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Retirement plans in the private sector have long been undergoing a shift from defined-benefit (DB) plans to defined-contribution (DC) plans. In 1975 there were 27.5 million participants in a DB plan compared to 11.2 million in a DC plan. In 2019 there were 12.6 million participants in a DB plan compared to 85.5 million in a DC plan.

Retirement plans involve risk and reward. DC plans spread the risk to employees and employers. (For state government, you can think of the taxpayers as the employers.) A DC plan is similar to a 401(k) where the employer and employee both contribute a portion of their salary to the retirement plan.

By contrast, a DB plan puts all the risk on employers (in this case, taxpayers). A DB plan is set up by the employer and guarantees future benefits paid for by the investment account regardless of returns. DB plans generally provide a greater benefit to participants compared to a DC plan when comparing average account balances.

Beginning in 2011, to their great credit, Oklahoma policymakers decided to start modernizing the Oklahoma Public Employees Retirement System (OPERS), and in 2014 moved to a DC system altogether. In 2014 OPERS had a funding ratio of just over 66 percent. After these reforms, that funding ratio moved up to 101 percent by 2023. But instead of applauding the progress and letting the process continue, there has been discussion over the last few years about going back to the old way of doing things.

The latest threat to Oklahoma’s historic reforms is HB 2854. The bill would do away with the current DC plan and put state employees back on the old DB plan. According to the Reason Foundation, “HB 2854 has not received a rigorous actuarial analysis or stress testing, nor has it received scrutiny from legislative finance committees, leaving important questions for taxpayers unanswered.”

One thing we do know is that going back to a DB plan would give state employees (including lawmakers) a greater reward—while removing any of the risks for themselves and putting it all on taxpayers’ shoulders.

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