| March 22, 2011
No more kicking the COLA can down the road
The dire financial condition of Oklahoma’s state pension systems is an undeniable reality. This is due to numerous factors, including irresponsible legislative action, employee union lobbying, lack of transparency in reporting the conditions of the systems, and overextension of benefits to beneficiaries. The task of dealing with $16.1 billion in unfunded liabilities is daunting, but OCPA has recommended several reforms to address the problems.
One common-sense reform we recommend is to require the legislature to pre-fund cost of living adjustments (COLAs) before they are granted to members and beneficiaries. Until a few years ago, the legislature regularly granted COLAs without paying for them—hence our $16.1 billion liability today.
A portion of the unfunded liability of the pension systems is due to unfunded COLAs. Requiring COLAs to be funded will dramatically reduce this unfunded liability. According to each system’s actuarial report, requiring COLAs to be funded would result in the following:
Teachers Retirement System—unfunded liability decreases from $10.4 billion to $7.5 billion and the system’s funded status increases from 48% to 56%
Public Employees Retirement System—unfunded liability decreases from $3.2 billion to $1.7 billion and the system’s funded status increases from 66% to 78.8%
Uniform Retirement System for Justices and Judges—unfunded liability decreases from $52.8 million to $8.6 million and the system’s funded status increases from 81.3% to 96.4%
Police Pensions and Retirement System—unfunded liability decreases from $688.8 million to $234.8 million and the system’s funded status increases from 71.6% to 88.1%
Law Enforcement Retirement System—this system has a traditional COLA and a COLA called the half-pay adjustment; if both are funded before being granted, unfunded liability decreases from $239 million to $18 million and the system’s funded status increases from 73.3% to 97.4%
Firefighters Pension and Retirement System—unfunded liability decreases from $1.4 billion to approximately $1 billion, and the system’s funded status increases from 53.4% to approximately 60%
It may seem hard to believe, but simply taking the common-sense step of paying for spending, and not strapping future generations with debt, will immediately eliminate more than $5 billion of the state’s unfunded liability. Implementing this reform lays the groundwork for other much-needed pension reforms, such as defined contribution plans for non-hazard-duty new hires. We hope that lawmakers will quickly pass such a reform, and stop treating our pensions systems like the federal government treats its entire budget.