Pension Bills Move through the Process

Legislation that significantly reduces the ability for retirees in all six of Oklahoma’s retirement systems to grant cost-of-living adjustments (COLAs) was signed by Governor Fallin Monday, May 9. HB 2132 (Steele and Bingman) requires that the legislature fund COLAs from appropriations rather than the assets of the retirement system.

HB 2132 was part of the legislature’s plan to prevent $16 billion in unfunded liability in the six retirement systems from affecting state’s bond rating.

“This legislation forces retirees to compete with all funded entities for COLAs,” said OPEA Policy and Communications Director Trish Frazier. “While the past practice of political COLAs and underfunding the systems was not in the best interest of current and future retirees, we believe the OPERS system will recover soon from the economic downturn and COLAs should be granted occasionally from the system.”

The state has six retirement systems, the Oklahoma Firefighters Pension and Retirement System, the Oklahoma Police Pension and Retirement System, the Uniform Retirement System for Justices and Judges, the Oklahoma Law Enforcement Retirement System, the Teachers’ Retirement System, the Oklahoma Public Employees Retirement System. State employees participate in the Oklahoma Public Employees Retirement System (OPERS). OPERS has a conservative board with a good long-term investment strategy. Even with the economy at the lowest point since the Great Depression, OPERS has exceeded its expected return on investment (ROI) of 7.5 percent over 20 years. The funded ratio for the system was 66 percent on July 1, 2010. This ratio includes a two percent annual cost-of-living adjustment (COLA) assumption, however retirees have not received a COLA since 2008. With the passage of HB 2132, the COLA assumption will be removed and OPERS will be funded at 78.8 percent.

“The OPERS system is almost 80 percent funded without a COLA assumption,” continued Frazier. “OPEA believes the legislature should be able to grant a COLA from the assets of the system if the retirement system will remain at least 80 percent funded after the COLA is granted. This protects the system and provides retirees with some relief from inflation.”

The average annual OPERS retirement benefit is $15,000, which is the lowest of Oklahoma’s retirement plans. In addition, unlike the Teachers Retirement System, the benefit for OPERS retirees is calculated only on salary.

HB 2132, prohibits COLAs from the assets of the retirement systems. However, Rep. Randy MacDaniel, the point person of the House on retirement, and President Pro Tempore Brian Bingman have told OPEA they will be looking into funding for COLAs over the interim.

“We understand that OPERS retirees’ benefits are the lowest in the system and COLAs will be needed in the future,” said Bingman. “We will be studying this issue to determine when and how we can provide funding for COLAs going forward.”

While other systems are struggling with very low funding, the OPERS system should gain in the next few years.

“OPEA will be working to allow OPERS retirees to receive COLAs in future sessions,” said Frazier. “Our system has been managed well and is better funded.”

OPEA Victory

Earlier in session OPEA was successful in stopping HB 1003 (McDaniel), which would have moved new employees to a defined contribution or 401(k)-type plan with a 3.5-percent employee/employer match. If employees contributed 10 percent, the state would pay 6 percent. Currently, the state pays 15.5 percent toward the retirement system, with employees contributing 3.5 percent. OPEA members made a difference by contacting their House members and stopping the bill before it reached the House floor.

“While OPEA was willing to discuss plan changes for new hires, the loss of 12 percent of the employer match in HB 1003 was unacceptable,” said OPEA Executive Director Sterling Zearley. “Retirement is a critical part of state employee total compensation. If the state moves to a defined contribution plan, the employer match should be much higher, with savings returned to state employees in a pay raise.”

Other Retirement Legislation

As session progressed, legislation to raise the retirement age for employees hired after November 1, 2011 was introduced. SB 794 (Mazzei and McDaniel) increases the normal retirement age to 65. For these new hires, they must reach age 60 before retiring, even if they have achieved their 90 points. This bill also raises the retirement age for elected officials. A similar bill was passed for the Teachers Retirement System.

In addition, SB 794 would roll back elected official retirement to that equivalent to state employees was making its way to the governor’s desk the last week of session. Currently, elected officials, including legislators have a four percent multiplier in their retirement calculation (4% of salary X years of service) compared to state employees (2% of salary X years of service). Like the state employee benefit changes, this would only apply to new elected officials.

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