Pensions are sort of like New Year’s resolutions. Policymakers always promise, to themselves and to their constituents, that this will be the year they’ll finally get their financial house in order and bolster their pensions. But inevitably, something shiny comes along and distracts them.  

Oklahoma is grappling with this dilemma right now. After years of dutifully funneling millions of extra dollars into its beleaguered teacher pension plan, state policymakers are now considering scaling back. Instead, they would like to use that money to fund : pay raises for active teachers, more money for its school choice tax credit program, plus new investments in reading and math.

It’s likely to be a popular list. But it threatens to derail the state’s progress on pension funding. 

Oklahoma has actually done better on the pension front than most other states. Thanks to a combination of benefit cuts, plus a surge of new contributions, it has dramatically improved the health of its teacher pension plan. 

For example, the system’s unfunded liability, essentially the difference between how much it had promised and how much it had saved toward those promises, from $10.4 billion in 2010 down to $6.1 billion last year. Its funded ratio — a comparison between its assets and its liabilities — has improved from in 2010 all the way 80% as of last June. 

Oklahoma’s teacher plan is still not quite as well-funded as the median state and local plan — which was funded last year — but the state’s policymakers deserve kudos for making progress. Current and retired Oklahoma teachers should be thankful that their retirement plan is in much better shape than it was 16 years ago.

So how did they do it? First, legislators raised the retirement age from 62 to 65 and extended the amount of time that a teacher would need to work to qualify for a benefit from five to seven years. (This is called the vesting period, and these tend to be longer for teachers than for workers in the private sector. For example, according to a survey of Vanguard 401(k) plans, of employees are immediately vested in their employer’s retirement contributions.) These policy changes meant that any Oklahoma teacher who started after Oct. 31, 2011, had to wait just a bit longer to qualify for retirement benefits than those who came before them.  

A rising stock market certainly helped the pension plan as well, but the biggest change was on the funding side. From 2001 to 2011, Oklahoma was contributing less each year than what its actuaries said it needed to. Instead of paying off their metaphorical credit card in full, they made only minimum payments, which led to a large financial hole.

But every year since 2012, Oklahoma has put in more than what its actuaries said it needed to. As of , individuals were required to contribute 7% of their salaries. Employers like school districts paid 9.5% of each employee’s salary. And the state contributed a percentage of its revenues from sales taxes, cigarette taxes, corporate income taxes, individual income taxes and lottery proceeds. This extra state contribution came out to $456 million last year, and this is the portion that state legislators now want to cut back.

Oklahoma’s teacher pension plan is in much better shape today than it was. But it’s instructive to compare it with the plan Oklahoma offers to other state employees, which is in even better shape than the teacher plan.

That largely comes down to how far legislators went in designing reforms for each plan. In the case of the teachers, Oklahoma’s legislators were more hands-off. Teachers continue to be placed in the same defined benefit pension plan, for example. On average, their benefits are worth 10.67% of their salary, according to the plan’s latest . But remember that teachers themselves are paying about two-thirds of that cost, which means that most of the contributions made by the state and its school districts are paying for the plan’s unfunded liabilities, not for benefits for today’s workers. Moreover, the benefit structure is so heavily that someone would have to teach in Oklahoma for decades just to earn more than what they personally contributed.

Meanwhile, state employees have been enrolled in a portable defined contribution 401(k)-style plan since 2015. Members are required to contribute 4.5% of their salary, their employer contributes 6% and employees qualify for a growing share of those contributions over five years. A in the state legislature would raise those contribution rates and drop the vesting requirement altogether. Oklahoma’s higher education employees get an deal.

Putting the benefit situation aside, Oklahoma deserves credit for making substantial progress funding its teacher pension plan. According to the latest financial projections, the state’s actuaries expect that the plan could be fully funded by 2034. However, that assumption depends on its investments earning a 7% return every year. They also cautioned that one risk to its projection is that “actual contributions from the state may not be made in accordance with the current arrangement.” 

If Oklahoma legislators go forward with their plans to divert some of the money toward new expenses, they’d be putting all their hard-earned funding progress at risk.  

OKLAHOMA CITY — An Oklahoma Senate plan to has drawn mixed reactions in the week since Republican leaders unveiled it.

