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Public pensions in Oklahoma

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Oklahoma public pensions
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Pension System
Number of pension systems 7
State pension systems: Oklahoma Public Employees Retirement System
Teachers Retirement System of Oklahoma
Uniform Retirement System for Justices and Judges
Oklahoma Firefighters Pension and Retirement System
Oklahoma Police Pension and Retirement System
Oklahoma Law Enforcement Retirement System
Wildlife Conservation Retirement Plan
System type: Defined benefit plan
Pension Health (2012)[1]
Fund Value: $21,469,265,072
Estimated liabilities: $33,072,618,638
Unfunded liabilities : $11,603,353,566
Percent funded: 64.92%
Percent funded change: Decrease.svg1.75%[2]
Percent funded rank: 31[3]
Pension Fund Members (2012)
Total Members: 262,962
Active Members: 148,945
Other Members: 114,017
Other State Pension Information
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Oklahoma public pensions are the state mechanism by which state and many local government employees in Oklahoma receive retirement benefits. Seven systems administer benefits to eligible retirees:
  • Oklahoma Public Employees Retirement System (OPERS)
  • Teachers Retirement System of Oklahoma (TRS)
  • Uniform Retirement System for Justices and Judges (URSJJ)
  • Oklahoma Firefighters Pension and Retirement System (OFPRS)
  • Oklahoma Police Pension and Retirement System (OPPRS)
  • Oklahoma Law Enforcement Retirement System (OLERS)
  • Wildlife Conservation Retirement Plan (WCRP)

According to the United States Census Bureau, the state has six locally-administered pension systems.[4]

A 2012 report from the Pew Center on the States noted that Oklahoma's pension system was funded at 56 percent at the close of fiscal year 2010, well below the 80 precent funding level experts recommend. Consequently, Pew designated the state's pension system as cause for "serious concern."[5]

However, taken together, the funding ratio for the state's pension systems increased from 62.04 percent in fiscal year 2007 to 64.92 percent in fiscal year 2012, a 2.88 percent bump. Unfunded liabilities remained virtually unchanged (approximately $11.5 billion in fiscal year 2007 and $11.6 billion in fiscal year 2012) as the value of assets gradually improved (increasing from $18.8 billion in fiscal year 2007 to roughly $21.5 billion in fiscal year 2012).

Features

Pension plans

In fiscal year 2012, according to the systems' Comprehensive Annual Financial Reports and Actuarial Valuation Reports, Oklahoma had a total of 148,945 active members in its retirement plans. Our membership figures divide plan participants into two broad categories: active and other. Active members are current employees contributing to the pension system. Other members include retirees, beneficiaries and other inactive plan participants (usually terminated employees entitled to benefits but not yet receiving them).[6]

The following data was collected from the systems' Comprehensive Annual Financial Reports and Actuarial Valuation Reports. The "percentage funded" is calculated by taking the current value of the fund and dividing by the estimated amount of total liabilities. The assumed rate of return used to calculate fund value varied by system in fiscal year 2012 (see "Rate of return" below for more information). The Government Accountability Office (GAO) and Pew Research Centers cite a percent funded ratio of 80 percent as the minimum threshold for a healthy fund, though the American Academy of Actuaries suggests that all pension systems "have a strategy in place to attain or maintain a funded status of 100 percent or greater."[7][8] The column labeled "SBS figure" refers to a market liability calculation of the fund by the nonprofit organization State Budget Solutions. This analysis uses a rate of return of 3.225 percent, which is based upon the 15-year Treasury bond yield. The organization calls this a "risk-free" rate of return that would make it easier for states to achieve their pension funding requirements in the future. Since 2006, all private sector corporate pension plans have incorporated market costs into their funding schemes.[9]

