The Truth - Page 2

Actuarial liabilities have grown steadily during the last 30 years. (See Chart)

In most years, there has been a compounding growth effect since contributions from employers (the state and local school districts) have not been sufficient to pay even the interest on unfunded liabilities. For this reason, the System's actuary projects an annual increase in unfunded liabilities until 2016. Under the present funding schedule, implemented by a law enacted in 1998, the growth of revenues to the System will begin to reduce unfunded liabilities after 2016. This will occur only if revenue sources remain in place and grow at an annual rate of 4 percent. (Note: Some wonder why the TRS actuary "changes" interest against future liability calculations. They argue TRS does not owe itself interest. In simple terms this interest represents lost investment earnings that must be made up by contributions from active members and Oklahoma taxpayers, since assets are not available to generate earnings.)

Actuarial projections are based on assumptions. The assumptions recommended by the actuary and approved by the governing board are not mere guesswork. Each year a valuation is made of the System's assets and liabilities. Actual occurrences are compared to expected results and adjustments are made. Once every five years an experience study is conducted comparing in detail historical trends versus assumptions. Adjustments are made in assumptions when deemed appropriate.

In 1988, the Board and staff of the Teachers' Retirement System began informing members of the Legislature and the System's participants that the pension plan was headed for trouble. In 1990, a 25 year projection showed the System would exhaust its asset base by the year 2015, without substantial increases in revenues compared to expenditures. In 1992, a new funding schedule designed to increase revenues and modify benefits for future members was enacted. The problem with the new plan was the State would continue providing revenue from the natural gas tax and local school districts would be responsible to make up the needed increase in revenues. Notwithstanding promises from state leaders that needed revenues would be forthcoming, local school districts predicted financial peril as a result of the 1992 law.