Groups representing active and retired educators, along with legislative Democrats, have opposed Senate Republicans’ idea to redirect $254 million that otherwise would supplement the Teachers’ Retirement System. GOP leaders said the pension system is in a strong position now that it’s 80% funded, and those extra funds could benefit urgent needs in public schools.

The plan wouldn’t take any money out of the Teachers’ Retirement System, and no retirees’ benefits would be reduced. It would place a $200 million limit on a yearly pension subsidy, called an apportionment, that has helped build up the retirement system over the past 23 years on top of regular state and employee contributions.

Doing so would free up $254 million — in a tight budget year — for a $2,500 teacher pay raise, extra school funding, expanded private school tax credits and more, Senate leaders said.

The thought of repurposing retirement funds, though, has drawn scrutiny from the state’s largest teacher union and a group representing retired educators.

Oklahoma Education Association President Cari Elledge equated the plan to mortgaging a teacher’s future for a salary increase today.

“We shouldn’t be having to be the ones who are funding our own raises,” she said.

Using money intended to benefit public school teachers to instead bolster private school tax credits also would be “very troubling,” she said. The Senate plan would put $25 million of the pension apportionment funds into the state budget for the Parental Choice Tax Credit, which helps families pay for private schooling.

Retirement funds shouldn’t be used to finance other budget priorities, especially when retirees haven’t had a cost-of-living increase to their benefits in six years, the .

“An 80% funded ratio is meaningful progress — but it is not full funding,” the organization wrote in a public statement. “Redirecting retirement dollars now risks reversing years of hard-earned stability.”

Senate leaders didn’t rule out the possibility of a cost-of-living increase if their plan succeeds. They would need support from the House for the proposal to meaningfully advance.

House Speaker Kyle Hilbert, R-Bristow, stopped short of endorsing or rejecting the Senate idea. He said lawmakers, though, will have to someday decide what to do with the pension subsidy as the Teachers’ Retirement System inches closer to being 100% funded.

“At some point the subsidization of the pension systems, the TRS system, will need to go away,” Hilbert told reporters Thursday. “It’s just a question of is that (happening in) 2026, is that 2030, is that 2034? I think that’s the question we have to wrap our heads around as we make determinations on what is fully funded and when does that subsidy need to go away. It was never intended to be there forever.”

Much of the criticism for the funding plan stems from a misunderstanding, said Senate President Pro Tem Lonnie Paxton, R-Tuttle. He said constituents who contacted Senate Republicans believed lawmakers planned to deduct from their pension paychecks.

“My wife is a retired teacher. I don’t get to go home at night if I’m trying to draw from her pension system. That’s not what we’re doing,” Paxton said.

Senate Minority Leader Julia Kirt, D-Oklahoma City, said she heard similar fears from constituents. Her office has been “flooded with calls” since the Republicans’ announcement.

Feedback on the proposal has been full of frustration, said House Minority Leader Cyndi Munson, D-Oklahoma City.

“Pitting retired teachers against active teachers is really not a good plan,” Munson said. “It’s not a popular idea.”

is part of States Newsroom, a nonprofit news network supported by grants and a coalition of donors as a 501c(3) public charity. Oklahoma Voice maintains editorial independence. Contact Editor Janelle Stecklein for questions: info@oklahomavoice.com.

While union leaders are the bill as a win for their members, it’s a bad deal for the rest of us. It will undermine the progressive nature of the Social Security program, cost taxpayers billions and force painful cuts down the road.

The new bill is short and simple, less than 300 words. In a clever bit of marketing, the sponsors dubbed it the Social Security Fairness Act. But the bill isn’t about “fairness”; it’s about giving a windfall to a relatively small group of people at the expense of taxpayers.

That’s because the new act repeals two provisions affecting certain state and local government workers who split their careers between jobs that are exempt from Social Security and those that require them to pay into the system. One, literally called the Windfall Elimination Provision, affected the employees themselves, while the second, called the Government Pension Offset, affected the of those workers.

Repealing these provisions, former Social Security Advisory Board chair Sylvester Schieber told , “gives workers who earn salaries not covered by Social Security disproportionately generous benefits compared to workers covered under the system for all their earnings.”

In fact, the American Enterprise Institute’s Andrew Biggs and found that a hypothetical teacher who worked a full career in a state where educators are exempt from Social Security could receive $283,300 more in federal retirement benefits than the exact same teacher who paid into Social Security for her entire career.

