Lawmakers voted Friday to approve an unfunded increase in state workers’ retirement benefits, a step that accelerates the ongoing financial deterioration of Oklahoma’s state pension systems and reduces current workers’ future retirement security.
House Bill 3350 provides a 4 percent “cost of living adjustment” (COLA) to most retired state government workers, but provides no funding to cover the cost, instead draining the pension systems’ corpus for the cash.
Opponents noted the legislation repeats the mistakes of the past, when lawmakers routinely raided pension assets to provide COLAs as a vote-buying exercise during election years, and ultimately left the Oklahoma government with one of the worst-funded pension systems in the nation.
“Today, your legislation gives an unfunded, 700 million dollar benefit to state retirees—who I agree deserve it—but it’s not paid for,” said Sen. Lonnie Paxton, R-Tuttle.
Sen. Marty Quinn, R-Claremore, said he was “not going to crawl under a rock and ignore the financial mistakes that continue to be made by this body and other bodies so that people can ‘like’ me.”
“Why are we taking the same financial destructive path of previous administrations?” Quinn asked. “You know what I’m talking about. A system that was one of the fifth-worst systems in the entire United States, almost $16 billion underfunded, giving away COLAs in election years. We’re doing the same thing. Just a different group of people.”
“I’m not going to vote to raid the funds,” said Sen. Julie Daniels, R-Bartlesville.
HB 3350 applies to retirees currently receiving payments from the Teachers’ Retirement System of Oklahoma, Oklahoma Public Employees Retirement System, Oklahoma Firefighters Pension and Retirement System, Oklahoma Police Pension and Retirement System, Oklahoma Law Enforcement Retirement System, and Uniform Retirement System for Justices and Judges.
Under HB 3350, individuals who have been retired for less than two years would receive no increase in benefit payments. Those retired for two to five years would see a 2 percent increase, and those retired for five years or more would get a 4 percent increase. It is estimated that 85 percent of state government retirees will receive the 4 percent increase.
Supporters of the legislation did not dispute critics’ financial arguments.
“We did not appropriate extra money out of our budget for this,” said Senate Appropriations Chairman Roger Thompson, R-Okemah. “This bill is taking it from the system.”
Oklahoma’s state pensions currently have $7.8 billion in unfunded liabilities. While HB 3350 would add to that unfunded liability, supporters of the bill consistently cited a lowball cost estimate that was contradicted by the Legislature’s own prior fiscal analysis.
“I think there’s a little discrepancy in the amounts that’s being talked about in the cost of this,” Paxton said. “I’ve mentioned that this is—the unfunded liability that we’re taking on—is somewhere between $600 million and $700 million. And you’ve, I think, used the phrase $180 million.”
Thompson said his estimate came from a consulting firm that estimated liability would increase only $185 million next year.
That figure is not even half the liability estimated for the teachers’ pension system alone.
The Teachers’ Retirement System of Oklahoma is one of the state’s worst-funded pension systems and is expected to be hard hit by the unfunded COLA mandate. The unfunded COLA also comes after lawmakers voted earlier this week to divert millions from state pension systems.
Of $291 million in extra state funding previously earmarked for all state pension systems, lawmakers voted to divert $73 million to other uses.
A document from the Teachers’ Retirement System of Oklahoma showed that the diversion of funding will directly cost that system $142.6 million over next two years and the associated loss of an additional $40 million in potential investment income.
Officials with the teachers’ system estimated the COLA legislation will result in a direct cash loss of $80 million over the next two years, and the addition of $400 million in pension debt and a corresponding increase in unfunded liability.
Between 2010 and 2019, the number of retirees and beneficiaries in the teachers’ system surged dramatically from 48,756 to 64,821. But the number of active members paying into the system barely budged, rising only from 89,896 to 90,014. That means the system is supporting an increasing population of retirees with a flatlined base of workers contributing into the system.
The Teachers’ Retirement System of Oklahoma portfolio has declined by $1 billion since June 30, 2019, and its funded status has fallen in tandem from 72.3 percent to around 64 percent. Passage of the COLA legislation is expected to drive the funded status down even further.
Supporters of HB 3350 waived off the cost estimates produced by officials with the teachers’ system.
Sen. Tom Dugger, R-Stillwater, dismissed the estimated $400 million impact to the teachers’ retirement system’s unfunded liability by saying the system’s director is “not a practicing actuary at this time.”
Teachers’ Retirement System of Oklahoma executive director Tom Spencer has a law degree and served as the executive director of the Oklahoma Public Employees Retirement System since 2003 and at the teachers’ system since April 2014.
A reform law enacted a decade ago made passage of COLAs illegal without funding. But HB 3350 evades that law by redefining itself as “nonfiscal retirement bill” despite the hundreds of millions in actual costs involved.
“We changed the law that saved the pension systems in order to pass this today,” Paxton said.
Paxton noted his wife is a schoolteacher and he is a member of the firefighters’ pension system, but “fiscal responsibility is a big thing to me.”
Supporters of an unfunded COLA offered a mix of rationales that ranged from anecdotal examples of retirees needing additional income to shrugging off concerns about state finance and the need for long-term budget planning.
“This bill that we have before us today addresses a real need in our retirement community,” Thompson said.
“I’m not going to come into this body every year and try to bang out a COLA,” said Sen. Darrell Weaver, R-Moore.
“We will look at this again in a year from now or two years from now and we will know whether we did the right thing or not,” said Sen. Paul Rosino, R-Oklahoma City.
“Inflation has went up in the last 11 years 23 percent,” said Sen. Ron Sharp, R-Shawnee.
However, Sharp conceded there is “going to be a fiscal impact on our pension systems, there’s no doubt.”
The legislation drew praise from Senate Democrats.
“Our caucus has always been for this,” said Sen. J.J. Dossett, D-Owasso. “It’s long overdue.”
But Quinn noted many Oklahomans working in the private sector do not have the same generous retirement packages as government workers—if they still have a job in today’s economy—yet the private-sector workers will ultimately foot the bill for HB 3350. He said HB 3350 prioritizes government employees over citizens who face far greater challenges.
“Why is the citizen that pays for a service without a COLA less important than government workers?” Quinn asked.
Quinn recalled that his own father, a military veteran who worked in a zinc mine, found himself without health insurance around age 70. Rather than beg for a government handout, Quinn noted his father got a job driving a propane truck for another six or seven years “because you don’t want to be a burden to the country that you served.” At the end of his life, Quinn said his father’s hands were missing fingers because of the hard work he had done.
“The hands were cut, scarred, dirty,” Quinn said. “But somehow that service that you provided to citizens all over the state, all over the country, not as valued as somebody else’s?”
He said many Oklahomans working in the private sector are cut from the same cloth as his father, and government workers should not be treated as deserving special financial advantages not available to—and at the expense of—Oklahomans working in the private sector.
“We can’t abuse the taxpayer and continue to be financially stable as a state or a country,” Quinn said.
HB 3350 passed the Oklahoma Senate on a 41-5 vote. It now proceeds to Gov. Kevin Stitt.
(AP Photo/Sue Ogrocki)