Oklahoma Teachers' Retirement System

Oklahoma Teachers Retirement System is the pension program for public education employees in the State of Oklahoma. As of April 30, 2010, the program had nearly 169,000 members.^[1] Public education teachers and administrators are required to be OTRS members; support staff can join voluntarily.^[1] State law established OTRS in 1943 to manage retirement funds and provide financial security for public education employees. Its first checks to retirees were sent out in 1947. ^[1] It is administered by a staff and 13-member board of trustees.^[2] Its current executive director is Dr. James Wilbanks.^[2]

Mission

The mission of the Oklahoma Teachers Retirement System is to provide outstanding services to all active and retired clients. The OTRS mission action plan (MAP) which consists of the following five statements:^[3]

• Provide excellent communication and education to its clients
• Protect and promote the financial interest of its clients
• Consistently improve performance
• Pursue proactive solutions and innovation
• Promote an environment of trust and cooperation where colleagues

are encouraged to reach their potential

Organization

The OTRS is governed by a 13-member Board of Trustees composed of 10 appointed members and three ex-officio members. The Governor of Oklahoma appoints six members to the Board and the Speaker of the State House of Representatives and the President Pro Tempore of the State Senate each appoint two members to the Board. The three ex-officio members are the State Public Schools Superintendent, the Director of the Office of State Finance and the Director of the Career Technology System. All three ex-officio members are allowed by state statute to designate a member to the Board in their stead.

Board of Trustees^[4][2]

Name	Position	City
Michael L. Simpson	Chairman	Ponca City
Gary L. Trennepohl	Vice Chairman	Tulsa
Bruce DeMuth	Secretary, Designee of Phil Berkenbile, Director of Career and Technology	Stillwater
Sherrie L. Barnes	Trustee	Sand Springs
Cathy A. Conway	Trustee	Durant
Odilia M. Dank	Trustee	Oklahoma City
Richard Gorman	Trustee	McAlester
R.A. "Dick" Neptune	Trustee	Lawton
Galeard W. Roper	Trustee	Elk City
James E. Smith	Trustee	Shawnee
Billie C. Stephenson	Trustee	Marlow
Jill Geiger	Trustee, Designee of Preston Doerflinger, Director of State Finance	Oklahoma City
Jonathan Small	Trustee, Fiscal Policy Director for the Oklahoma Council of Public Affairs, Certified Public Accountant, Designee for Dr. Janet Barresi	Edmond

Committees

The Board of Trustees has two standing committees, the Investment Committee and the Audit Committee. These panels focus on their respective topics and conduct work on the areas of focus that are more detailed than appropriate for full Board consideration. No actions of the committees are final and binding unless approved by the full Board.

The Board meets monthly, typically on the fourth Wednesday of the month. The Investment Committee usually meets every other month on the Tuesday afternoon before the regularly scheduled Board meeting. The Audit Committee meets at least once each calendar quarter as directed by the Chair of the Audit Committee.

Divisions

The Board of Trustees is responsible for setting the overall strategic direction of OTRS and the agency, within the framework of state statute. The Board employs an executive director to oversee and administer the agency on a daily basis. The executive director relies on a 32-person staff to run the agency. There are four divisions of the agency: Administration, Finance and Accounting, Client Services, and Information Technology.

The administration division is currently headed by executive director James R. Wilbanks, Ph.D.^[5] Reporting to Wilbanks are the assistant executive director, the human resources director, the investment analyst, an executive assistant and the internal auditor, Josh Richardson. The Internal Auditor has a dual reporting relationship to both the executive director and the Board of Trustees.

The Finance and Accounting Division is headed by the assistant executive director, Joe Ezzell, CPA.^[5] Reporting to Ezzell is the comptroller and the agency business manager. The comptroller manages two accountants.

The Client Services Division is the largest division in the agency and is headed by Dixie Moody.^[5] Reporting to Moody are four managers responsible for the following areas: retirement counselors, information center, withdrawals and client communications. The Client Services division consists of 18 staff members. Clients include: elementary & secondary education, career technology centers, higher education and state agencies.

