Pension Overhaul Could Hurt Oklahoma Pension Systems
OKLAHOMA CITY, OK — The Economic Policy Institute (EPI) today presented independent research, prepared in partnership with the Keystone Research Center (KRC), about the status of Oklahoma Pension Systems, and the potential consequences of overhauling the systems by shifting their basic plan design, as has been suggested by some Oklahoma policymakers.
“After some tough times in recent years and some significant sacrifices on the part of public employees, the Oklahoma pension system is finally in order,” said Ross Eisenbrey, Vice President of the Economic Policy Institute and a co-author of today’s report. “The state would be ill-advised to backtrack on this positive momentum by shifting its basic pension plan design. Why take this moment when Oklahoma finally has its pension house in order, to roll the dice with a radically new pension design?”
EPI and KRC, nonpartisan think tanks with extensive experience analyzing retirement security issues, released their report titled Oklahoma Pension Plans: A House Finally in Order, available online at www.keystoneresearch.org/oklahoma-pensions The brief finds that:
- Oklahoma’s pension funds have taken important steps towards financial sustainability since 2006, substantially outperforming other pension plans during recent financial market turmoil;
- Oklahoma’s pension plans have now adopted best practices associated with well-funded public pension plans nationally, and cost public employers only a small percentage of payroll for the additional benefits employees earn each year;
- Getting Oklahoma’s pensions on a path to financial sustainability has brought painful sacrifices from Oklahoma public employees, who now have no protection against inflation in their retirement benefits and contribute more than most public employees to their own pension plans;
- Oklahoma would be ill-advised to abandon current pensions for any of the alternative pension plan designs being discussed by policymakers;
- 401k-type plan would end up costing Oklahoma taxpayers 50% to 80% more for the same benefits because of fees charged by Wall Street firms and lower returns when employees make their own investment choices. Starving the existing pensions of new members would also increase Oklahoma’s pension debt by lowering investment returns for existing plans because their remaining participants age as a group.
- The cash balance option championed by Pew and the Arnold Foundation would provide less retirement security for career employees and could have lower investment returns and higher costs;
- Oklahoma public pensions are already among the most modest in the nation and public employees, such as teachers, earn less than private Oklahoma workers and teachers in other states. Average pension benefits in Oklahoma’s two biggest plans – for teachers and state workers – are below $20,000. In addition, average pay for Oklahoma K-12 ranks 48th in the nation, 20% below the national average for public school teachers and likely more than 25% below college-educated workers in the Oklahoma private sectors.
- Additional cuts in pensions for career workers – as a result of a Cash Balance, 401(k)-type, or “hybrid” pension – could trigger turnover rates that undermine the quality of schools and other services while requiring offsetting wage increases to restore stability to public employers.
“Oklahoma and its public workers have made the hard choices needed to get pension plans on a path to full funding,” said Stephen Herzenberg, PhD, co-author of the EPI-KRC report. “Now is not the time to embrace a radical overhaul that costs taxpayers, further erodes public retirement security, and throws Oklahoma’s pension house back into disorder.”
The Economic Policy Institute (EPI), a non-profit, non-partisan think tank, was created in 1986 to broaden discussions about economic policy to include the needs of low- and middle-income workers. EPI believes every working person deserves a good job with fair pay, affordable health care, and retirement security. Learn more: www.epi.org.
The Keystone Research Center is a nonprofit, nonpartisan research organization that promotes a more prosperous and equitable Pennsylvania economy. Learn more: www.keystoneresearch.org.