This was exactly the type of inequity the provisions were supposed to prevent. Now, Congress has not only opened the door to such windfalls; it has created winners and losers across states. Teachers who pay into Social Security for their full working lives, in New York, Florida and 33 other states, will subsidize those who do not in Illinois, Massachusetts, California, 13 other states and the District of Columbia. The Congressional Budget Office estimates the cost of those extra payments — which the retirees will receive in addition to their state pensions — will amount to over the next 10 years.

But it’s even worse than that. The money will come out of the Social Security , which was already projected to run out of money sometime around 2033. With higher Social Security payments now going to those special beneficiaries every month, Congress just sped up the clock. 

Once the money runs out, the sitting president will be forced to immediately cut Social Security benefit payments by 21%. Those cuts will be painful no matter when they happen. But by granting this windfall, Congress made sure they will happen sooner. That’s not smart or rational policymaking, let alone fair or just.

Good debt is an investment in something that will grow in value over time. For an individual, taking out a mortgage to buy a house might be a good type of debt.

But it’s risky to live beyond your means and take on debt if you don’t have a way to pay back what you borrowed.

Chicago Mayor Brandon Johnson is urging his city’s school district to take on some very bad debt. Rather than balancing this year’s budget through , Johnson is urging the district to take out . Worse, the loan would only delay those decisions until next year, when the city’s budget shortfall is projected to grow again, to .

Johnson is sticking with the idea, though, and the political fallout has come fast and furious. Chicago Public Schools CEO Pedro Martinez balked, leading Johnson to call for Martinez to resign. Martinez refused, so Johnson then escalated the battle to the school board. Not only did his hand-picked board members refuse to fire Martinez, they resigned — sowing chaos just a month before the city’s .

It’s still unclear whether Johnson will get his way, but the loan is a bad idea. As district officials noted in leaked to the press, Chicago is already “the largest junk bond issuer in the United States.” Johnson’s plan would make that worse. It’s not exactly clear what terms Chicago would get on its proposed loan, but as of Oct. 14 were at 6.89%, and Johnson’s team has proposed the district take on a 20-year loan. At current rates, that works out to total payments of around $540 million. That’s before any fees, and it means Chicago would pay as much in interest over time as it would spend patching over this year’s budget deficit.

Moreover, a short-term loan would solve none of the district’s real budget problems. There are five big ones: high salaries and ongoing contract negotiations, overinflated staffing, declining enrollment, rising pension costs and the expiration of federal emergency COVID funding.

Let’s start with salaries. In 2019, the Chicago teachers union went out on an 11-day strike. Though its educators were already the , the district agreed to what then-Mayor Lori Lightfoot called a “” contract that raised teacher salaries 16% over five years and immediately raised the pay of teaching assistants, clerks and other workers by 40%. Amid the current budget fiasco, the union is now seeking for the next four years. The district won’t be able to afford those without substantial new investments from the state. 

The next factor is staffing levels. The 2019 union contract promised every school would have certain types of employees, regardless of the school’s size or enrollment. This has proven particularly costly. The district says it has 7,000 school-based staff members since 2019:  more teachers, special education classroom assistants, nurses, counselors and social workers. 

At the same time, the district has suffered large declines in student enrollments. Despite a small  uptick last year, the city has lost 38,000 public school students over the last five years, a decline of 10.5%. And yet, the political leaders in Chicago have stated they will not even consider closing underenrolled schools until .

Budgeting decisions like these would be anathema in any other industry, where leaders normally try to match up the number of employees with customer demand. When business at a restaurant is slow, it needs fewer workers; If a hospital has fewer patients, it needs fewer doctors and nurses.

Chicago Public Schools is doing the opposite. Its latest boasts that it will, “complete its transition away from a budget model that primarily relied on enrollment” to prevent schools from going into death spirals, where fewer students leads to fewer staff which leads to further disenrollment. That may be admirable or even smart in some situations, but it’s also contributing to the current budget crisis.

Bubbling in the background is what in 2023 I dubbed “America’s Worst Teacher Pension Mess.” Chicago has two major pension problems. One is that it has to pay for its own pension costs, unlike other districts in Illinois, which are covered by the state. The district now pays more than $1 billion a year toward its teacher pension plan, and that’s still to meaningfully cover its unfunded liabilities.

But even more pressing is what to do about the pension costs for district employees who are not teachers and who are covered by a separate, municipal retirement plan. This issue has been a political football in Chicago for the last few years, with Lightfoot shifting the cost onto the district and the district now trying to shift it back. Those payments total $175 million this year.

