OKLAHOMA CITY — With an unfunded liability among Oklahoma's seven major pension systems exceeding $11 billion, several Republican leaders have said changing from a traditional pension to a 401(k)-style retirement account for new state workers will be a top priority during the 2014 legislative session.
The unfunded liability, which is the amount owed to pensioners beyond what the system currently afford to pay, has become a growing concern for Gov. Mary Fallin and other state leaders, who say it hinders the state's effort to improve its bond rating.
"It's not the Legislature that has to go to New York to defend our credit rating and our balance sheet to the rating agencies," said Oklahoma Treasurer Ken Miller. "It's the governor and myself, and we have a balance sheet problem because of pension debt, and we have to fix that."
Newly hired state workers would no longer enjoy a traditional pension system under a proposal endorsed by Miller and Fallin that is expected to be well-received by the Republican-controlled Legislature. Last session, both the House and Senate easily passed a bill that would have given newly hired state workers the option of enrolling in a new defined contribution, 401(k)-style retirement system, but Fallin vetoed the bill saying it didn't go far enough.
"I am ready and willing to tackle this issue," Fallin said in her veto message. "I look forward to working with the Legislature during the interim to create true pension reform for the state of Oklahoma."
In a statement last week, Fallin said she wants to make clear that she does not support changing the pension system for current state workers, but that changes must be made to shore up the system to protect that system moving forward.
"I am committed, however, to working in the interim with all parties to come up with a pension reform proposal that can be introduced at the beginning of the 2014 legislative session," Fallin said. "That proposal will offer meaningful improvements to state pension systems, ensure the long term sustainability of our pension plans, and offer savings to the state.
"All of this is necessary to guarantee the state of Oklahoma can keep the promise it has made to public employees and retirees."
Jess Callahan, a 30-year-old social worker for the Department of Human Services, said he believes state workers can support the idea of shifting to a 401(k)-style retirement system where the state matches employee contributions up to a certain amount if the savings are used to shore up the existing pension systems or on other benefits for state workers, like pay raises.
"We know pension reform is happening, and we're OK with that, as long as we have a seat at the table, and that the savings that are realized are rolled back in and benefit state workers," Callahan said.
Treasurer Miller, who has worked with Fallin on pension issues over the last year, said one of the issues that must be determined in the interim is what kind of defined contribution plan to develop.
"Should it be a hybrid, which is referred to as the cash-balance plan, which has a guaranteed return, and is certainly more political viable if you're talking to the various interest groups that represent pensioners or state employees, or is it the traditional 401(k) account?" Miller said.
Miller said he and the governor also will continue to pursue a separate proposal to consolidate the administration of all of the state's seven different retirement systems. That plan, which came together late in the 2013 legislative session, was fiercely resisted by groups representing firefighters and teachers, but Miller said the savings to the pension systems could be as high as $50 million annually.
"The largest amount of cost savings comes from a reduction in fees from consultants and managers," Miller said.