| NEW YORK
NEW YORK May 30 Oklahoma's Republican Governor
Mary Fallin has signed legislation that scraps defined-benefit
pension plans for some incoming state workers, offering them
plans favored in the private sector that shift the risk of
retirement saving onto employees.
State pension systems are the last holdout of traditional
defined benefit plans in the United States. Many of the plans,
which offer a guaranteed income stream on retirement, are
severely underfunded due to the 2008-2009 financial crisis and
years of mismanagement when state authorities did not make
Many states have been looking at ways to reform the pension
plans, including introducing new tiers that require greater
contributions from incoming employees or moving entirely to
defined contribution 401(k)-type plans that the private sector
adopted years ago.
"Oklahoma pension systems currently have $11 billion in
unfunded liabilities," said Fallin in a statement. "The system
as it stands today is not financially sound or sustainable.
Moving future hires to a 401(k)-style system helps to ensure we
can pay our current retirees and employees the benefits they
have already earned."
New Jersey's governor, Chris Christie, who recently
announced that the state could not afford to make its required
pension contributions because of a $800 million budget hole,
also wants to move workers to 401(k)-type plans, according to a
report in the Wall Street Journal.
Oklahoma's new law only applies to workers under the $7
billion Oklahoma Public Employees Retirement System (OPERS). It
does not apply to police, fighters or teachers, whose pension
plans make up over two-thirds of the state pension system, which
has over $21 billion in assets.
The law requires new OPERS employees to pay a minimum of 3
percent to the fund, and requires the state to match employee
contributions up to 7 percent. OPERS has 50,000 active members
and 30,000 retirees.
OPERS is one of the best funded plans in the state system,
with 80.2 percent of required assets, according to a report by
Morningstar, a level seen by many actuaries as a minimum
threshold of a well funded plan. The larger $10.2 billion
teachers plan has only 54.8 percent of required assets.
Critics say the move is unnecessary because of OPERS'
healthy funding level and question the ability of 401(k) plans
to provide adequate retirement security given very low rates of
saving in the private sector.
(Reporting by Edward Krudy; Editing by Lisa Shumaker)