Unpopular Ex-Law Beefs Up Pension Of Elected Officials
Lawmakers passed it 30 years ago, repealed it ten years ago, and yet still today Oklahoma taxpayers are feeling the impact of a bill that has been called "morally wrong" and "fiscally irresponsible."
The bill made major and, for some, very lucrative changes to state retirement benefits, and now one very recent state retiree is becoming the latest to cash in.
Mary Fallin was trashed by both Democrats and her own Republican party during the 2018 gubernatorial campaign, and then was largely ignored during the transition. But Oklahoma's unpopular ex-governor may get the proverbial last laugh through this unpopular ex-law.
"We call it the roll up, or the tag-along provision," said Joe Fox, Executive Director of the Oklahoma Public Employees Retirement System (OPERS).
Fox says the provision was tucked into a large 1988 pension bill, HB 1588, which allowed state and county elected officials to roll up any time in a nonelective state or county job with their elective time.
"So it was a pretty significant benefit increase for those elected officials," Fox stated in a recent interview.
- Nonelective OPERS members pay 3.5 percent of their salary into the system, for which they get a 2 percent multiplier in calculating their pension
- Elected officials get to use a 4 percent multiplier, but they also pay in more -- 10 percent
- Prior to HB 1588, retirees with both elective and nonelective service would calculate each portion separately and add them together
- HB 1588 meant nonelective years of service could be counted as elective years and get the four percent multiplier, even though the worker hadn't paid in at the higher 10 percent rate during the nonelective years.
"We were shorted six and a half percent for every person, during every pay period, and for every year of service that was counted as elected service," Fox explained.
The fiscal burden that put on the system, in combination with some down years in the market, pushed OPERS’ funded ratio to just 66 percent by 2009. A year earlier, seeing the handwriting on the wall, lawmakers had repealed the provision.
It was the first of many reforms to OPERS, but, out of concern for lawsuits from vested members, all of the reforms were done proactively; those already in the pipeline, like Governor Fallin, were grandfathered in.
And so, beginning next month, with a combined 30 years of elective and nonelective service, Gov. Fallin is expected to start collecting 120 percent (.04 x 30) of her $147,000 governor's salary, or about $176,000 annually.
Donelle Harder, chief spokesperson for Fallin's successor, Governor Stitt, provided News 9 with this statement:
“The Oklahoma Supreme Court ruled that a pension benefit is treated under law much like a property right, which is why the Legislature could only focus on new, incoming participants to the pension system. Trying to apply the reforms retroactively would set Oklahoma up for a costly lawsuit with the deck largely stacked against the state. Governor Stitt believes this serves as a strong reminder that state government practices, put into motion 20 or 30-plus years ago, must be thoroughly examined and modernized to ensure the responsible and transparent use of Oklahomans’ hard-earned tax dollars.”
While Fallin is benefitting from the law, she had nothing to do with creating the law.
Many of those lawmakers have passed on, but not all.
Former Senator Dave Herbert remembers HB 1588: "That particular piece of legislation was carried by Senator Gerald Dennis."
Herbert represented Midwest City in the Senate from 1986 to 2002. He says Sen. Dennis was seen as an expert on pension law, which is one reason he says he voted for the bill.
"He knew everything there was to know about retirement," Herbert said, "and so anytime a retirement thing came up, you'd go to [him] and say, 'How's this look?'"
Beyond that, Herbert says, he supported the bill, not because of any roll-up benefit for elected officials, but because it allowed veterans to roll up their military time.
"And because I live in a district that has Tinker Air Force Base and is full of veterans," Herbert said, "I liked that part of the bill."
Herbert now acknowledges he and his colleagues didn't grasp the fiscal impact of the entire bill.
"In hindsight, I'd say we were spending money like a drunken sailor," Herbert allowed, "but that wasn't uncommon back then, we had money back then, and there wasn't any real problem."
The problem came later, in the form of a growing unfunded liability and burden on nonelective OPERS members. Republican Governor Henry Bellmon had seemingly understood the bill would bring trouble, which is why he vetoed it, only for bipartisan super majorities in both chambers to override him.
"We should have listened to Henry Bellmon," Herbert, a Democrat, exclaimed. "Henry Bellmon's one of the smartest governors we ever had."
Herbert didn't have any nonelective state or county service, so he never personally benefitted from the measure.
Another elected official who will benefit from it, ironically, is one of the few who voted against it 31 years ago.
Attorney General Mike Hunter represented House District 85 from 1985 - 1991. He voted against the bill both during its initial passage, as well as, in the veto override. Hunter has about four years of nonelective state work that he'll be able to roll up with his elective time when he retires.
Hunter and Fallin are two of about 700 current or former elected officials still able to benefit from the old law.
"That's out of 80,000 people," pointed out OPERS' Fox, "so it's a small number in the grand scheme of things."
Still, Fox says the impact is real. He says it has been demoralizing for many of the nonelective OPERS members, whose average benefit is about $16,000 a year.
"That's not very much," Fox said, "it's lowest of all the pension plans in the state."
From an actuarial standpoint, the roll up provision also continues to be a drag on the pension system. OPERS is now 98 percent funded. but Fox says it could have been healthier sooner. Ten years ago, he says, they estimated just the top 100 beneficiaries had cost the pension system 20 million dollars.
"So this impact was - is tens of millions of dollars," Fox said, "and will continue to impact the system for years going forward."