Several states facing major pension challenges have successfully transitioned to lower-risk retirement designs, including Oklahoma. House Bill 2486 attempts to undo that progress by eliminating the current Pathfinder defined contribution retirement plan and reopening the legacy pension plan, re-exposing the state to unnecessary unfunded liabilities, financial risks, and costs that would ultimately be borne by taxpayers.
Closing one of the best defined contribution plans in the country to reopen the shuttered Oklahoma Public Employees Retirement System (OPERS) defined benefit pension plan would unwind important reforms and threatens the financial condition of legacy benefits.
- Closing the OPERS defined benefit pension to new hires and adopting other prudent policy changes dramatically improved the financial solvency of the legacy OPERS pension in the last decade. OPERS was 66% funded in 2010, in the wake of the Great Recession, but stands at over 99% funded today.
- HB 2486 would move the state away from its current risk-free retirement design—where employers bear no financial liability for new hires—back to a system exposed to the same risk of unfunded liabilities that prompted the closing of that pension almost a decade ago.
Transferring defined contribution account balances to OPERS at the current discount rate would create major immediate risks.
- HB 2486 would allow current Pathfinder DC plan participants to transfer their account balances over to OPERS to fund an actuarially equivalent pension benefit, but their previously earned service would be transferred using a relatively high discount rate of 6.5%.
- Such transfers would create the risk of a pension-obligation-bond-like situation where any downturn in market performance or lowering of return rate assumptions would quickly create unfunded liabilities in the newly reopened—and currently fully-funded—OPERS system.
HB 2486 has not received a rigorous actuarial analysis or stress testing, nor has it received scrutiny from legislative finance committees, leaving important questions for taxpayers unanswered.
- Pension systems operate over generations, but legislators have only been presented with minimal administrative cost projections based on an assumption that the proposed new pension benefit would do the impossible: get 100% of its assumptions 100% right, 100% of the time.
- Major retirement plan design changes necessitate long-term actuarial analysis and stress testing to ensure financial risks to governments are transparent and clearly understood beforehand.
Bottom Line: Changes of the magnitude being proposed should receive rigorous actuarial and risk analyses that ensure future generations’ interests are protected.
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