NEW YORK, May 30 (Reuters) - 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 required contributions.
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)