Basic Pension Plan Information -- Oklahoma
Plans Current value Percentage funded Unfunded liabilities Membership
State figure SBS figure[10] State figure SBS figure[10]
Oklahoma Public Employees Retirement System[11] $6,682,200,296 80.2% N/A[12] $1,652,437,604 N/A[12] 42,569 active members
Teachers Retirement System[13] $10,190,500,000 54.8% $8,397,600,000 87,778 active members
Uniform Retirement System for Justices and Judges[14] $238,553,638 95.7% $10,825,262 266 active members
Oklahoma Firefighters Pension and Retirement System[15] $1,759,145,750 60.9% $1,127,301,981 12,343 active members
Oklahoma Police Pension and Retirement System[16] $1,834,000,000 90.2% $200,000,000 4,441 active members
Oklahoma Law Enforcement Retirement System[17] $688,000,000 78%% $191,000,000 1,241 active members
Wildlife Conservation Retirement Plan[18] $76,865,388 76.1% $24,188,719 307 active members
TOTALS $21,469,265,072 64.92% 34% $11,603,353,566 $41,493,848,000 148,945 active members

Annual Required Contribution

Annual Required Contributions (ARC) are calculated annually and are a sum of two different costs. The first component is the "normal cost," or what the employer owes to the system in order to support the liabilities gained in the previous year of service. The second component is an additional payment in order to make up for previous liabilities that have not yet been paid for. According to a report by the Pew Center on the States, in 2010 Oklahoma paid 70 percent of its annual required contribution.[5][19]

On June 25, 2012, the Government Accounting Standards Board (GASB) approved a plan to reform the accounting rules for state and local pension funds. These revised standards were set to take effect in fiscal years 2013 and 2014.[20] As a result, ARCs were removed as a reporting requirement. Instead, plan administrators and accountants will use an actuarially determined contribution or a statutory contribution for reporting purposes.[21]

ARC historical data
Fiscal year OPERS[11] TRS[13] URSJJ[14] OFPRS[15]
Annual Required Contribution (ARC) Percentage contributed Annual Required Contribution (ARC) Percentage contributed Annual Required Contribution (ARC) Percentage contributed Annual Required Contribution (ARC) Percentage contributed
2012 $240,131,738 109.4% $588,287,377 115.9% $7,412,732 48.8% $142,357,604 66.3%
2011 $402,011,633 62.9% $822,419,996 77.6% $12,518,554 25.5% $195,669,404 44.9%
2010 $389,155,339 66.8% $742,286,289 83.6% $10,778,833 80.8% $187,157,125 43.9%
2009 $323,104,773 75.2% $714,367,558 86.6% $8,169,214 27.5% $157,823,945 52.7%
2008 $363,914,352 60.5% $590,495,652 101.1% $7,615,245 22.2% $147,273,273 56.4%
ARC historical data
Fiscal year OPPRS[16] OLERS[17] WCRP[18]
Annual Required Contribution (ARC) Percentage contributed Annual Required Contribution (ARC) Percentage contributed Annual Required Contribution (ARC) Percentage contributed
2012 $64,746,000 94% $48,634,000 54% $3,801,960 107.8%
2011 $146,816,000 38% $50,094,000 49% $3,179,568 100.0%
2010 $132,456,000 41% $48,103,000 48% $4,413,604 100.0%
2009 $102,610,000 57% $36,616,000 68% $3,405,626 100.1%
2008 $100,561,000 56% $32,668,000 76% $3,118,148 96.5%

Historical funding levels

Historical pension plan data - all systems
Year Value of assets Accrued liability Unfunded liability Funded ratio
2007 $18,865,710,748 $30,409,805,076 $11,544,094,328 62.04%
2008 $20,354,492,146 $33,527,898,959 $13,173,406,813 60.71%
2009 $19,982,889,313 $34,815,040,043 $14,832,250,730 57.40%
2010 $20,317,125,858 $36,368,053,478 $16,051,027,620 55.87%
2011 $21,136,143,544 $31,704,057,236 $10,567,913,692 66.67%
Change from 2007-2011 $2,270,432,796 $1,294,252,160 -$976,180,636 4.63%

Rate of return

Most of the state's pension systems (including OPERS, URSJJ, OFPRS, OPPRS and OLERS) presume a 7.5 percent return rate on their pension investments.[11][14][15][16][17] TRS presumes an 8 percent return rate on its pension investments, while WCRP presumes a 7 percent return rate.[13][18]

