In a February 2010 report by the Pew Center on States, entitled, “The Trillion Dollar Gap,”(http://downloads.pewcenteronthestates.org/The_Trillion_Dollar_Gap_final.pdf) Oklahoma was one of eight states singled out as headed for disaster on the seven state-administered pension systems if they didn’t start adequately funding the plans.
The seven plans cited in the Pew study as under funded were the Oklahoma Firefighters Pension Retirement System, Oklahoma Public Employees’ Retirement System, Uniform Retirement System for Judges and Justices, Police Pension and Retirement System, Teachers’ Retirement System, Oklahoma Law Enforcement Retirement System, Wildlife Conservation Retirement Plan.
The study had this to say about Oklahoma: “The seven state-administered pension systems had a combined funding level of 60.7 percent in fiscal year 2008, a total liability of $33.5 billion and an unfunded liability that was 219 percent of total payroll. During the 1980s and 1990s Oklahoma increased benefits, but did not boost contributions enough to offset those increased liabilities. By pushing the costs into the future, the state’s actuarially required contribution has risen to almost 21 percent of payroll, annually. In addition, the state has lagged in making the required contributions, so funding levels would likely have continued on a downward path even without investment losses.”
How did Oklahoma get in this mess? It all started back in the late 1980s and early 90s, when the Democrat controlled state legislature increased future retirement benefits for state workers and teachers without including a funding mechanism. According to Tom Spencer, executive director of the Oklahoma Public Employees Retirement System. “Frankly, I don't think the legislature was paying attention to the actuarial statistics when passing legislation. It is obvious that in some local plans and some state plans, the benefits have just gone way too high,” Spencer said. “'Every government needs to be able to afford the pensions they've promised. In Oklahoma, there's been a gigantic disconnect between what's been promised and what they're willing to pay."
Spencer is right about the retirement plans for some state bureaucrats, college professors and others being too sweet, and while Republicans can accurately point fingers at the Democrats in control when the deal was made, they now have to find a way to make good on the deal.
“We have promises to uphold to retired teachers and workers in Oklahoma and we also have a duty to ensure sound fiscal security for our states future. We can do both, but it will take a team effort and I am confident that these committee members will work together in a way that makes Oklahoma’s future more secure,” Bingman said in the press release concerning the establishment of the committee.
Oklahoma is not the only state with pension funding issues. Economist Arnold Kling said the states unfunded pension issue was like, “Fifty Bernie Madoffs.” Government, at all levels, over committing and not using money where it is supposed to be used is not a new concept. Take for example Social Security:
Six years ago, then Federal Reserve chief Alan Greenspan bluntly told Congress that Social Security cannot afford to pay baby boomers their promised retirement pensions, and the benefits should be reduced. He warned that the nation's debt is already high and the expected tsunami in Social Security payments when the boomers start retiring in 2008 could send interest rates soaring. "I am just basically saying that we are overcommitted at this stage," Greenspan said.
U.S. Senator Tom Coburn says about Social Security: “As Congress discusses various Social Security reform proposals, it is critical for Oklahomans to understand the most risky option is to do nothing, thereby allowing the system to collapse. The unfortunate reality is that under the current system, Social Security is broke with millions of baby boomers now eligible to receive benefits. In fact, due to the onslaught of early retirements caused by the down economy, Social Security is expected to run deficits in 2010 and 2011, only to return to surpluses for a few short years before permanently running to deficits in 2015. The “trust fund” of Social Security, which many politicians claim will keep Social Security solvent, actually contains no real dollars and simply does not exist.”
Two important lessons these ‘unfunded’ pension issues should teach us. First, government has no money that taxpayers don’t give them and government does terrible job managing money. Second, no one should bet their future (retirement, medical coverage) exclusively on a government operated program. Government is notorious for overcomiting and under delivering.
The late actress Mae West was known for her double entendres. Perhaps she was talking about government when she said, “An ounce of performance is worth pounds of promises.”