And on top this all is the expiration of the federal ESSER funds. The district on directing 92% of the $2.8 billion it initially received toward schools and staffing. But another way to say that is that Chicago chose to invest 92% of its one-time relief funds in full-time school employees.

Now that the federal money is gone, Johnson is desperately trying to fill that gap. But taking on more loan debt won’t solve his city’s longer-term budget problems. For that, he’ll need to come to terms with the pension challenges and address the staffing imbalance in Chicago schools. 

LINCOLN — Omaha Public Schools, the largest school district in Nebraska, is less than 50 days from handing over management of its pension fund to the state.

But a new state audit widened the scope of problems Nebraska could inherit from the Omaha School Employees Retirement System, leaders of the state retirement system were told Monday.

It’s not just the OPS pension fund’s $1 billion shortfall after years of bad investment decisions. It’s that local management mistakes made things worse, and it’s not clear how much.

State Auditor Mike Foley found mistakes including overpayments that were not corrected or collected and inaccurate calculations of cash and medical benefits that helped or hurt some retirees.

For instance, some accounts were not credited with the interest they had earned. One lost $23,000. Some records were inaccurate. One person received $53,000 after having already cashed out.

Members of the Nebraska Public Employees Retirement Systems board questioned State Auditor Mike Foley’s team about who will be responsible for fixes after the state takes over Sept. 1.

Foley, responding to emailed questions Monday from the Examiner, said his auditors have “serious concerns regarding the quality of data the state might be inheriting from OSERS.”

“We have written-up OSERS multiple times on these matters and we are skeptical that the corrections will be made prior to the state takeover of the plan,” he said.

Questions about timing and fixes

John Murante, the , asked whether OSERS must correct its errors made before the state takeover and, if not, how many hours it will take state employees to address them.

Murante, the former state treasurer and a former state senator,  said the Legislature might not have agreed to run the system had lawmakers known the level of day-to-day management challenges at the Omaha pension fund.

“It was not the understanding that the state was assuming control of a poorly managed plan,” Murante said in a followup interview. “The understanding was that we’re assuming control of a plan that made bad financial decisions a long time ago.”

He said the state’s process and staffing needs for administering a plan that might need to correct the accounts of 15,000 pension members “is a totally different world.” He said the agency would “do an assessment of how much correction needs to take place.”

The auditor typically samples about 25 fund contributors for each of its tests on retirement funds, one of its auditors explained to the NPERS board.

Audit checks of multiple accounts found excess balances of more than $8 million. The state has not finalized how much it will charge OSERS for administrative costs, Murante said.

“One of the frightening parts of your audit, like every audit, is that it’s just a sample,” Murante said at the meeting. “These dollar amounts are staggering, even with just a sample.”

Investigation found problems

Most of the problems with the OPS retirement fund came to light during an Omaha World-Herald investigation of poor investment decisions made by the local pension fund from 2007-09.

Many centered around sell-offs of stocks during the 2007-08 recession and efforts afterward to move money into less flexible funds and investments as stocks rebounded. OSERS leaders faced questions about how they decided which investments to make.

The World-Herald recently found the gap between projected benefits and payments into the plan from the district and plan participants.

OSERS Administrator Shane Rhian, in a letter responding to the audit, wrote that OPS had not made all the fixes identified in the audit but said it would correct them before the state takes over.

“Mr. Rhian, CFO and OSERS administrator, and our district have committed to addressing all the necessary items ahead of the Sept. 1 transition, in addition to funding the plan for the members it serves,” OPS spokeswoman Bridget Blevins said.

Omaha Education Association President Kathy Poehling said she is pleased to see the state take over day-to-day management of OSERS, including calculating benefits and sending retirees their benefit checks.

She said local pension fund leadership has told the union and its members that the audit issues are being addressed and that “there is no threat to their pension checks now or in the future.”

“The district is making the necessary catch-up payments and the investment returns under state management are good,” Poehling said. “The actuarial projections show the unfunded liability will be reduced over time as these payments continue to be made.”

State retirement board member Jim Schulz said his concern is how many accounts might need correction and who will have to do the correcting. He worries about major miscalculated payments.

Murante said OPS district taxpayers and its retirees will end up having to make the program whole, because the state will keep OSERS separate from the state plan for teacher retirement.