Analysis

Percent Funded Status of Pension Plans
in the 50 States as of November 2013
Public pensions in NevadaPublic pensions in MassachusettsPublic pensions in ColoradoPublic pensions in New MexicoPublic pensions in WyomingPublic pensions in ArizonaPublic pensions in MontanaPublic pensions in CaliforniaPublic pensions in OregonPublic pensions in WashingtonPublic pensions in IdahoPublic pensions in TexasPublic pensions in OklahomaPublic pensions in KansasPublic pensions in NebraskaPublic pensions in South DakotaPublic pensions in North DakotaPublic pensions in MinnesotaPublic pensions in IowaPublic pensions in MissouriPublic pensions in ArkansasPublic pensions in LouisianaPublic pensions in MississippiPublic pensions in AlabamaPublic pensions in GeorgiaPublic pensions in FloridaPublic pensions in South CarolinaPublic pensions in IllinoisPublic pensions in WisconsinPublic pensions in TennesseePublic pensions in North CarolinaPublic pensions in IndianaPublic pensions in OhioPublic pensions in KentuckyPublic pensions in PennsylvaniaPublic pensions in New JerseyPublic pensions in New YorkPublic pensions in VermontPublic pensions in VermontPublic pensions in New HampshirePublic pensions in MainePublic pensions in West VirginiaPublic pensions in VirginiaPublic pensions in MarylandPublic pensions in MarylandPublic pensions in ConnecticutPublic pensions in ConnecticutPublic pensions in DelawarePublic pensions in DelawarePublic pensions in Rhode IslandPublic pensions in Rhode IslandPublic pensions in MassachusettsPublic pensions in New HampshirePublic pensions in MichiganPublic pensions in MichiganPublic pensions in AlaskaPension Health 2013.png
Note: The data in this map was compiled from state CAFR reports and Actuarial Valuation documents. Figures reflect a combination of all of the state pension plans.
Funded Ratio of State Public Pension Plans as compiled by State Budget Solutions

According to a 2012 analysis by the Pew Center for the States, most state pension plans assume an 8 percent rate of return on investments.[23] Critics assert that this assumption is unrealistic, citing changing market conditions and significantly lower investment returns across the board over the past several years.[24] When states lower the rate of return in an effort to accurately predict investment earnings, it increases the current plan liabilities, thereby lowering the percent funded ratio and causing the ARC to increase. This is because future plan liabilities are discounted based on the rate of return, so smaller expected investment returns result in larger actuarially accrued liabilities.[25] For example, on September 21, 2012, the Illinois Teachers Retirement System voted to lower its rate of return from 8.5 percent to 8.0 percent. This change increased the state's fiscal year 2014 ARC from $3.07 billion to $3.36 billion.[26] Similarly, when California's CalPERS reduced its projected annual rate of return from 7.75 percent to 7.5 percent in March 2012, it cost the state an additional $303 million for fiscal year 2013.[27]

The 2008 financial crisis had a devastating effect on pension plans nationwide and has resulted in slower economic growth and increased market volatility. In light of this, some market strategists find the 8 percent assumption to be overly ambitious. Stanford University Finance Professor Joshua Rauh stated that using past investment performance in this economic climate was "dangerously optimistic."[28] Advocates for a lower assumed rate of return argue that the standard assumptions could cause pension fund managers to engage in more risky investments and imprudent stewardship of public funds. Further, if pension plans were using more conservative assumptions, such as the 3 or 4 percent assumed rate of return used in the private sector, and the plans grew more quickly than expected, the fund would have a surplus and smaller future ARCs, which would be preferable to using optimistic assumptions and potentially being caught with larger-than-expected deficits.[29][30][31][32][33]

On the other hand, traditional public pension plan advocates argue that the dip observed in recent years is not sufficient proof of a long-term, downward trend in investment returns. According to Chris Hoene, executive director at the California Budget Project, "The problem with [the market rate] argument is there isn’t significant evidence other than the short term blip during the economic crisis that there’s been that shift. It’s a speculative argument coming out of a very deep recession."[28]

The National Association of State Retirement Administrators compiled data on the median annualized rate of return for public pensions for the 1-, 3-, 5-, 10-, 20-, and 25-year periods ending in 2013. While the median annualized rate of return failed to meet the 8 percent assumption that most public pensions assume over the 5- and 10-year periods, it was just shy (7.9 percent) over the 20-year period, and it exceeded 8 percent for the 1-, 3-, and 25-year periods. It is important to note that the NASRA data is reporting the median returns, indicating that even though median annualized returns exceeded 8 percent in the 25-year period, the investment portfolios for half of the examined public pension funds failed to meet an 8 percent assumed rate of return.[34]

In September 2013, the nonprofit organization State Budget Solutions published an analysis of state pension funding levels. In its calculations, State Budget Solutions used a 3.2 percent rate of return, the 15-year Treasury bond yield as of August 21, 2013, to discount plan liabilities.

