OKLAHOMA CITY (AP) — Motivated by a budget shortfall and one of the most underfunded public pension systems in the country, Oklahoma lawmakers took major steps last year to shore up the unfunded liability of the state's major pensions by increasing the retirement age for new hires and changing how the state provides cost of living adjustments for retirees.
The changes were immediate and dramatic.
Once the series of bills were signed into law, the unfunded liability of the state's major pension systems dropped by more than $5.5 billion. The state's largest and most poorly underfunded system, the Oklahoma Teachers Retirement System, which was projected to never reach fully funded status, was put on a path to be 100-percent funded in 22 years.
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"We feel a lot better about where we are and where we're heading than we did a year ago," said James Wilbanks, the director of the OTRS.
But state Rep. Randy McDaniel, an Oklahoma City Republican who spearheaded many of the changes, said there is still more work to be done.
A financial advisor and stock broker, McDaniel plans to push for even more sweeping changes in the upcoming session, including a constitutional amendment that he says will provide even more stability to the state's retirement plans.
"The overall goal is to have our pension plans financially sound and on a sustainable path," McDaniel said. "That requires more reforms. Last year was a very significant year. We greatly improved the financial condition of all the plans, but there is still more work to be done."
Among the key changes McDaniel plans to pursue in the upcoming session are to the state's three pension systems for firefighters and law enforcement personnel. While changes last year to the systems for teachers, public employees and judges increased the retirement age for new hires by an average of three years, McDaniel said a different approach was needed for the firefighter and police plans, which allow members to retire after 20 years of service.
"The same solution doesn't apply to every group," McDaniel said. "When we look at public safety, there are benefits of having young people in those positions. We want people in the prime of their life if we're going to ask them to perform heroic duties like charging into a burning building or chasing down bad guys."
For the Oklahoma Firefighters Pension and Retirement System, which is the state's second most underfunded system behind OTRS, McDaniel said an agreement has been reached with firefighter groups that would result in increased contributions by employees, municipalities and the state.
Under the plan, the employee contribution would increase from 8 percent to 9 percent, while the municipality's contribution would go from 13 percent to 14 percent. The state would increase the amount of insurance premium taxes dedicated to the system from 34 percent to 36 percent.
"It's a shared sacrifice is what we like to call it, in order to reduce the unfunded liability of the system," said Herb Bradshaw, a retired Warr Acres firefighter and the director of the Oklahoma State Firefighters Association. "By making these sacrifices, our system will be approximately 93 percent funded in 30 years. That benefits the state, the employer and the firefighter."
Similar proposals for increased contributions from the employer, employee and the state also are being considered for the state's two law enforcement retirement systems — the Oklahoma Police Pension and Retirement System, which includes municipal police officers, and the Oklahoma Law Enforcement Retirement System, which includes troopers and other state law enforcement officers.
The House Pension Oversight Committee, which McDaniel chairs, worked with various groups over the interim, and his proposals are backed by House Speaker Kris Steele, R-Shawnee.
"We made a nice dent in our pension funding problems last session, but there's still a big gap to close, so we've got keep after it," Steele said in a statement. "Representative McDaniel's next batch of proposals are rock solid reforms that will continue to strengthen our pension systems.
"It's been a true team effort that I look forward to supporting next session."
Representatives from firefighter groups across the state also have agreed to changes in the firefighter pension system's deferred retirement option, or DROP, plans that McDaniel said will help realize greater savings for the system. A DROP plan allows qualified members of the system who would otherwise be eligible for retirement benefits to continue working and accrue money in a separate account.
Currently, firefighters participating in a DROP plan are eligible to receive either a 7.5 percent return on their investment or the system's annual investment returns minus 2 percent, whichever is greater.
"That is simply not sustainable," said McDaniel, who is proposing to change the allowable annual return to a flat rate of 7.5 percent on investment.
The constitutional amendment McDaniel is proposing would require a detailed actuarial analysis of the cost of any proposed benefit improvement and a constitutional requirement that past benefits be adequately funded before any new benefits are granted.
"We have to be smart and analytical about legislative decisions that affect the pension plans," McDaniel said.
If approved by the Legislature, the proposed constitutional amendment would appear on the 2012 ballot.
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