Next steps for plan

He said current and former OPS teachers should know that the state is “100% confident” that it will address and correct any management issues that are identified.

Progress toward the transition to state management was discussed Monday, including the sharing and scanning of nearly 60,000 documents and the sharing of computer data.

Data migration appears to be running up to 12 weeks behind, an IT employee told the board, held up partly by problems OSERS faced during a data conversion in the early 2000s.

But he told the board his team expects the state to get what it needs to handle the transition for current OPS employees and retirees by early September.

is part of States Newsroom, a nonprofit news network supported by grants and a coalition of donors as a 501c(3) public charity. Nebraska Examiner maintains editorial independence. Contact Editor Cate Folsom for questions: info@nebraskaexaminer.com. Follow Nebraska Examiner on and .

A shows that rising pension costs are slowly eating up a larger and larger share of education budgets. After adjusting for inflation, teacher pension costs have roughly tripled over the last two decades, rising from $21.8 billion in 2001 to $63.7 billion in 2021.

Those increased costs have not led to better benefits for teachers and other school district employees. In fact, states have been systematically reducing the value of their benefits in response to the rising costs.

The chart below helps explain this growing disconnect. The light blue dotted line shows what pension actuaries call the employer normal cost, the estimated cost of the retirement benefits workers earn in a given year. It’s gone down a bit over time, reflecting a slow phase-in of benefit cuts for new workers.

In contrast, the red dotted line shows the pension debt costs, the amount of money that needs to be paid in order to address any shortfalls accumulated in prior years. As the chart shows, all the growth in pension costs over the last two decades has come from these debt payments. In other words, states and school districts are spending more on worker retirement plans, but workers are getting less in benefits.

The story of this growing disconnect has been told before, by myself and . But the new Equable report has three unique contributions.

One, its analysts took the next step and put pension costs into perspective alongside broader education budgets. Pensions still represent just a fraction of overall education spending, but because pension costs are rising so much faster than everything else, that means true education spending is not growing as fast as it appears. Equable dubs these “.”

The authors leave it for us to imagine what schools might be able to do with an extra $44 billion, the amount that’s currently being siphoned away for the pension debt costs. By my back-of-the-envelope math, that money could raise the average teacher salary by almost $14,000 per year, or be used to hire 600,000 full-time instructional aides.

Two, the Equable report digs into the root causes behind the pension debts. Pensions are essentially promises to workers about the benefits they’ll receive in the future. In order to pay for those promises, states have to estimate how many workers will qualify for benefits, how much those benefits will be worth and how much employers need to save today in order to afford the payments.

There are a lot of potential errors in these estimates. For example, people are living longer and collecting pension payments for more years. But it turns out that states are mostly adjusting to those realities with only small financial hits. 

Instead, by far the biggest factor in the build-up of the pension debts comes from overly optimistic investment assumptions. After all, if states can assume their investments will grow quickly, they don’t need to contribute as much along the way. But the numbers at stake are massive, and setting unreasonably high investment targets is the main culprit behind why states have amassed $816 billion in pension debts.

Third, Equable found large differences across states. Kentucky, New Jersey, Connecticut and especially Illinois and Pennsylvania have suffered the largest hidden funding cuts. In these states, education budgets are rising, but pension costs are eating up a larger and larger share of the money.

Meanwhile, Wyoming, South Dakota, Delaware, Nebraska and Florida have all done a comparatively good job of managing the growth of pension costs. So what can other states learn from them?

The biggest lesson, by far, is to set more reasonable investment return targets. States have an incentive to be overly aggressive in their assumptions, because that makes it look like they don’t need to contribute as much along the way. But that approach obscures the real costs and forces plan managers to seek out riskier investments. Lowering the assumed rate of return would cause some short-term pain as budget makers faced up to the true costs, but over time it would help plans get back onto sound financial footing.

Next, state leaders should stop putting the pension debt burden on school districts. Right now, state leaders might think they’re increasing education budgets even as they turn around and raise the contribution rates that school districts must pay toward the pension debt. That’s not fair. If state leaders created the pension debts, it should be the state that pays for them.  

State budgets have seen a surge in revenue over the last couple years, and it would’ve been a good idea for states to use the opportunity to get their pensions in better financial shape. That largely didn’t happen. But the longer state leaders wait, the more the Pension Pac-Man will keep eating away at their investments in schools.