How Phasing Out the Income Tax Could Harm OK’s Largest Pension System

• Joe Wertz
  BioRecent Stories

  

  Joe Wertz was a reporter and managing editor for StateImpact Oklahoma from 2011-2019. He reported on energy and environment issues for national NPR audiences and other national outlets. He previously worked as a managing editor, assistant editor and staff reporter at several major Oklahoma newspapers and studied journalism at the University of Central Oklahoma.

Oklahoma House of Representatives

Pension reform leader Rep. Randy McDaniel, R-Edmond, is worried about the state's largest pension system's ties to the threatened income tax.

A phase-out of the personal income tax without a replacement revenue source would harm the state’s largest pension system, a state lawmaker told Oklahoma Watchdog.

Five percent of all income tax revenues are earmarked for the Oklahoma Teachers Retirement System, which McDaniel said is “woefully underfunded.”

“ … unless new funding is found to replace that, elimination of the income tax would make it that much harder to make OTRS fully funded.”

The OTRS has a $7.6 billion unfunded liability and a 56.7 percent funding ratio, according to latest actuarial report (click here to read).

In the private sector, a pension plan that is under 80% funded is considered “at risk” and contributions need to be increased, Oklahoma Watchdog reported.

Last year, the OTRS had more than $10 billion in unfunded liabilities. That amount declined after a return on investments and the passage of McDaniel’s pension reform measure, House Bill 2132.

If a replacement funding source is found, McDaniel is “all for” reducing the income tax, according to Oklahoma Watchdog.