Pension wisdom needs to continue

STATE Treasurer Ken Miller used the lead article in his latest monthly economic report to note the strong gains seen in the state’s seven public employee pension systems. The overall improvement in this system owes not just to the bull market but to legislative reforms.

Investments of the $32.9 billion in the seven funds saw average returns of 9.5 percent during fiscal year 2018, which Miller said outperformed 86 percent of all public pensions.

The Oklahoma Teachers Retirement System had a 10 percent return on investment during FY 2018, and stands at $16.5 billion.

The Oklahoma Public Employees Retirement System, the state’s second-largest, is valued at $9.7 billion after reporting returns of 8.3 percent.

Other returns included 11.7 percent for the Oklahoma Firefighters Pension and Retirement System, which is valued at $2.7 billion; 8.7 percent for the Oklahoma Police Pension and Retirement System (value: $2.5 billion); 9 percent for the Oklahoma Law Enforcement Pension System ($994 million); 8.3 percent for the Uniform Retirement System for Judges and Justices ($338 million), and 8.2 percent for the Oklahoma Wildlife and Conservation Retirement Plan ($114 million).

Miller said the return seen in the firefighters’ pension fund ranked in the top 1 percent of all public pensions nationwide, with the teachers’ performance in the top 7 percent nationally. All seven systems have outperformed the assumed rate of return the past two years, and Miller noted that experts agree that performance “is unsustainably high.”

“Examining returns over a few years is interesting, but long-term performance compared to assumed rates of return are the key measurement,” Miller said.

Similarly, continuing with sound policies is important to ensure these funds remain healthy. Bad policy contributed to making a mess of the state’s public pensions.

For years, the teachers’ retirement system was one of the worst-funded in the nation, in part because lawmakers would divert money from the system and use it elsewhere. Lawmakers also would approve cost of living adjustments, but fail to fund them.

In 2010, the state’s unfunded pension liability stood at $16 billion, leaving Oklahoma’s pension system ranked in the bottom five nationally according to major rating services. Several legislative reforms enacted since then, along with strong investment results and sufficient funding, have cut the unfunded liability almost in half.

The leader of the reform push was Rep. Randy McDaniel, R-Oklahoma City, who is term-limited this year and is running for Miller’s job. McDaniel notes that in the past, long-lasting bull markets (this one has lasted more than nine years) have often led to unrealistic expectations.

“As a result, resources would be cut to fund other priorities,” he said. “The combination of funding cuts and inevitable market corrections led to growing financial instability.”

McDaniel’s call is for leaders to stay on top of this issue and handle it wisely. “The mistakes of the past should be remembered instead of repeated,” he said. It’s wise advice that should be heeded by those who make up the Legislature in 2019 and beyond.