Understanding Oklahoma' public pension plans and each pension fund's actuarial liability can be confusing. What is easily understood, however, is every year there’s a noticeable increase in all goods and services that depletes our checkbooks. And, if there isn’t an increase in one’s monthly income to cover those increases, decisions must be made to figure out life’s necessities.
Retired individuals on a pension must decide daily what bills (mortgage/rent, utilities, food, medicine, gas, etc.) they can afford on a fixed income. Retirees only hope is a Cost-of-Living-Adjustment (COLA) that can keep up with the rate of increases on goods and services.
Oklahoma's retirees haven’t received a COLA since 2008, while the estimated inflation rate has soared to 23% during that time.
Since 1975, the Social Security System (SSS) has provided COLAs. The 2019 COLA was a 2.8 percent increase.
The ADA determines the COLA increase based on the Consumer Price Index for Wage Earners and Clerical Workers. This figure is calculated monthly by the Bureau of Labor Statistics.
In 1980's, the Oklahoma legislature’s original plan was to provide a COLA every two years for the seven pension systems. However, legislators failed to fund the plans with limited employee contributions and diverted appropriations to other pet projects.
During the 1980's, an estimated $340 million that was supposed to be appropriated to the Oklahoma Teacher Retirement System (OTRS) was diverted by legislators to other programs. This created the financial problem that came to a head in 2010. COLA's were still being given to retirees during that time increasing the pension plans’ actuarial liability.
Since 2013, the legislature has added $300 million annually to the OTRS even during those years when the state experienced historic revenue shortfalls.
While the legislature passed HB 2304 in 2019 to provide a 2-8% COLA increase to state retirees, it was placed on hold until its liability on each of the seven pension systems could be determined.
Another problem with HB 2304 was the authors failed to provide a funding source for the COLA's.
Estimates were that a four percent COLA would create a liability of $486 million for the OTRS, $228 million for the Oklahoma Public Employees Retirement System (OPERS), $58 million for the Firefighters Retirement System, $48 million for the Police Retirement System, $24 million for the Oklahoma Law Enforcement Retirement System (OLERS), and $6.8 million for the Uniform Retirement for Justices and Judges.
In 2011, the legislature passed HB 2132, a statutory restriction known as the Oklahoma Pension Legislation Actuarial Analysis Act (OPLAAA). This statute prevents the Oklahoma legislature from providing a COLA within the state's seven retirement systems without providing the additional funding.
In 2010, at least half of the seven pension systems didn't have the money to provide the actuarial liability for a COLA. HB 2132 was praised as it lowered the state's collective unfunded liability from $16 billion to around $11 billion by eliminating the automatic two-year COLA to retirees.
With our state's unfunded liability at $16 billion in 2010, Oklahoma's pension systems ranked in the bottom five nationally. Fortunately, with a strong economy fueled by the energy sector rebound, state appropriated dollars and several reforms like HB 2132, the unfunded liability of the pension plans have been cut in half.
Today, only two of the seven pension systems are still a concern due to their accrued actuarial liability as compared to their assets - the Teacher Retirement System and the Firefighters Retirement System.
The actuarial report is due before December 1, 2019 fulfilling the statutory requirement of HB 2132.
I believe COLA funding could come from the new medical marijuana and alcohol taxes, which could be placed in a Revolving Fund to be determined by Oklahoma's inflation rate.
Plus, there shouldn’t be an across-the-board COLA percentage rate increase. Retired employees of 20 years or more should be prorated at a higher COLA percentage than more recent retirees. A 2-4% COLA increase isn’t acceptable for those who have been retired 20+ years who were paid lower incomes.
We’re anxiously awaiting the findings of the actuarial study.
To contact me at the Capitol, please write to Senator Ron Sharp, State Capitol, 2300 N. Lincoln Blvd. Room 412, Oklahoma City, OK, 73105 or call (405) 521-5539.