Oklahoma economic report, 03/31/2013, v.3 no.3

              State Capitol Building, Room 217 • Oklahoma City, OK 73105 • (405) 521-3191 • www.treasurer.ok.gov
A publication of the Office of the State Treasurer • Treasurer Ken Miller, Ph.D.
Economic Report TM
Volume 3, Issue 3 • March 31, 2013
Oklahoma
News and analysis of Oklahoma’s economy
Inside
SEE ROAD MAP PAGE 3
• Treasurer’s commentary:
Capitol complexities
• Q & A with Senate
Appropriations Chair Clark
Jolley
• February gross collections dip
• February unemployment
drops
• Economic indicators
Contributor
Regina Birchum, Deputy
Treasurer for Policy/Chief of Staff
Editor
Tim Allen, Deputy Treasurer
for Communications/Program
Administration
The states are often referred to as
laboratories for policy and reforms.
Across the nation, states struggling with
pension debts and deficits are pursuing
structural reforms to public worker
benefit plans. As Oklahoma attempts to
solve its pension problem, it may find
a road map in reforms enacted by other
states.
While the approaches differ, concerns
raised in states considering changes to
public pensions are fairly consistent:
whether proposals will reduce benefits
for current employees; how the state
will meet current pension commitments
when new workers contribute to a
different system; how cost-of-living
adjustments (COLAs) can be funded;
and, whether a new benefit structure will
offer enough security for future public
workers.
With very few exceptions, states
adopting or
considering reforms
have not suggested
changes to benefits
promised to
workers enrolled in
the state’s current
plan, nor any
retiree. Such is the
case in Oklahoma,
where policymakers
have proposed no changes to the benefits
promised to current workers or retirees.
Contributions
Concerns that the loss of new
contributions to the defined benefit plan
will harm workers under the current
system can be met by maintaining
dedicated funding levels. With
this commitment, and employers
contributing to a less costly plan, the
state can dedicate a portion of the
“savings” toward the unfunded liabilities
of the closed plan. Additionally, once
past obligations are met, the state can
use the savings from the less-costly
benefit plan to grant COLAs or adjust
employee compensation.
COLAs
In recent years Oklahoma stopped
granting unfunded cost of living
adjustments, but statute is unclear on
what constitutes funding. For example,
Pension reform road maps
could an individual plan grant a
COLA if the plan is fully funded and
investment earnings are sufficient to
absorb the cost?
Kentucky, whose pension reform
proposals have
recently been
adopted by both
legislative bodies
and await action
from the governor,
also require that
any COLA be
pre-funded by the
Legislature.
Rhode Island, which
enacted what has been called the boldest
pension reform in the nation, suspended
COLAs for all public workers until the
collective funded status of all the plans
exceeds 80 percent. However, even
under the suspension the state allows
one COLA every five years, based on
the plan’s five-year average investment
return.
Retirement security
Some current public workers, whose
benefits would be unaffected by any
reforms proposed in Oklahoma, have
expressed concern for the workforce
that replaces them in the future. They
worry that a reduction in benefits could
discourage well-qualified workers from
entering public service. To address
this concern, many states are retaining
attractive public worker benefits, even
after adopting reforms, by assuming
“As Oklahoma
attempts to solve its
pension problem, it
may find a road map
in reforms enacted in
other states.”