DALLAS — Oklahoma's cumulative $16.5 billion of unfunded pension liabilities is unsustainable and could damage the state's bond ratings, Treasurer Ken Miller said Tuesday.
"Funded levels of Oklahoma's pension systems have reached crisis levels," he said. "Oklahoma can no longer afford to ignore this problem."
Miller, chairman of the Oklahoma State Pension Commission, said the unfunded liabilities are more than twice the size of the current state general fund budget.
Adequately funding the state pension systems would require an additional $736.3 million a year, Miller said, or 11% of the general fund budget in fiscal 2011.
If unfunded liabilities are not resolved, Miller said, it could endanger Oklahoma's bond rating. Rating agencies will consider unfunded pension obligations when calculating governmental debt burdens, he noted.
"That's going to mean a higher debt for the state," Miller said.
Oklahoma has issuer ratings of AA-plus from Fitch Ratings and Standard & Poor's, and a Aa2 from Moody's Investors Service.
Sen. Mike Mazzei, R-Tulsa, chairman of the Senate Select Committee on Pensions, said the pension woes could damage Oklahoma in several ways.
"Failing to act would most certainly result in higher costs on our bond issues, but as we've seen elsewhere, Oklahoma could be forced to make unprecedented cuts in services and enact massive tax hikes," Mazzei said. "We cannot and will not allow that to happen."
He said there was a bipartisan consensus in the Legislature that pension reform is needed in the current session.
Senate President Pro Tem Brian Bingman, R-Sapulpa, called the pension situation "nightmarish."
"If we perceive or know of a problem, we are going to have to address it," he said at news conference. "We need to be bold and look at the tough issues now."
House Speaker Kris Steele, R-Shawnee, called for creative solutions to what he said was "one of the state's most significant financial challenges."
"The poor funding status of our state pension retirement plans requires attention," he said. "When decade after decade the unfunded liability increases exponentially, the fact is reform is necessary and important to the future of Oklahoma."
Miller cited a report prepared for his office by Goldman Sachs Group that found Oklahoma ranks seventh in the nation in unfunded state pension liability per capita.
Miller said actual contribution levels are hundreds of millions less than the actuarial required contribution levels for the systems, which provide retirement benefits to teachers, public safety workers, and other state employees.
"If decisive action is not taken to address the underfunded situation, the financial health of the systems may rapidly deteriorate to the point of severe problems," Miller said.
The Teachers' Retirement System, with a 48% funded ratio and $10.4 billion of unfunded liabilities, is in the worst shape of the six pension systems overseen by the commission. Actual contributions in fiscal 2011 are $121.7 million below the actuarial required level.
Oklahoma Public Employees Retirement System has a 66% funded ratio and $3.3 billion of unfunded liabilities. Contributions this year are $141 million less than required.
The commission met in Oklahoma City on Tuesday to consider whether to support several pension reform measures that have been introduced in the Legislature.
The House Economic Development, Tourism and Financial Services Committee has approved a proposal that would prohibit cost-of-living adjustments for retirees unless the pension plan is at least 80% funded.
Another measure supported by the House committee would require all new COLA increases to identify a funding source.