The Truth - Page 3
Since 1992, the System has been the subject of a series of studies concentrating on its financial condition. Two important studies, one by the state Chamber of Commerce, and the other by a 30-member special task force appointed by the Governor, House Speaker and President of the Senate, both came to the same conclusion. The System must have additional revenue to cover already existing obligations. The state chamber study recommended maintaining the 1992 funding schedule and earmarking extra funds, when available, "to expedite the correction and/or provide the certainty of meeting the correction timetable." The task force report stated the "poor financial condition of the Oklahoma Teachers' Retirement System is the most serious fiscal problem that faces the state of Oklahoma." While recommending increases in revenues to reduce the System's unfunded liabilities as rapidly as possible, the task force discussed at length the associated budget impact the TRS funding schedule would have on public schools and the education process. Both studies looked at the System's plan design, i.e. a defined benefit plan, but neither recommended changes. Both studies recognized the need for and certainty of continued benefit increases, especially for retirees, but also made strong statements against benefit improvements without corresponding increases in funding.
Incorporating the recommendations of the 30-member TRS Task Force, SB 1037 was enacted in 1998. The effect of this bill was to refinance the System's unfunded liabilities with a payment schedule extending the amortization of liabilities from approximately 20 to 35 years. It was the consensus of the task force study and the Legislature this was the only plausible way to fund the retirement plan. Initially, the new law directed that the System would receive 3.5 percent of the state's General Revenue Fund. Subsequently a 1999 amendment changed the revenue source to 3.54 percent of the state's income and sales tax collections.
Is it important that the Teachers' Retirement System be properly funded?
A public pension plan like Teachers' Retirement does not have to be funded at 100 percent of assets to liabilities. However, at its present funded ratio of 46 percent2, TRS' ability to remain solvent during prolonged periods of below average investment returns and/or periods when substantially lower state revenues might dictate reduced employer contributions, is less than desirable.
As of June 30, 1999, the funded ratio had increased to 49.8 percent. This means the System has almost half the asset necessary to cover all obligations. Obligations, or liabilities in this case, is the promise to pay benefits earned by current active and retired members.
