Oklahoma economic report, 04/30/2013, v.3 no.4

              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 4 • April 30, 2013
Oklahoma
News and analysis of Oklahoma’s economy
Inside
SEE PENSION SAVINGS PAGE 3
• Treasurer’s commentary: What
a difference a year makes
• Q & A with House Budget
Chair Scott Martin
• YTD General Revenue ahead
of estimate
• Gross revenue up in March
• Unemployment unchanged
Contributor
Regina Birchum, Deputy
Treasurer for Policy/Chief of Staff
Editor
Tim Allen, Deputy Treasurer
for Communications/Program
Administration
When streamlining the management
of the state’s seven pension systems
was originally proposed in February by
Governor Mary Fallin and Treasurer
Ken Miller, annual savings of between
$10 million and $15 million were
estimated, based on savings achieved in
past consolidation efforts.
Because proponents and opponents alike
wanted a better indicator of potential
saving, a historical analysis was
requested from New England Pension
Consultants (NEPC) in March.
Their cost/benefit analysis estimates
that if Oklahoma’s pension plans were
packaged into a single investment pool,
economies of scale would result in
lower investment fees. Depending on
the investment management approach
selected – more active management or
more passive management – the savings
in investment and consulting fees could
result in a savings of between $12
million to $49 million annually.
Additionally, it has been estimated that
$3.5 million in administrative savings
could be achieved annually from shared
personnel, elimination of duplicative
office space, operating expenses and
other overhead. The state’s five largest
plans alone spend more than $15 million
annually on these administrative costs.
“Critics contend the savings are more
likely to be near the lower end of the
estimated range and that $15 million in
savings is not worth the trouble,” said
Proposals offer potential savings
Miller. “I disagree. But even if they
are right, every dollar saved is a dollar
that will go back into paying benefits.”
Miller referenced a recent news article
about $850,000 in Oklahoma City police
radios sitting in storage. “As the state
auditor rightfully pointed out, it was a
‘significant waste of taxpayer dollars.’
Certainly, most taxpayers would think
that saving $15 million a year is worth
the trouble.”
NEPC also looked back over the past
five and 10 years worth of investment
returns for each of the plans to show
that significant additional earnings
could have been gained had either
one of the two best-performing plans
Potential Investment Fee Savings
Source: NEPC, LLC
Current Fee Structure OPERS Scenario
Total Pension Funds $20,353.21 $20,353.21 $20,353.21
Average Fees 0.35% 0.31% 0.11%
Investment Mgmt Fees $71.40 $63.09 $22.39
Custody -$9.55 -$12.46 -$6.15
Net Mgmt Fees $61.85 $50.63 $16.23
Investment Consultant $3.71 $2.75 $0.45
Total Fees in 2011 $65.56 $53.38 $16.68
Total Savings $12.17 $48.87
(Dollar amounts in millions)
TRS Scenario