It’s that time of year when policymakers’ decisions regarding the approved appropriated state budget are evaluated. Many will take varying positions, for and against spending decisions of lawmakers. What is clear is that the approved budget includes a decision that all can applaud — retirement reform. A key condition and feature of the budget agreement was the modernization of the retirement plan for all new non-hazard duty state employees, converting the existing defined benefit plan to a defined contribution plan.
Oklahoma’s state retirement systems endured irresponsibility for decades. Recently, the majority of policymakers have chosen to be pro-active in addressing Oklahoma’s broken, debt-ridden retirement systems. Just a few years ago, Oklahoma’s state retirement systems total debt exceeded $16 billion, more than the entire state budget from all sources. Total annual payments made by the state to the various state retirement systems exceed $1 billion. Several years ago, lawmakers chose to ensure that legislation regarding retirement benefits had a more thorough review process, and a few years ago approved legislation to ensure that benefit enhancements are concurrently funded.
After these changes, liabilities still stand at more than $11 billion and grew over the prior year. Knowing this, champions of retirement reform in Oklahoma, Rep. Randy McDaniel and Senator Rick Brinkley led their colleagues tirelessly toward the next needed step in retirement reform, establishing a defined contribution plan for all new hires. While McDaniel and Brinkley lead the effort, Gov. Mary Fallin, state Treasurer Ken Miller, Senate Pro Tem Brian Bingman, Speaker of the House Jeff Hickman, Sen. Clark Jolley, Rep. Scott Martin and others dedicated significant effort to implement these reforms.
The conversion of retirement benefits for all new non-hazard duty state employees to a defined contribution, 401(k)-style retirement plan is transformational. Such a change now puts in place a retirement plan for non-hazard duty state employees that provides a secure future for all Oklahomans. This plan enables government to keep its promises to those who have accrued benefits, establishes a firm debt elimination plan and structures a plan that is very difficult to manipulate by politicians. It’s one that employees and taxpayers can trust.
Oklahoma already has experience with 401(k)-style retirement plans. Hundreds of thousands of Oklahomans employed in the private sector solely use 401(k)-style retirement plans for saving for retirement. Numerous employees in both public and private higher education solely use 401(k) plans for saving for retirement. Just a few years ago, the Oklahoma Department of Wildlife Conservation converted its plan to a 401(k)-style defined contribution plan and reports the change a positive both for the system and employees.
Aside from the changes better aligning retirement benefits with the now mobile workforce and allowing employees and their families to build a transferable asset, the change provides a huge positive to state government. Once debts are paid off, within less than 20 years annually more than $224 million will be saved on an annual basis that government can re-allocate to operational needs of government, and at that point the entire debt of the Oklahoma Public Employees Retirement System will be fully paid off!
Many will agree or disagree on various aspects of the recently approved appropriated state budget. But one thing is sure, the retirement reform passed by lawmakers as part of the budget deal is a win for all.
JONATHAN SMALL, a certified public accountant, is vice president for policy at the Oklahoma Council of Public Affairs (www.ocpathink.org), a free-market think tank. Jonathan, his wife Kristina and their four daughters live in Edmond.