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Regular boosts to retired teachers' income would derail progress toward fully funding OTRS, legislators told
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Regular boosts to retired teachers' income would derail progress toward fully funding OTRS, legislators told

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Oklahoma’s long-beleaguered teacher retirement system absorbed 2018’s one-time “bonus” disbursement and 2020’s cost-of-living adjustment without much difficulty, but regular COLAs would be another matter, Executive Director Sarah Green indicated Thursday.

Green told an Oklahoma House of Representatives interim study that the OTRS’ assets have reached $7.7 billion, which equals 71.5% of long-term pension liabilities. That’s much improved from several decades ago and considered fairly strong, since the liabilities do not all come due at the same time.

Green said the one-time payments in 2018 and the 2% to 4% COLA in 2020 hardly made a dent in the system’s assets or its assets-to-liabilities ratio, especially with a 33% leap in the value of its holdings in fiscal year 2021.

But, Green said, adding even a 1% COLA assumption into projections completely changes the fund’s trajectory.

“(It) would increase our unfunded liabilities by $3 billion and decrease our funded ratio by 8.6 (percentage points),” Green said. “So you’re sending us back into the low 60s very quickly.”

Green said a 1% COLA assumption would extend from 17 to 40 years the length of time needed to fully fund the system.

Currently, all COLAs or other benefit increases from OTRS and the state’s other pension plans must be approved by the Legislature and the governor following actuarial analysis.

Historically, the OTRS was badly underfunded, with lawmakers struggling over the past decade to put it and other pension plans on sounder financial footing. As a result, none of the systems’ retirees received cost-of-living adjustments for more than a decade.

Green pointed out that the Legislature previously approved COLAs for retired educators in every even year from 2000 to 2008 and said returning to a similar pattern would have long-term implications for OTRS.

“On a case-by-case basis, (COLAs) are costly and do have a slight impact on our funded ratio,” Green said. “When they become a pattern, we have to account for that, and it does significantly reduce our (assets-to-liabilities) ratio.”

Green said OTRS paid $1.3 billion in benefits to nearly 59,000 retirees in fiscal year 2021. By way of comparison, she noted that the state’s largest employer, the U.S. Department of Defense, has around 70,000 people on its payroll.

The OTRS is the largest of the state’s six pension funds and, according to reports given at Thursday’s interim study, the only one still well below fully-funded. At least two — for judges and police — are over 100% funded.

The latter part of the study developed into a critique of defined contribution plans such as the one forced on the state’s second-largest pension fund, the Oklahoma Public Employees Retirement System, in 2015.

OPERS Executive Director Joe Fox said the plan, known as PathFinder, is less efficient than the old defined benefit plan and winds up costing the state and employees more.

Speaking last, Oklahoma Public Employees Association Executive Director Sterling Zearley said PathFinder is “the worst decision we’ve ever made, and we need to fix it.”

Defined benefit plans are traditional pension plans that pay a set monthly amount through the life of the retiree — providing the pension fund remains solvent.

Defined contribution plans are 401(k) and similar funds controlled by the account holder.

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