The Information Technology Division is headed by Rocky Cooper.^[5] Reporting to Cooper is a programmer, a data management specialist and a data processing clerk.

Retirement Details

OTRS utilizes a defined benefit retirement plan that pay the retiree a specific benefit for life beginning at his or her retirement.^[6]

Retirement eligibility

To be vested in OTRS and subsequently eligible to receive a monthly retirement benefit, a client must accumulate at least five years of eligible service in Oklahoma public schools. A vested client is eligible to begin receiving monthly benefits at age 62.^[7]

There are two other thresholds for eligibility to retire with benefits. Those who joined OTRS prior to July 1, 1992, can retire when his or her age and years of creditable service total 80 points. People who joined the System after that date can retire when their age and years of creditable service total 90 points.^[7]

Early retirement

Reduced benefits are available for clients who have not reached full retirement eligibility under regular retirement. To meet this criteria, the OTRS member either must complete at least 30 years of state service but be younger than age 50, or the person in question must have at least five years of vested service and be between the ages of 55 and 61.^[7]

Benefits

OTRS calculates its benefits using the following formula:^[7]

2 percent x (service years) x (final average salary) ÷ 12 = monthly benefit.

Depending on the number of service years and the final average salary, a person's retirement benefit can vary, but each person, regardless, will receive 2 percent. Additionally, for service earned prior to June 30, 1995 contributions into the system only paid on either the first $25,000 of $40,000 of annual income. Because the contributions for these years of service were capped, the retirement benefits are also capped. This results in a two-tiered retirement benefit calculation with the first tier being those years on which contributions were capped and the uncapped years in the second tier, which results in a retirement benefit that is smaller than would be expected based solely on the formula above.^[7]

There are two traditional categories of OTRS clients: a Rule of 80 (or age 62) and Rule of 90 (or age 62) retirement eligibility. Those who joined the System prior to July 1, 1992, are under the Rule of 80 and those who joined on or after that date are under the Rule of 90. The benefit formula is the same for both; only the retirement eligibility is different. A legislative change enacted in 2011 created a third tier for those who join OTRS after Nov. 1, 2011. These clients will have the same benefit calculation, but their retirement eligibility will be the Rule of 90 with a minimum age of 60 (or age 65).^[7]

EESIP

The Education Employees Service Incentive Plan (EESIP) provides an incentive to continue service beyond regular retirement eligibility.^[8][9] To participate, a client must be on the high base cap at $40,000. EESIP provides an opportunity to wear away the salary cap by moving two years of service from the $40,000 salary cap tier to the uncapped salary cap tier for each year worked beyond July 1 of the school year in which retirement eligibility is met. Years moved on the two-for-one EESIP plan increases the number of uncapped years used in the calculation of the final average salary.

In order to qualify for the EESIP,^[7] an employee must be an active contributor, employed within a qualified employer such as an elementary or secondary school, career tech center, two-year college, or state education agency. The employee must work an additional year after the regular retirement age, and meet an uncapped average salary tier exceeding $40,000. Their contributions prior to July 1, 1995, were remitted on maximum compensation level and they must pay the contribution deficit on years between 1987-1988 and 1994-1995 where the salary exceeded $40,000.

Investments

The Board of Trustees determines investment of OTRS funds. In January 2009, the board made a strategic decision to invest in high-yield bonds.^[10] As of June 30, 2011, all cap/large cap domestic equities comprised 21.8 percent of assets, mid cap domestic equities 13.2 percent and small cap domestic equities 10 percent. The target asset allocation, is 45 percent is in domestic equity, 15 percent in international equity, 25 percent in fixed income, 5 percent in high-yield bonds, 5 percent in MLP and 5 percent in private equity.^[4] OTRS' investment consultant is Gregory W. Group. JPMorganChase is the System’s custodial bank. OTRS utilizes a spectrum of investment managers, including but not limited to Mackay Shields, Loomis Sayles, Lord Abbett, Hoisington and Stephens.

