Editor’s note: The Bluegrass Beacon is a weekly syndicated statewide newspaper column posted on the Bluegrass Institute website after being released to and published by newspapers statewide.
Political leaders are justifiably pessimistic that throwing more dollars – even record amounts – at Kentucky’s teetering public-pension systems is not some puff of magic that will allow a detour to avoid tough decisions about how retirement benefits are determined and dispersed.
Senate Bill 1 (SB 1), the legislature’s long-awaited pension proposal released at a recent Senate State and Local Government Committee meeting last week, attempts to make some of those difficult, but necessary, judgments.
Amidst the booing and bullying of teachers’ union bosses, state workers and retirees, committee Chairman Sen. Joe Bowen, R-Owensboro, did his best to explain proposed changes in SB 1, which include a mild reduction in automatic cost-of-living increases for teachers while recognizing that people should work longer because they’re living longer.
“We’ve compromised a lot with this legislation,” Bowen said amidst heckling that surely would have embarrassed the fourth-graders in Kentucky Education Association president Stephanie Winkler’s classroom in Madison County, from which she’s taken leave to rule the KEA, the state’s largest teachers’ union.
Do public workers and their talking heads like Winkler forget that just a few months ago they rejected Gov. Matt Bevin’s proposal placing all new teachers and even some long-time state employees into a straight defined-contribution system where their pensions would likely be significantly lower?
SB 1 creates a hybrid cash-balance plan for new members that Bowen projects will produce for a teacher starting in Franklin County at age 27, working 30 years and receiving the Teachers’ Retirement System (TRS) assumed rate of return an account balance of nearly $720,000 and a yearly annuitized benefit of more than $62,000.
In return, the bill shores up the system with some reasonable changes to the benefits structure.
- Teachers still will be able to receive a reward for unused sick days when retiring. However, they no longer can apply the amount of that payment to their ongoing pension benefits.
- While the bill doesn’t force teachers to work longer, it gives them a more generous benefit for doing so, helping discourage mass retirements resulting in disruptive turnover in Kentucky’s classrooms.
- It reduces TRS retirees’ annual cost-of-living (COLA) increases from 1.5 percent to 1 percent until the TRS reaches a 90-percent level of funding, which will take years considering its current 55-percent mark.
This fairer approach better represents legislators’ intent when they created the TRS in 1938.
The TRS was created to allow teachers to retire with dignity in their sunset years, not step away while young enough to collect generous benefits during a retirement period that frequently stretches longer than the number of years they work and contribute to their pensions.
Senate President Robert Stivers, R-Manchester, referenced an internal TRS study which looked at six years of the system’s performance and determined that funding was only 9 percent of its problems, meaning 91 percent of its liabilities were based on “systemic problems.”
SB 1 deals with systemic issues like unused sick days and cost-of-living allowances.
Stivers rightly concludes: even if legislators had given the systems every dollar they requested through the years, “there would still be a substantial unfunded liability.”
Previous politicians and actuaries conspired to award unaffordable benefits while ignoring the serious cost of applying benefit enhancements to previous years, thus creating those liabilities.
State workers and teachers were made promises that cannot be kept simply by more funding.
More dollars will be spent on pensions in the next two years than at any other time in the 80-year history of the TRS or the commonwealth’s illustrious 225-year history.
Taxpayers were assured at least twice just since the beginning of this century that – primarily because of more funding – the pension crisis was fixed.
Yet here we are at the edge of the Kentucky’s economic cliff once again.
Jim Waters is president and CEO of the Bluegrass Institute for Public Policy Solutions, Kentucky’s free-market think tank. Read previous columns at www.bipps.org. He can be reached at email@example.com and @bipps on Twitter.