I just mailed letters to each of the six members of the Oklahoma State Pension Commission in advance of their meeting on Wednesday. Here are the members:
|Ken Miller Chairman||State Treasurer|
|Louis F. Trost Vice Chairman||Governor Appointee|
|Gary A. Jones Commissioner||State Auditor and Inspector|
|Preston L. Doerflinger Commissioner||Director, Office of Management and Enterprise Services, Secretary of Finance, Administration and Information Technology|
|Doug Lawrence Commissioner||Governor Appointee|
|Jason Smalley Appointee||Senate Appointee|
This Commission is charged with monitoring the performance of Oklahoma’s pension plans and should be front and center in expressing concern about legislation, like Representative McDaniel’s bills HB 1162 and HB 1172 that could significantly damage the fiscal soundness of the existing Oklahoma Teachers Retirement System plan. Here is my letter to them:
Ken Miller, Chairman
Oklahoma State Pension Commission
I request that the Oklahoma State Pension Commission recommend to the Oklahoma Legislature that an actuarial analysis be performed concerning the potential financial impact on the current Oklahoma Teachers Retirement System defined benefit plan by House Bills 1172 and 1162 under consideration during the current legislative session. HB 1172 will create an “optional” defined contribution plan for new teachers only beginning with the 2018 fiscal year. This new defined contribution plan lowers the contribution required of new teachers, from 7% to 4.5%, and provides a significantly greater “match” by employers, 6% compared to the current “employer cost” of 3.5% for the defined benefit plan. At the same time HB 1162 diminishes the retirement benefits for new teachers electing the defined benefit plan. The effect of these changes together will likely result in a rapid decline in the number of active members in the existing defined benefit plan which is a radical departure from the assumptions upon which its actuarial reports have been based.
This de facto “closure” of the defined benefit plan will deprive it of future revenue that is needed to amortize its over $7 billion unfunded actuarial accrued liability, or UAAL. Specifically, of the current 9.5% match school district employers are required to pay to OTRS, at least 6% goes to reduce the plan’s UAAL which is a state obligation. Under HB 1172 that payment, for members of the newly created defined contribution plan under its “remit the difference” requirement, is reduced to 3.5% at most and can be as low as 2.5%. This clearly will diminish future payments by employers to amortize the UAAL of the existing plan. Whether or not this reduction in future payments poses significant risk to the financial health of the existing plan can only be determined by a proper actuarial analysis.
You may encounter two arguments against my request. One is that, if this legislation does effectively close the existing defined benefit plan, the effect will be similar as with the closure of the OPERS defined benefit plan where the actuary found the “remit the difference” revenue going forward was sufficient. This argument is simply an “apples to oranges” comparison because the OPERS “remit the difference” payments are not significantly diminished and the OPERS plan is significantly better funded, less relative UAAL to amortize, than is OTRS.
The other argument is that the Legislature’s actuary, pursuant to the Oklahoma Pension Legislation Actuarial Analysis Act, OPLAAA, may determine that HB 1172 does not have a “fiscal impact” so no further actuarial analysis is needed. While such a determination can be made as “fiscal impact” is defined by OPLAAA, it is not correct as fiscal impact is ordinarily understood. Under OPLAAA a “fiscal impact” only results from legislation that increases retirement benefits for a retirement system’s members. Yet clearly legislation that strips away future funding needed to amortize a system’s UAAL also has a fiscal impact as those words are ordinarily understood and important to the state’s financial future.
OPLAAA will not protect state taxpayers from reckless legislation that will increase the UAAL of the current OTRS plan by reducing its future revenue. That can only be accomplished by thoughtful policy makers who take the steps necessary to inform legislators of the financial impact of their decisions. Again I request that the Oklahoma Pension Commission recommend to the Oklahoma Legislature that an actuarial analysis be performed concerning the potential financial impact on the current Oklahoma Teachers Retirement System defined benefit plan by House Bills 1172 and 1162 under consideration during the current legislative session.
We’ll see what comes of it in substance, but one insubstantial result was when I emailed a PDF of the letter to Ruthie Chicoine, who so ably provides staff support to the Commissioners, and alerted her that hard copies were in the mail, I “replied all” to her email notice to interested persons, about 30 in number, who are on her list for notice of Commission meetings. Immediately, while still at the post office, I saw a reply to her from “Randy” saying “Who is Gary Watts?”. Of course I hoped it was Representative Randy McDaniel, but instead turns out to be Randy Ellis, whose email address is firstname.lastname@example.org, so I assume is a reporter with the Oklahoman. So just for fun if any reader of this post wants to reply to Mr. Ellis and tell him who I am just copy me and I’ll buy lunch for the first to do so and also for the best answer—humor counts for sure.
As always lunch also on me for the first to ID the location of the photo above. I picked the Pegasus statue because I hope our OTRS retirement does not go down in flames this legislative session.
P. S. Oops; mixed up mythological winged creatures starting with a “P”–bet I got the math right though.