Interim study examines defined-benefit pension plans for state employees (Capitol Update)

If Rep. Avery Frix, R-Muskogee, and Sen. Dewayne Pemberton, R-Muskogee, never did another thing during their 12-year service in the legislature, which of course is not the fact, successful passage of their House Bill 2486 next session would make their service a resounding success. HB 2486 would reverse a bill passed in 2014 when the legislature terminated the defined-benefit pension plan for new state employees and replaced it with a defined-contribution plan. 

Legislators at the time heard a steady drumbeat of concern over the “actuarial soundness” of the Oklahoma Public Employees Retirement System (OPERS). Proponents sounded the alarm that the system was only 66 percent funded, meaning that if every obligation of the system came due at once it would be able to pay only 66 percent of its obligations. This is something that would never happen in state government.  

At the time, Oklahoma and the nation were in the midst of a years-long downturn in the economy brought on by the mortgage loan crisis. With 56 percent of public pension revenues coming from investment earnings, accumulated funds in OPERS were trending down. The legislature chose to solve the perceived problem by, among other things, instituting a defined-contribution retirement plan for new state employees.  Proponents claimed that a defined-contribution plan would be less expensive for the state, and that modern day employees would prefer it because they value flexibility to control their own investments and the ability to move their retirement plans from one job to another. 

Rep. Frix requested an interim study on the economic impact of Oklahoma’s defined-benefit pension plans that was held last week. The study committee heard solid evidence that a defined-benefit plan is better for both the state and state employees. The committee heard that switching from defined-benefit to defined-contribution did not address pension underfunding as promised. Instead, it increased costs. 

The switch resulted in greater retirement insecurity for employees, causing workforce challenges. More than three-quarters of new hires of employers sponsoring defined-benefit plans say the plans give them a compelling reason to stay on the job. Defined-benefit plans are professionally managed and produce greater returns at less cost for employees. Defined-contribution plans favor high income workers. State employees will rarely accumulate enough in a defined-contribution plan to earn what they would with the defined-benefit pension plan.   

The interim study also produced evidence that retirees with a reliable pension can maintain spending in their communities throughout their retirement years regardless of economic ups and downs, which acts as an economic stabilizer and creates a positive “ripple effect” in the local and state economy. Passing HB 2486 should be a win-win-win for taxpayers, state government and state employees.    

 

ABOUT THE AUTHOR

Steve Lewis served as Speaker of the Oklahoma House of Representatives from 1989-1990. He currently practices law in Tulsa and represents clients at the Capitol.

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