Budget & Tax
Michael Carnuccio | October 3, 2015
Free Market Friday: Common sense and pensions
About a decade ago, the outlook for Oklahoma’s six defined-benefit retirement plans was bleak. Decades of fiscal irresponsibility had put Oklahoma’s government employment pensions in some of the worst conditions in the country.
This had happened because politicians granted retirement benefits and benefit enhancements that they refused to fund. Just 10 years ago the state dedicated less than $180 million annually to the Oklahoma Teachers Retirement System. In election years lawmakers would grant benefit increases without funding them, betting and borrowing on the future so they could politically cash in during election cycles.
Therefore, in the last decade, new policymakers determined it would be unjust to government workers and taxpayers for politicians to keep breaking promises like federal policymakers do regarding Social Security.
Several years ago, lawmakers passed a law that required any changes to government pension systems to be actuarially evaluated. If a change had a negative effect, those changes could not be passed in the same year the legislation was introduced. Lawmakers also significantly increased state government contributions to retirement systems. Those sources now total about $1 billion annually.
Five years ago, the combined total unfunded liability of pension plans was more than $16 billion. In 2011, lawmakers made a common-sense change to protect retirees and taxpayers and passed a law that required any benefit enhancements to be concurrently funded.
These common-sense reforms and investment gains helped decrease the liability of Oklahoma’s pension systems by $6 billion.
Over the last couple of years, the impressive turnaround due to fiscal prudence has led some to call for retirement benefit enhancements that will not be concurrently funded. These proponents pointed to the high investment returns from 2010 to 2014 as evidence. Thankfully, true champions of retirees, government workers and taxpayers, like state Rep. Randy McDaniel, R-Oklahoma City, stopped such attempted fiscal irresponsibility – reminding all that high-investment-return years are necessary and should be saved in order to compensate for low-investment-return years.
It’s a good thing policymakers listened. The news cycle has revealed that during the most recent year, pension returns precipitously dropped due to changes in the economy.
This is a lesson that fiscal prudence is always rewarded in the long term. Kudos to lawmakers for protecting Oklahomans from another self-inflicted pension crisis.
Former OCPA President