Oklahoma’s pension systems show strong gains in 2017

OKLAHOMA CITY – Oklahoma’s State Pension Systems achieved substantial gains during the past fiscal year, according to actuarial reports presented during State Rep. Randy McDaniel’s interim study Wednesday.

“The noteworthy results are the product of collaboration and hard work,” said McDaniel, R-Edmond. “The improvement is valuable to those counting on the durability of the pension systems for their retirement security and to the long-term financial strength of the state.”

The Oklahoma Teacher’s Retirement System is the state’s largest pension system. It showed strong investment returns and compelling fiscal progress. OTRS now has a funded ratio of 70.4 percent, the highest level recorded for this system that began in the early 1940s. This is up from 47.9 percent in 2010.

In addition, OTRS’ unfunded liabilities dropped more than a billion dollars this past fiscal year from $7.6 billion to $6.5 billion.

“The 70.4 percent funded ratio for OTRS is historic,” said Tom Spencer, executive director for OTRS. “The credit for this achievement can be shared by current and past legislators and governors for providing OTRS with adequate funding and for meaningful pension reform. In addition, countless OTRS trustees, staff and investment professionals have done their part by consistently achieving superior investment performance.”

All systems showed strong investment returns for Fiscal Year 2017, ranging from over 11 percent to more than 15 percent. While investment returns can be volatile, Oklahoma’s systems have outperformed their target rates of return over time and continue to achieve superior results.

In 2010, Oklahoma’s unfunded pension liabilities had grown to over $16 billion, creating an annual funding shortfall of more than $500 million a year, despite record contributions. The Pew Research Center reported that Oklahoma’s pension systems had a combined funded ratio of 56 percent, which placed it near the bottom of state-sponsored systems.

Many major cost-saving reforms have been implemented in recent years. These reforms combined with adequate funding and robust investment returns have led to impressive gains. For Fiscal Year 2017, the unfunded liabilities have been reduced to $8.4 billion, the lowest level since 2003. Moreover, the funded ratio has increased to 78.6 percent, slightly below the standard financial stability benchmark of 80 percent.

The turnaround in Oklahoma’s pension systems has not gone unnoticed. According to the Mercatus Center at George Mason University, Oklahoma ranked 7th in the nation for overall fiscal health in 2017. The center uses five separate fiscal solvency categories in its nonpartisan evaluation.

“The improved financial condition of Oklahoma’s public pension systems is encouraging,” said State Treasurer Ken Miller. “The strengthened financial health of the systems is significant to the overall bond rating of Oklahoma, but we must continue to push for long-term stability in all key areas important to the fiscal management of our state.”