The research found that, all states combined, state public employee pension plans have only 39 percent of the assets they need to cover their promised payments—a $4.1 trillion gap. According to the report, Oklahoma's public pension plans were 34% funded, making it the 30th most funded state.[35]

Moody's report on adjusted pension liabilities

On June 27, 2013, Moody's Investor Service released its report on adjusted pension liabilities in the states. The Moody's report ranked states "based on ratios measuring the size of their adjusted net pension liabilities (ANPL) relative to several measures of economic capacity." In its calculations of net pension liabilities, Moody's employed market-determined discount rates (5.67 percent for Oklahoma) instead of the state-reported assumed rates of return (8.00 percent for Oklahoma's largest plan as of June 30, 2011).[36]

The report's authors found that adjusted net pension liabilities varied dramatically from state to state, from 6.8 percent (Nebraska) to 241 percent (Illinois) of governmental revenues in fiscal year 2011.[36]

The adjusted net pension liability for Oklahoma in fiscal year 2011 was ranked the 22nd highest in the nation.[36] The following table presents key state-specific findings from the Moody's report, as well as the state's national rank with respect to each indicator.

Adjusted net pension liabilities (ANPL) relative to key economic indicators - Oklahoma
Governmental revenue* Personal income State GDP Per capita
State findings 61.8% 7.3% 6.7% $2,746
National ranking 17th 24th 21st 23rd
*Moody's uses governmental revenues as reported in each state's consolidated annual financial reports; this includes not only state-generated revenue, but federal funds, as well.[36]

Reforms

Proposed reforms

2013

H.B. 2077

H.B. 2077 proposed to allow new OPERS-eligible employees hired on or after July 1, 2014 to choose between a newly-created defined contribution plan and the traditional defined benefit plan. The bill also proposed to place newly elected state officials and legislators in the defined contribution plan. Although H.B. 2077 cleared both the House and the Senate, Governor Mary Fallin vetoed the legislation on May 10, 2013. Fallin's communications director, Alex Weintz, called the bill "window dressing, not real reform." Earlier in 2013, Fallin had proposed merging the seven separate state pension systems to defray administrative costs and limit inefficiencies, but the proposal failed to gain traction in the legislature.[37][38]

Local public pensions

See also: Local government public pensions

According to the United States Census Bureau, the state has six locally-administered pension systems.[4]

Transparency

See also: Public pension disclosure and Governmental Accounting Standards Board
  • Relevant information, including actuarial data, funding data and, in some cases, investment performance data, is available at the website of each pension fund. The Oklahoma State Pension Commission publishes an actuarial overview of all the plans.[39]
  • Names of pension recipients and amounts disbursed are not published.
  • The Oklahoma State Pension Commission provides oversight for the state's plans.[40]

Recent news

This section displays the most recent stories in a Google news search for the term "Oklahoma + public + pensions"

All stories may not be relevant to this page due to the nature of the search engine.

