Tahlequah Daily Press

Local News

October 9, 2013

Rep. Brown: Privatization could destroy healthy state pension plan

Local legislator says that ultimately, proposals by Fallin, others may cost taxpayers more money

TAHLEQUAH — The federal government is in its second week of shutdown, and state governments may be faring only slightly better.

According to a recent report by Bloomberg, U.S. public pensions - retirement funds paid to employees in the public sector - are $4.6 trillion short of the amount needed to cover projected costs.

In Oklahoma, legislators tinkered with the several changes to the public employees’ retirement system, and most of the proposals were met with disdain.

Rep. Mike Brown, D-Tahlequah, said his colleagues would rather give credits away to natural gas and oil companies than fund the state’s liabilities, like retirement.

“It’s our responsibility to pay our part of these retirement systems,” said Brown. “But since the state is the holder of the policies, we’ve pushed it back and underfunded it.”

Brown said the most recent move to change the public system is to privatize it, forcing public employees to participate in a 401(k) system.

“To say the sky is falling without privatization [and we don’t have the funds for retirement] is ridiculous,” said Brown. “If we leave the current system alone and allow it to travel the path it’s already on, in 22 years it will be paid out, and that’s the worst-case scenario. To scare everyone [into thinking the funds are dwindling immediately] is ludicrous.”

Brown said during the upcoming session, Oklahomans will see a heavy push by legislators to privatize the system, resulting in much higher fees to be paid by employees.

“You’ll see a bill run to move to a 401(k) system; they’ve wanted to do this all along,” said Brown. “Some things are good that way; some aren’t. We’ve made promises to state employees that, although they make less money on the front end, they will have a good retirement on the back end. Now we’re going to renege on that.”

In June, Brown warned that moving to a “contribution” plan rather than a defined “benefit” plan would place retirement contributions of public employees at the mercy of Wall Street. He also said then that the current system is on a corrective path, doing better than most in other parts of the country.

“Teacher retirement is underfunded,” said Brown. “That’s our fault. The people we have controlling it are doing well; it’s outperforming Wall Street. Any investment firm that takes it couldn’t do better than we already have. The cost to employees is minimal, compared to what you’d get in the private sector.”

Brown said Gov. Mary Fallin claims she can save $50 million if the fund is privatized, or the boards governing the systems are combined.

“We’ll hand-pick the board and put the state treasurer in charge, and the fund would go on auto-pilot,” said Brown. “It’s true we would save money, but here’s thing: State employees are on a passive retirement system and teachers are on an active system, active meaning those stocks are managed by someone regularly for a higher yield. The fee for the active system is about .33 percent, and the fee for the passive system is .1 percent. The difference there is about .22 percent, which is where she gets the $50 million figure on savings. If you put both on the passive system, you won’t get the gains you have from active management, and sure, you’ll save $50 million, but could lose $500 million. What they want you to do is privatize the new employees, cut them a check, and have them invest it themselves. Those fees would run anywhere from 3 to 15 percent, much higher than the state system.”

Brown said he’s seen documentation inquiring about former Enron CEOs being asked to consult on the investing of public employees’ retirement funds.

“You bring in the Enron people, and there’s no telling what will happen,” said Brown. “Shouldn’t there be a big red flag there? We have $22 billion in our retirement system. With money like that, all kinds of hogs will be looking to gobble it up in fees. My fear is this: That if we allow the privatization of the funds, there will be little left for those folks when they retire. I don’t like it that [my colleagues] are claiming a crisis when they don’t adequately fund the system in the first place.”

tsnell@tahlequahdailypress.com

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