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McDaniel: Income tax phase-out needs to protect Teachers Retirement System

By   /   December 26, 2011  /   News  /   No Comments

The lawmaker leading the charge to try to get Oklahoma’s pension systems back on sound financial footing says phasing out the state income tax “would hurt” the Oklahoma Teachers Retirement System (OTRS) unless something is done to find an additional funding source.  Rep. Randy McDaniel (R-Edmond) says 5% of all income tax revenues go into OTRS to shore up the woefully underfunded system – $251-million last year.  So unless new funding is found to replace that, elimination of the income tax would make it that much harder to make OTRS fully funded.

OTRS is the state’s largest pension system and also has the largest unfunded liability.  According to the most recent actuarial analysis, OTRS has an unfunded liability of $7.6-billion, making the funding ratio only 56.7%.  In the private sector, a pension plan that is under 80% funded is considered “at risk” and contributions need to be increased.  Last year, OTRS had an unfunded liability of over $10-billion.  That was decreased due to a 22% return on investments for the year and the passage of House Bill 2132 by McDaniel which instituted reforms such as no longer allowing cost of living adjustments unless the money to pay for them is put into the system.

McDaniel says he’s all for reducing income tax rates, as long as “we make sure we go in with our eyes wide open and we have real solutions to solve real problems.”  McDaniel says it’s not unlike a proposal by DHS Director Howard Hendrick to reduce contributions to the Public Employees Retirement System in order to give state workers a raise.  While it may be a noble idea, McDaniel says it’s not the right approach.

To see all of McDaniel’s comments on the income tax phase-out idea, click the video below.


Peter formerly served as staff reporter for Watchdog.org.