Oklahoma Public Pensions News Feed

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See also

External links

References

  1. Figures below are compiled by adding up all state pension plans
  2. This figure is derived by calculating the percent difference between the current year's funding level and the system's percent funded from the prior year.
  3. Rank is relative to the 50 state pension programs. "1" refers to the healthiest pension plan while "50" would be the least well-funded plan.
  4. 4.0 4.1 "Public Employee Retirement Systems State- and Locally-Administered Pensions Summary Report: 2010," United States Census Bureau, April 30, 2012
  5. 5.0 5.1 Pew Center on the States "Widening Gap Update: Oklahoma," June 18, 2012
  6. Organisation for Economic Co-operation and Development "Pensions Glossary," accessed November 27, 2013
  7. United States Government Accountability Office Report to the Committee on Finance, U.S. Senate "State and Local Government Retiree Benefits: Current Status of Benefit Structures, Protections, and Fiscal Outlook for Funding Future Costs," September 2007. Accessed October 23, 2013
  8. American Academy of Actuaries "Issue Brief: The 80% Pension Funding Standard Myth," July 2012. Accessed October 23, 2013
  9. Governing Magazine " Is There a Plot Against Pensions?" October 14, 2013
  10. 10.0 10.1 State Budget Solutions, "Promises Made, Promises Broken - The Betrayal of Pensioners and Taxpayers," accessed September 20, 2013
  11. 11.0 11.1 11.2 11.3 Oklahoma Public Employees Retirement System "2012 Comprehensive Annual Financial Report," accessed November 19, 2013
  12. 12.0 12.1 Analysis only available for system totals and not individual funds.
  13. 13.0 13.1 13.2 13.3 Oklahoma Teachers Retirement System "2012 Comprehensive Annual Financial Report," accessed November 19, 2013
  14. 14.0 14.1 14.2 14.3 Uniform Retirement System for Justices and Judges "2012 Comprehensive Annual Financial Report," accessed November 19, 2013
  15. 15.0 15.1 15.2 15.3 Oklahoma Firefighters Pension and Retirement System "2012 Actuarial Valuation Report," accessed November 19, 2013
  16. 16.0 16.1 16.2 16.3 Oklahoma Police Pension and Retirement System "2012 Comprehensive Annual Financial Report," accessed November 19, 2013
  17. 17.0 17.1 17.2 17.3 Oklahoma Law Enforcement Retirement System "2012 Financial Statements," accessed November 19, 2013
  18. 18.0 18.1 18.2 Oklahoma Department of Wildlife Conservation "2012 Financial Statements," accessed November 19, 2013
  19. Government Accounting Standards Board "Annual Required Contribution (ARC)," accessed October 17, 2013
  20. Reuters "Little-known U.S. board stokes hot pension debate," July 10, 2012
  21. State Budget Solutions "GASB's ineffective public pension reporting standards set to take effect," June 5, 2013
  22. Cite error: Invalid <ref> tag; no text was provided for refs named WCRP
  23. "The Widening Gap Update,” Pew Center on the States, accessed October 17, 2013
  24. The New York Times "Public Pensions Faulted for Bets on Rosy Returns," May 27, 2012
  25. Benefits Magazine "Public Pension Funding 101: Key Terms and Concepts," April 2013. accessed October 23, 2013
  26. Crain's Chicago Business "State teachers pension board lowers expected rate of return," September 21, 2013. accessed October 23, 2013
  27. Huffington Post "California Pension Funds Expect Lower Investment Return," March 14, 2012. accessed October 23, 2013
  28. 28.0 28.1 Governing "Expert: Governments Are Masking Their Pension Liabilities ," October 25, 2013. accessed October 25, 2013
  29. The Washington Post "Kansas’s pension funding gap just grew by $1 billion," September 6, 2013. accessed October 25, 2013
  30. Topeka Capital-Journal "KPERS' unfunded liability rises to $10.2B," September 4, 2013. accessed October 25, 2013
  31. Wall Street Journal "Pensions Wrestle With Return Rates," October 10, 2011. accessed October 23, 2013
  32. The Courant "Promising Too Much On Public Pensions," August 10, 2012. accessed October 23, 2013
  33. Business Wire "NCPERS 2013 Survey: Public Pension Plans Report Increasing Confidence, Lower Costs, Growing Returns," October 22, 2013. accessed October 25, 2013
  34. National Association of State Retirement Administrators "Issue Brief: Public Pension Plan Investment Return Assumptions," October 2013. accessed October 23, 2013
  35. State Budget Solutions, "Promises Made, Promises Broken - The Betrayal of Pensioners and Taxpayers," accessed September 20, 2013
  36. 36.0 36.1 36.2 36.3 Moody's Investor Service "Adjusted Pension Liability Medians for US States," June 27, 2013
  37. NewsOK "Fallin vetoes pension bill," May 10, 2013
  38. Oklahoma State Legislature "Bill Information for HB 2077," accessed November 19, 2013
  39. Oklahoma State Pension Commission "Summary of Actuarial Reports," February 15, 2012
  40. Oklahoma State Pension Commission "About the Commission," accessed November 19, 2013