Evaluating public employee defined contribution options in Oklahoma
The Pension Integrity Project at Reason Foundation was invited to present before joint Oklahoma House and Senate committees to discuss ways to improve the state’s defined contribution (DC) plan for government workers in the Public Employees Retirement System, OPERS. The Oklahoma House Banking, Financial Services, and Pensions Committee, along with the Senate Retirement and Government Resources Committee, conducted an interim study to evaluate and identify potential improvements to the Pathfinder DC plan.
Oklahoma has been a model of success in offering and administering a DC plan to public workers. In 2014, Pathfinder became the primary retirement plan for all new OPERS members. Alongside the 2011 reforms, Pathfinder played a crucial role in stabilizing and maintaining OPERS funding.
Ten years after Oklahoma’s landmark reform, the Pension Integrity Project has evaluated ways to strengthen Oklahoma’s DC options. Pathfinder’s contribution rates meet industry standards. However, lawmakers should aim to improve the adoption rates of the optional higher contribution.
Regarding Pathfinder vesting, employer contributions vest gradually over a five-year period (20% annually). Best practice policies call for all contributions to be vested within three years. A majority (64%) of new hires leave OPERS before their fifth year, potentially leaving them without adequate retirement savings.
Key recommendations for Pathfinder’s modernization
Clarifying Objectives: Codifying retirement security and guaranteed lifetime income goals into law to guide the OPERS Board.
Investment Focus: Modernizing investment options by setting a default that adjusts allocation over a career to accumulate sufficient assets for retirement income, and requiring individualized investment advice and planning.
Lifetime Benefit Guarantee: Offering in-plan annuity options that provide guaranteed lifetime benefits, with a default distribution form securing lifetime income and survivor benefits.
Pathfinder is a leading government-sponsored DC plan, but further modernization is needed. This includes reduced vesting requirements, investment defaults that align with retirement security goals, in-plan lifetime annuity options as the default distribution method, and a clear legal statement of “lifetime retirement income” as the plan’s ultimate objective.
The Pension Integrity Project’s recommendations, presented to Oklahoma lawmakers, can be viewed here.
The post Evaluating public employee defined contribution options in Oklahoma appeared first on Reason Foundation.
Source: https://reason.org/testimony/evaluating-public-employee-defined-contribution-options-in-oklahoma/
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