Firefighter retirement funding measure advances to the Senate, McDaniel presses further reform
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Published: 20-Feb-2012

At the state Capitol in Oklahoma City, arguably the most significant public policy reform of the 2011 legislative session was enactment of a wide range of historic pension reforms. The dramatic impact of those measures is measured, in part, by the shift of Oklahoma's tax-financed pension programs from ranking among the worst in America to benchmarks closer to the middle of the pack among the states.

Still, more reform is needed, according to the architects of the previous round of transformational revisions. State Rep. Randy McDaniel, in interviews with CapitolBeatOK this winter, pointed to his negotiations with associations for firefighters and law enforcement personnel as likely to bear fruit, in the form of “shared sacrifice.”

That sacrifice now seems likely to come to pass, as measures increasing employee contributions into pension plans edge forward. 

Last week, McDaniel's House Bill 2320 passed the House of Representatives 93-1, and now will undergo Senate consideration. The comfortable margin was somewhat surprising, given “push back” pressures from municipal governments reluctant to assume a larger share of the pension costs. 

After decades in which the state government assumed most burdens for management and even funding of pension plans for municipal employees, McDaniel has insisted on greater municipal and employee participation. The vote on H.B. 2320 indicates his vision may come to pass. 

In addition to the shared sacrifice, McDaniel's bill revises a controversial mechanism that had allowed benefits for individual government retirees to grow far beyond the customary discount rate (anticipated rate of return. 

A press release from House staff summarized reforms incorporated into H.B. 2320, stating the bill “modifies interest rate provisions within the Oklahoma Firefighters Deferred Option Plan (DROP) by stipulating that the rate of return will be 7.5 percent instead of higher rates currently allowed by law.

“Under current law, the rate of return is guaranteed to be the better of the market performance or 7.5 percent, whichever is higher. That results in a compounding effect that dramatically increases guaranteed benefits even at times when market returns are below 7.5 percent.

“The measure also increases the employee contribution rate from 8 percent to 9 percent of gross salary and raises the employer contribution rate from 13 percent to 14 percent of paid gross salaries.”

In comments provided to CapitolBeatOK, McDaniel reflected, “Under this reform, both employees and employers will slightly increase their contributions made into the system in order to ensure greater financial stability of the plan over the long run.”

As detailed in McDaniel's release, “Based on current annual payroll figures for the system, the higher contribution rates will generate approximately $2.5 million per year from employer contributions and $2.5 million annually in additional employee contributions for a total of approximately $5 million.

“House Bill 2320 also increases the percentage of insurance premium tax allocated to the firefighters’ retirement system from 34 percent to 36 percent. Based on previous year collections, that change will provide approximately $3.5 million per year in additional revenue for the system.”

Speaker of the House Kris Steele, a Shawnee Republican, shared his colleague's enthusiasm for the proposal, saying, 
“Step-by-step, Oklahoma’s pension systems are moving back to fiscal stability. These latest reforms are about keeping promises to our firefighters, who protect the public every single day and fully deserve the retirement they were promised and earned. 

Firefighters will have to pay in a little more in to their system, but they’re willing to do it because it’s the right thing to do to stabilize the system for the long run. 

“These reforms represent true compromise on a tough, complex issue that absolutely had to be addressed for the good of our firefighters, cities and state. I’m grateful to our firefighters, municipalities, Representative Randy McDaniel and all other stakeholders for coming together to do what’s right.”

The overwhelming approval and steady advance for pension reform proposals in some ways mask the intensity of discussions over the past two years, a process guided by McDaniel and state Sen. Mike Mazzei, co-sponsor of last year's historic revisions. 

Concerning H.B. 2320, McDaniel (who has two decades of private sector experience in financial management) commented, “Our goal is to put the firefighters’ pension system on a sustainable path that will provide retirement security for those entering the profession today. We have produced a meaningful pension reform bill that is fair to both the firefighters and the taxpayers of Oklahoma.”

Last week, McDaniel's House Bill 2319, making distinguishable yet similar changes to police pension and retirement systems, cleared the House Rules Committee in a 17-3 vote. 

McDaniel is also advancing a state constitutional amendment to assure that pension debt is treated as debt for accounting purposes and budget planning. He explained in a pre-session briefing for Capitol reporters, “The constitutional amendment contains the fundamental principles of proper pension oversight. We need a higher law that takes into consideration the future generations of Oklahomans.”

That amendment, which if it clears the Legislature will require voter approval in November, is intended to:

“(1) Protect plan assets by prohibiting diversion of pension funds to other uses;
“(2) Institute a prudent investor rule to ensure wise investments of pension funds;
“(3) Reduce future debts by directing adequate funding to pension systems;
“(4) Require funding standards and practices to be established before additional benefits are authorized.”

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