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

  • Joe Wertz

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.