There remains a concerted effort among some top Republican leaders here to reduce retirement benefits for new state workers and teachers, and it’s not clear how it could ultimately affect those currently paying into the pension system or those already retired.
The plan, advanced by Oklahoma Treasurer Ken Miller and endorsed by Gov. Mary Fallin, is to put new hires on a defined-contribution or 401(k)-styled plan, essentially ending pensions for all new workers, except for police officers and firefighters. One option under review is for the state to then pay less money into these plans, according to Miller.
But, as Republican state Auditor and Inspector Gary Jones puts it, as reported by NewsOK.com, the “numbers don’t add up” in such a plan when it comes to meeting the obligations of the current pensions, which have a collective $11.4 billion in unfunded obligations.
Theoretically, all state workers and those already retired could face cuts in future benefits if the unfunded obligations can’t be met. How will the state meet those obligations if new workers aren’t paying into the system? That’s the most important question.
Let me be blunt: This plan, as it has been described so far, has the potential to eventually reduce retirement benefits for all state workers and teachers and even those now retired who receive state pensions. Some may see that statement as overly dramatic, but Miller’s plan has never precisely shown how the older plans will remain solvent as the state moves to the new system.
It also raises the obvious ethical question: Will it be fair for new workers and teachers to receive reduced retirement benefits in order to pay for the unfunded liabilities and more generous benefits of the pension system for more experienced workers if that’s actually Miller’s plan? It certainly could lead to moral problems and resentment.
Some version of the plan will presumably get considered by the Oklahoma Legislature next session.
Fortunately, Jones has added a new dimension to the debate and has asked some important questions. He recently pointed out, as I’ve pointed out for years, that the main culprit when it comes to unfunded liabilities are legislators who haven’t appropriately funded the state’s pensions through the years and have made other bad decisions, such as unwisely boosting the pension benefits of 500 to 600 elected officials in 1998. It’s not the fault of workers or teachers.
There’s also the question whether the $11.4 billion in unfunded liabilities actually constitutes a major crisis as Miller and some others contend. The unfunded liabilities have actually declined from $16 billion since 2010 because of some good legislative decisions and investments. Perhaps, then, all the state actually needs to do is contribute more money into the pension systems and continue to make good investments. Why all the breathless, Chicken-Little language?
Miller seems to at least partially base his argument for reducing retirement benefits on this premise: Workers in the private sector are “lucky” if they even have a retirement plan so state workers should just accept cuts. It’s a race to the bottom, a standard conservative tactic to enable further tax cuts for the wealthiest in our country.
Thus, says Miller, the new system would be “fairer to the taxpayers … , most of whom have an employer-sponsored defined contribution plan, if they are lucky,” according to a media report on the issue.
Miller also wants to consolidate the state’s seven pension plans under one board to save money, which seems innocuous enough, but Jones, according to NewsOK.com, points out the move could lead to a loss of “a lot of expertise and a lot of knowledge,” which could lead to a decline in investment returns. It’s not as simple as Miller seems to want it to be.
As I’ve written before, there has always been an implicit understanding among the country’s rank-and-file government workers and teachers, especially in low-paying places like Oklahoma, that they trade off their lower salaries for a certain amount of job security and halfway decent benefits. Miller’s plan, as it has been presented so far, doesn’t honor that basic compromise.