Commentary: Oklahoma teachers retirement fund needs attention

Journal Record, The (Oklahoma City),  Mar 8, 2007  by Gene Howard

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Oklahoma has a constitutional amendment that prevents the Legislature from spending more than 95 percent of the estimated revenue. A major loophole is that the seven state retirement systems are not included in the budget and their future liabilities are not considered as a part of the spending restrictions even though they are legal obligations of the state of Oklahoma.

Another problem is that when the Legislature extends coverage to more employees or increases benefits, the liability on the system is increased and often no funds are appropriated to balance the costs to the system.

Now there is an increasing crisis in the teachers retirement system, as it ranks among the three worst-funded state retirement systems in the nation.

On June 30, 2005, it was reported to have only 49.5 percent of the funds to pay the future cost of the members of the retirement system. This fell to 49.3 percent on June 30, 2006, which leaves an unfunded liability of over half of the future costs.

With 128,976 members who are counting on this retirement, the matter is serious and needs to be addressed immediately. The members may be concerned, but the state has an even greater exposure. These are legal liabilities of the state that must be paid when they come due.

This unfunded liability exceeds $7.5 billion based on current actuarial estimates and will continue to grow if nothing is done to infuse funding over a long period of time to bring it closer to a fully funded level. To the Legislature's credit, a number of measures have been introduced this session to improve the future viability of the fund, and this Legislature appears to be taking the problem seriously.

While addressing the funding crisis, the Legislature should look at the erosion over the past of those that retired and have steadily seen their purchasing power reduced. As costs have increased, the retirees' income has not kept up. The Oklahoma Legislature has periodically granted cost-of-living increases, but these have fallen short of actual price increases to retirees. In a past session, all state retirees were granted a cost-of-living increase of at least 4 percent except for those members of the teachers retirement system, who only received a 2-percent increase. The funding problem was a red flag to the Legislature but it shouldn't have been at the expense of the retired teachers.

There is a crisis in the teachers retirement system, but it can and should be addressed by this Legislature. Putting the system on an actuarial plan of additional revenue with a dedicated source to raise the funding over a 25- to 30-year period will address the problem for now without a major impact on the state budget and without the need for a tax increase. At the same time, the loss of spending power of retirees should be assessed and some type of cost- of-living adjustments put in place. This will secure the future of this retirement system and lessen the injustice that has been done to past and current retirees.

Gene Howard, a partner at the Bonham and Howard law firm, writes weekly about legal issues. He served as a state representative from 1958-1968 and in the state Senate from 1964-1982, where he was president pro tem from 1974-1981. He can be reached at (918) 744- 7440 or by e-mail at howardgc@swbell.net.

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