As of June 30, 2011, total balance of OTRS funds stood at $10,147,903,285. In 2010, ORTS had a 15.9 percent return on investment. That performance placed it in the fifth percentile of all public funds in the U.S. Since 1992, the system has seen a 9.4 percent annual return. ^[11]

Unfunded liability

Oklahoma’s teachers’ retirement program has long been one of the most underfunded of its kind in the U.S. Employer contributions did not begin until 1986, a fact that has largely contributed to its $10.4 billion unfunded liability as of May 2011. ^[12]

The 2008 Public Fund Survey ranked OTRS as having the fourth-lowest funding ratio (assets set aside compared to pension liability) among 126 state pension plans. At the time of that ranking, OTRS’ funding ratio was 50.5 percent. That figure has since vacillated in the wake of the economic downtown.

The retirement system’s viability for future retirees has prompted legislative maneuvering in recent years. In 2010, OTRS executive director James Wilbanks told The Oklahoman newspaper there were only three options to shore up the system. "You either put more money into the system, you attempt to make better investment returns to earn your way out of the hole or you end up having to do something about benefits, possible reduction -- there are a plethora of options there," he said.^[13]

The retirement system received a boost in 2006 when the Oklahoma State Legislature increased the employer’s contribution to OTRS from 7 percent to 9 percent over a three-year period. ^[14] From 2009 to 2011, the administration of OTRS, with guidance from its board of directors, has renegotiated investment contracts that will save the agency $2.3 million annually. The agency also streamlined processes and instituted other operational efficiencies, which have saved OTRS more than $7.6 million in this two-year time frame. In addition, OTRS has noted that it achieved a 9.4 percent rate of return on its investment from 1992 through 2011, well outpacing its long-term target of 8 percent.

Legislation to Address the Unfunded Liability

In 2011, Oklahoma lawmakers passed Senate Bill 377 and House Bill 2132, which immediately reduced the unfunded liability of the Teachers’ Retirement System by $2.9 billion of debt. ^[15][16] The significant changes in SB 377 and HB 2132 include: raising the retirement age for new members coming into the system (current members will be unaffected) and preventing the legislature from granting cost of living adjustments (COLAs) to retirees unless funding is provided. The Oklahoma Legislature still has the ability to grant COLAs but only when it provides the funds to pay for them. This change alone reduces the OTRS' unfunded liability to $7.5 billion. ^[17]

References

1. ^ ^{a b c} Overview of TRS
2. ^ ^{a b c} Board of Trustees, The Advisor: Quarterly Newsletter of the Oklahoma Teachers Retirement System, OTRS, July 22, 2011
3. ^ OTRS Mission Statement
4. ^ ^{a b} OTRS Board
5. ^ ^{a b c d} Teachers' Retirement System of Oklahoma Trustees (70 O.S. § 17–102)
6. ^ http://www.irs.gov/retirement/article/0,,id=108950,00.htm
7. ^ ^{a b c d e f g} Client Handbook
8. ^ http://www.ok.gov/TRS/documents/TRS%20Response%20to%20EESIP%20Challenge.pdf
9. ^ EESIP aka Wear Away Plan
10. ^ [1]
11. ^ [2]
12. ^ Bill studied, Teacher Retirement System called second or third worst
13. ^ McNutt, Michael, "Oklahoma's teachers retirement system woefully underfunded", The Oklahoman, July 12 2010
14. ^ http://www.ok.gov/TRS/documents/2010_08_11PROTRSPensionFundsComparison.pdf
15. ^ http://www.oklegislature.gov/BillInfo.aspx?Bill=SB377
16. ^ http://www.oklegislature.gov/BillInfo.aspx?Bill=HB2132
17. ^ Governor Fallin Signs Key Pension Reform Legislation into Law