September 2013 Pension Update

Brothers and Sisters of FOP 123,

The actuary report provided factual information on the viability of the system, an estimation of when we would reach 100% funding and also answered questions on changing our current amortization structure. The point here is…our system is on target to reach 100% funding in less than ten years with no changes to our current structure. If we exceed the Internal Rate of Investment Return of 7.5% we will reach 100% funding sooner. Both the actuary and audit reports are available for review by members on the OPPRS web site.

Additionally, I did learn some technical information I thought it important to share. In 1988 the OPPRS system set a 30 year amortization period for Unfunded Actuarial Accrued Liabilities. As we enter the last years of this amortization period the remaining liabilities are going to appear larger than in the past on the systems  balance sheets. To explain; some pensions use a rolling period (like our current 30 year plan) and some just reset the amortization period on a more frequent basis.

The amortization period used helps determine the Actuarial Required Contribution (ARC) needed each year to maintain acceptable funding levels. This is important to point out because it is one of the new hot topics and ‘catch phrases’ used by legislators. Why is this important?…Currently, we are not meeting our ARC due to being in the last years of the 30 year ammortization plan. The OPPRS Board, upon financial expert recommendations will need to reset or change the amortization schedule within the next five years.

I anticipate this will be a topic of discussion in future OPPRS Board Meetings over the coming months. Keep in mind this has nothing to do with the current soundness of the system and everything to do with financial and accounting ‘best practices’ in reporting and projecting the future financial soundness of the system in accordance with the Governmental Standards Accounting Board, Statement #25 (GASB 25).

I have included two attachments to this e-mail for your review. The first is a presentation made to a House 
committee’s interim study on pensions and consolidation which met on Sept. 19th. The second is the most recent OPPRS newsletter, which has valuable information about the pension important to the members.

These two attachments will keep you informed.  It is very interesting to note they show that surrounding states have consolidated pensions and their costs have ended up becoming higher while returns are lower. The lesson here is… ‘if it ain’t broke, don’t fix it’.  I was also informed that during the Interim Study Committee Meeting held at the Capitol on Sept. 19th, the State Auditor addressed the interim study committee and pointed out the flaws to the previous legislative study and stated he is not in favor of combining the pension system boards, their investment strategies or switching to Defined Contribution plans, unlike State Treasurer Miller.

As always if you have any questions, please contact me,

Jeff Pierce
State Trustee District 6
Oklahoma Police Pension & Retirement System