Pension Sustainability: Oklahoma

Retaining Effective Teachers Policy

Goal

The state should ensure that excessive resources are not committed to funding teachers' pension systems.

Does not meet
Suggested Citation:
National Council on Teacher Quality. (2011). Pension Sustainability: Oklahoma results. State Teacher Policy Database. [Data set].
Retrieved from: https://www.nctq.org/yearbook/state/OK-Pension-Sustainability-9

Analysis of Oklahoma's policies

As of June 30, 2011, the most recent date for which an actuarial valuation is available, Oklahoma's pension system for teachers is 56.7 percent funded and has an amortization period of 22 years. This means that if the plan earns its assumed rate of return and maintains current contribution rates, it would take the state 22 years to pay off its unfunded liabilities. While its amortization period meets regulatory benchmarks, Oklahoma's funding level is below the conventionally recommended minimum, and the state's system is not financially sustainable according to actuarial benchmarks.

In addition, Oklahoma commits excessive resources toward its teachers' retirement system. The current employer contribution rate of 14.5 percent is extremely high, in light of the fact that districts must also contribute 6.2 percent to Social Security. The 14.5 percent is split with the local districts paying 9.5 percent and the state paying 5 percent. While this is rate is intended to allow the state to pay off liabilities, it does so at great cost, precluding Oklahoma from spending those funds on other, more immediate means to retain talented teachers. The mandatory employee contribution rate to the defined benefit plan of 7 percent is reasonable, although close to what is considered excessive, in light of the fact that teachers must also contribute 6.2 percent to Social Security.

Citation

Recommendations for Oklahoma

Ensure that the pension system is financially sustainable.
The state would be better off if its system was over 95 percent funded and had an amortization period of 30 years or less to allow more protection during financial downturns. However, Oklahoma should consider ways to improve its funding level without raising the contributions of school districts and teachers. In fact, the state should work to decrease employer contributions. Committing excessive resources to pension benefits can negatively affect teacher recruitment and retention. Improving funding levels necessitates, in part, systemic changes in the state's pension system. Goals 4-G and 4-I provide suggestions for pension system structures that are both sustainable and fair.

State response to our analysis

Oklahoma was helpful in providing NCTQ with facts that enhanced this analysis.

Research rationale

NCTQ's analysis of the financial sustainability of state pension system is based on actuarial benchmarks promulgated by government and private accounting standards boards. For more information see U.S. Government Accountability Office, 2007, 30 and Government Accounting Standards Board Statement No. 25.

For an overview of the current state of teacher pensions, the various incentives they create, and suggested solutions, see Robert Costrell and Michael Podgursky. "Reforming K-12 Educator Pensions: A Labor Market Perspective." TIAA-CREF Institute (2011).

For evidence that retirement incentives do have a statistically significant effect on retirement decisions, see Joshua Furgeson, Robert P. Strauss, and William B. Vogt. "The Effects of Defined Benefit Pension Incentives and Working Conditions on Teacher Retirement Decisions", Education Finance and Policy (Summer, 2006).

For examples of how teacher pension systems inhibit teacher mobility, see Robert Costrell and Michael Podgursky, "Golden Handcuffs," Education Next, (Winter, 2010).

For additional information on state pension systems, see Susanna Loeb, and Luke Miller. "State Teacher Policies: What Are They, What Are Their Effects, and What Are Their Implications for School Finance?" Stanford University: Institute for Research on Education Policy and Practice (2006); and Janet Hansen, "Teacher Pensions: A Background Paper", published through the Committee for Economic Development (May, 2008).

For further evidence supporting NCTQ's teacher pension standards, see "Public Employees' Retirement System of the State of Nevada: Analysis and Comparison of Defined Benefit and Defined Contribution Retirement Plans." The Segal Group (2010).