The Oklahoma State Worker Pension Plan: What Would be the Cost of Switching OPERS to a 401(k) – Style Retirement Savings Plan in Oklahoma?
TRANSITIONING WORKERS TO 401(k) COULD COST OKLAHOMA BETWEEN $700 AND $800 MILLION
OKLAHOMA CITY—Moving Oklahoma’s public workers from their modest pensions to riskier 401(k)s could cost Oklahoma taxpayers between $700 and $800 million in unnecessary transition costs, according to new actuarial projections by Dr. Steve Herzenberg of the Keystone Research Center. The findings show that HB2630, which would undermine the retirement security of Oklahoma’s middle class, would also leave taxpayers footing a hefty bill. Similar proposals have been studied and rejected by more than a dozen other state legislatures.
“Switching Oklahoma’s workers to a 401(k) system will exact a steep economic toll in the short term and the long term,” said Dr. Steve Herzenberg, Executive Director of the Keystone Research Center and author of the report. “In addition to destabilizing retirement for generations of Oklahoma’s public workers, switching to a 401(k) system will cost the state hundreds of millions of dollars just to implement. It’s reckless and short-sighted economic policy.”
The existing Oklahoma pension system is financially sound—comparable to Alaska’s pension system in 2006, when they transitioned new employees from a defined plan to a 401(k). The move backfired. Alaska’s unfunded liability doubled under the 401(k) system, spiking to $12 million. The lack of a retirement guarantee made it difficult for the state to recruit and retain public workers like state troopers and police officers, and new public workers are now trying to get back into the pension system. In addition to the steep cost to Oklahoma’s taxpayers of transitioning to a 401(k) system, there is concern that switch would similarly discourage workers from pursuing careers in public service.
Growing economic vulnerability among seniors has coincided with greater reliance on 401(k)s instead of guaranteed pensions in the private sector. Defined contribution plans are costly and risky for workers, but lucrative for Wall Street financial firms. In part because of the high fees of 401(k)-type savings plans, a shift in this direction in Oklahoma would increase costs by up to 85 percent for the same level of retirement benefits.
“Pensions are the most efficient and more reliable way to make sure that public workers have a secure retirement,” said Herzenberg. “These workers make up part of the backbone of Oklahoma’s middle class and by ensuring their secure retirement, pensions help fortify the state’s economy. When more and more seniors are having trouble making ends meet, the last thing lawmakers should do is dismantle the public pension system.”
This summary relies in part on earlier briefs released November 20, 2013 and February 12, 2014, which contains more detail and more complete references.