During a recent legislative study that included a review of a pension-protection law, the head of one state pension system offered lawmakers a recommendation for improving such laws: Stop allowing bills to self-exempt from pension protections.
Tom Spencer, executive director of the Teachers’ Retirement System of Oklahoma (TRS), suggested lawmakers ban the inclusion of an exemption from the Oklahoma Pension Legislation Actuarial Analysis Act (OPLAAA) in any legislation that would otherwise be subject to that law.
“I don’t like the fact that you can possibly add that exception to the OPLAAA in the very bill itself,” Spencer said. “Because, again, OPLAAA is a procedural bill. It’s intended to slow the process down. So if you’re going to add cost to a pension system, and all you have to do is put a paragraph in there that exempts yourself from it, it’s totally meaningless.”
The Oklahoma Pension Legislation Actuarial Analysis Act requires that benefit-increase legislation be filed in odd-numbered years and undergo a fiduciary analysis, and then allows such bills to pass only in even-numbered years. Reform law has also required funding of cost-of-living adjustments (COLAs). Such reform measures have been credited with generating dramatic improvement in the solvency of Oklahoma state government pension systems.
In 2007, the best-funded state pension system was 83-percent funded and the worst (the teachers’ system) was only 52.6 percent funded. Today, the best-funded systems hover at or above 100-percent funded, while the two worst-funded systems—the teachers’ and firefighters’ systems—are 72.4 percent and 70.8 percent funded, respectively.
However, lawmakers have passed at least one unfunded benefit change in recent years that sidestepped pension-solvency protections and considered another such measure during the 2019 legislative session.
A stipend bill was passed in 2018 that did not abide by the provisions of actuarial law. The stipend legislation included a provision exempting it from the OPLAAA.
“It did not have any dollars coming with it because the bill itself exempted itself from OPLAAA,” Spencer said, “which was kind of a cute thing to do.”
This year House Bill 2304 would have required that state pensions systems boost retirement paychecks by 4 percent. The bill did not provide any money to cover the increased costs. As a result, the Legislature’s fiscal staff estimates the bill would increase Oklahoma’s unfunded liability by more than $850 million.
Under the provisions of the Oklahoma Pension Legislation Actuarial Analysis Act, any retirement bill must be presented to an actuary to determine if it has a fiscal impact. However, the law does allow an exemption for a “nonfiscal retirement bill,” which is defined as any bill “that has as its sole purpose the appropriation or distribution or redistribution of monies in some manner to a retirement system for purposes of reducing the unfunded liability of such system or the earmarking of a portion of the revenue from a tax to a retirement system or increasing the percentage of the revenue earmarked from a tax to a retirement system.”
Under that definition, a “nonfiscal retirement bill” is one that increases funding for a retirement system. The language of House Bill 2304 flipped that model on its head by altering state law to change the definition of a “nonfiscal retirement bill” to include “a cost-of-living adjustment as prescribed” by HB 2304. Thus, a bill with $850 million in fiscal impact could nonetheless declare itself “nonfiscal” and exempt from the financial guidelines the Legislature previously imposed.
The requirement for review of the legislation by an actuary remained in place, but when the actuary hired by the House did so, he was forced to conclude only that HB 2304 “is a nonfiscal bill because of the change in definition of nonfiscal retirement bill.”
HB 2304 did not receive a vote in the Senate but could be brought up during the 2020 session.