Small: Protecting pension progress

Protecting pension progress

By Jonathan Small

Oklahoma was once ranked among the worst states in the nation when it came to the financial stability of our state pensions. That meant many state workers, including teachers, were at risk of reaching retirement without sufficient income to live out their golden years in comfort.

Fortunately, reforms that took full effect roughly a decade ago have now made Oklahoma a national model.

“What you did, starting in 2010 all the way to now, really is the gold standard for other states to look at,” said Caren Lock, a managing director with TIAA-CREF, a national financial services firm.

Oklahoma lawmakers voted in 2011 to place all new state government hires into a 401(k)-style “defined contribution” plan called Pathfinder rather than the “defined benefit” plans that generated so much financial strain, and they also passed a law prohibiting unfunded benefit increases.

Over time, those reforms completely changed the trajectory of state finances.

In 2011, the Oklahoma Public Employees’ Retirement System was only 66 percent funded. As of July 1, 2024, OPERS’ funded status reached 102.7 percent.

In 2010, the Teachers Retirement System of Oklahoma was only 47.9 percent funded. Thanks to reform, the system has now reached a 77-percent funded ratio. Its unfunded liability, which totaled $10.4 billion prior to the 2011 reforms, has been cut to $6.1 billion. Where officials once expected it to take 62 years for the system to reach fully funded status, they now predict that goal will be achieved by 2035.

Unfortunately, there are voices who continue to call for Oklahoma to roll back the clock. Too many bills have been filed to increase state pension benefit payments without providing money for the increases – which means those bills would drain the systems and leave future retirees less secure.

Some want to completely eliminate the Pathfinder system and put all state workers back in the old “defined benefit” system. Again, this would put Oklahoma on a path to collapsing state finances.

For those who argue that the 401(k)-style system doesn’t provide a large enough retirement benefit, one simple way to boost benefits would be to boost the state match for employee contributions to their retirement plan.

Another would be to allow immediate vesting in the system, and a third change would be to better educate workers on the importance of investing for their future retirement.

Oklahoma’s old pension system resembled those still in place in states like Illinois, New York and California, which are financial basket cases because politicians routinely promise benefits today while foisting the added expense onto tomorrow’s workers.

We know what works, and what doesn’t, when it comes to pension stability. Oklahoma should stick with the former and reject the latter.

Jonathan Small serves as president of the Oklahoma Council of Public Affairs (www.ocpathink.org).