Monday, January 4, 2016
By The Oklahoman Editorial Board
Published: January 4, 2016
“I know you're not going to be happy.”
This is the message Pennsylvania Gov. Tom Wolf has relayed to union leaders recently about his efforts to reduce the state's $50 billion gap between how much is owed in pension obligations and how much the state has on hand. The Wall Street Journal notes that in an effort to end a budget impasse with the Republican-controlled legislature, Wolf, a Democrat, has agreed to retirement cuts for new state hires and current workers.
This has unions unhappy, naturally, but it mirrors what's happening elsewhere across the country: Democratic politicians going against their longtime allies in labor because continuing with business as usual is unsustainable.
Since 2009, the Journal reports, 25 of the 34 states that had Democratic governors in office “have rolled back retirement benefits for public workers, a result that is proportionally in line with states run by Republicans.”
West Virginia is one of those states. Its governor this year supported increasing mandatory worker contributions for new hires and keeping those workers from retiring as young as age 55.
In California, Democratic Gov. Jerry Brown, a darling of the left, tangled with the state's largest retirement system over its proposal to lower investment targets. Brown said it was irresponsible.
Wolf initially fought the idea of cutting benefits to union workers, but changed course in exchange for more spending on education. The Journal noted that Pennsylvania is projected to spend $2.4 billion on pensions this year, compared with $1.7 billion last year. That's an increase of 43 percent.
Democratic governors “can come off as the lesser of two evils for union officials,” the Journal wrote, in part because Republicans often look to enact more sweeping overhauls, like moving away from defined-benefit plans to defined-contribution plans such as 401(k)s.
That has been proposed by some policymakers in Oklahoma, which has a Republican governor and a Republican-controlled Legislature. However it has been met with strong opposition from public-sector union leaders who argue such a change would severely compromise their workers' retirements.
Oklahoma has made some inroads with this idea. A bill approved in 2014 places state workers hired after November 2015, and who are under the Oklahoma Public Employees Retirement System, into a 401(k)-style system. The bill exempted correctional officers, probation and parole officers, fugitive apprehensions agents employed by the Department of Corrections, district attorneys, assistant DAs and other employees of district attorneys' offices.
Oklahoma has been able to make a notable dent in its combined unfunded pension liability, however, with a number of reforms that include not approving cost of living adjustments unless money is available to pay for them. Once at about $16 billion, the state's unfunded pension liability now stands at about $8.8 billion.
The Oklahoma Teachers Retirement System had $10.4 billion in unfunded liabilities in 2010. Now that figure is about $7 billion; the system has gone from a 48 percent funded status in 2010 to about 63 percent. The funding ratio for all state pension plans has improved from 56 percent in 2010 to 76 percent today.
Oklahoma policymakers should continue with their pension reform efforts. So too should other states. With a pension funding gap nationwide standing at roughly $1 trillion, it really shouldn't matter whether the governors have a D or an R next to their name.