The Norman Transcript

July 19, 2013

Norman ahead of retirement benefit curve, unlike Detroit

By Joy Hampton
The Norman Transcript

NORMAN — Despite occasional disappointment in city sales tax revenue, Norman, unlike Detroit, is doing well.

Norman Finance Director Anthony Francisco said he has followed Detroit’s move toward bankruptcy closely, and while cities in Oklahoma could, theoretically, file bankruptcy, it won’t be happening in Norman anytime soon.

“The bankruptcy law that they filed under is a federal law and applies here,” Francisco said.

Norman is in an entirely different position than Detroit, however.

“(Detroit’s) insolvency is related to retired employee benefits and pension and health care,” Francisco said.

Detroit has a defined benefit retirement system, meaning retirement payments are specifically defined and the city is under obligation to pay that bill for the life of the retired employee. Social Security and the state of Oklahoma are also defined benefit systems.

Norman has a defined contribution plan. That means the city pays a set amount into an employee’s account, and that money is invested in order to grow a retirement fund. Employees can choose from several options on how to invest their retirement funds. Those choices vary from low yield, low risk funds to higher yield funds with increasing levels of risk.

Norman was a defined benefit employer until 1990 when it changed to a defined contribution system. The impact on retirement systems during the recession have proven that change was a wise choice.

“Norman was very foresighted to change,” Francisco said. “Only 12 employees are still on the defined benefit.”

Detroit tried to negotiate with employees but was unsuccessful. Now, under Chapter 9 bankruptcy the court will decide.

The state of Oklahoma is in a more precarious position than Norman because large amounts of invested retirement funds were lost during the recession. Losses resulting from the fall of Lehman Brothers in 2008 affected all employees on the state retirement system including teachers, state employees and county employees.

There are six Oklahoma pension systems, the two largest being the Teachers Retirement System and the Oklahoma Public Employees Retirement System which includes many county employees. The teachers system had $42 million worth of assets invested in Lehman Brothers when the investment bank filed for bankruptcy in the fall of 2008. The Public Employees plan had close to $16 million invested with Lehman.

Oklahoma has worked hard to reduce its unfunded liability. In the wake of Detroit’s financial disaster, it is likely lawmakers will work even harder to close the funding gap.

Joy Hampton