 in the private sector. Retirement and other benefits are thus often a vital tool to recruit and retain highly-skilled employees. 

For firefighters and highway patrol officers, the pay discrepancy is further exacerbated because they are not allowed to participate in Social Security. With many of them working after retiring, any Social Security benefit they earn will be reduced under the Windfall Elimination Provision. This can cut Social Security benefits by $480 per month or by half their monthly retirement benefit, whichever is lower.

Public retirees who only receive funds from their defined benefit plans are more likely to be food insecure, enrolled in Medicaid, and receiving public assistance. Our public safety retirees are paying a hefty price for their decisions to serve the public interest during their prime working years. 

Oklahoma’s retirees deserve better

The time is now to repay our retired public servants for the work that they’ve done for our state.  HB 3350 unanimously passed the House just before the coronavirus disrupted this legislative session. While this public health crisis has made it difficult for many bills to be voted on, HB 3350 is one that should make the cut. Additionally, the COLA should start in May rather than July. By putting money into the pockets of Oklahoma’s retirees, the Legislature can help the economy without impacting the state’s budget. There’s no reason that Oklahoma should fall behind the region in benefit levels. Our public servants have worked for years to improve our state, and it’s time that we finally repay them.  

About the Author

Emma Morris serves as the Public Policy Intern. She graduated from the University of Oklahoma in fall 2019 with dual degrees in Women’s and Gender Studies, and Public and Nonprofit Administration. She is an alumnus of OK Policy’s Oklahoma Summer Policy Institute.

 

 

 

Paul Shinn, Senior Policy Analyst, assisted with researching and writing this post. Paul is a retired state employee, but would not receive a COLA under HB 3350.

ABOUT THE AUTHOR

Oklahoma Policy Insititute (OK Policy) advances equitable and fiscally responsible policies that expand opportunity for all Oklahomans through non-partisan research, analysis, and advocacy.

4 thoughts on “Four reasons to finish the job on retiree cost of living adjustment

  1. Thank you OKPolicy for picking up this issue again. Please continue to follow the story, giving us legislative updates over the coming weeks.

  2. It’s my understanding that the reason OTRS became so poorly funded in the past was because the legislature liked to give all those voting teachers cost of living increases without ever providing additional funding for them. Eventually, legislation was put in place to protect the fund from being depleted by doing exactly what you are proposing. As a beneficiary of OTRS, I would not want to take about a $65 a month increase and open the door to this sort of abuse again. Also, although OTRS has done a wonderful job of managing assets, I imagine its June 30 report will show a hit from recent economic trends. If you haven’t met and talked with Tom Spencer, executive director of OTRS, I’d urge you to do so for a more balanced look at this issue.

    1. Gypsy, I understand that concern. But couldn’t a compromise of some sort be possible?

      A number of ideas seem evident. First of all, limit the increase to no more than $100.00 a month, perhaps no more than $80.00 or $90.00. Limits of that sort would disappoint the retired high income administrators, but would not harm the bulk of the retirees at all.

      Another idea could be to lower the maximum percentage increase. Instead of 4%, it could be 3.5% or even 3%.

      I am an OPERS retiree and Tom Spencer used to be over our funds a few years ago. I loved his cranky commentaries in his reports. But maybe he could see a workable plan with the kind of suggestions I just gave.

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