Bluegrass Beacon: Will there be a great pension freeze?

BluegrassBeaconLogoEditor’s note: The Bluegrass Beacon column is a weekly syndicated statewide newspaper column posted on the Bluegrass Institute website after being released to and published by newspapers statewide.

The famous Great Freeze occurred when some of the worst cold winter weather in America’s history befell the South at the end of the 19th century, destroying much of Florida’s citrus crop and the economic survival of entire communities along with it.

An interesting phenomenon occurred, however, during that winter, which stretched from late 1894 and into 1895 that may offer a hidden warning about the need to impose a freeze on benefit-accrual rates in Kentucky’s pension systems.

Florida’s Great Freeze actually was two freezes.

The first freeze in December 1894 failed to kill many mature trees and deceptively created conditions for new growth of produce during the warm months that followed, resulting in greater devastation when a harder freeze attacked months later in February 1895.

The effects were so devastating that fruit froze on trees, reducing Florida’s entire citrus production from 6 million boxes to 100,000 boxes annually.

It took five years for production to again break even the 1 million box mark.

Could it be that the $1.1 billion in additional pension funding in the current state budget – intended to stabilize Kentucky’s public-retirement plans pending an independent audit – could simply have provided a temporary warming period before the nation’s worst pension crisis deepens?

When independent consultants recently released a second report on the audit of the commonwealth’s pension plans, they claimed an additional $700 million annually – on top of the $2 billion being spent on the retirement systems this year – is needed to keep them from going belly-up.

Will such additional gobs of spending follow the frequent pattern of taxing, spending and pension-benefit increases which never come to pass but always come to stay?

For too long, Kentucky’s public-pension beneficiaries have been led to believe a higher benefit for any year of service must be applied to every year of service.

However, a defined benefit system – as Kentucky has and its government workers and retirees fight to keep – only works when there’s a direct relationship between benefits, funding and investment returns.

The current practice of keeping each of those isolated in silos has created an economic disaster in Kentucky.

Beneficiaries and their political soulmates in Frankfort must understand: healthy defined-benefit systems result in the size of accrued benefits fluctuating each year because benefits are directly connected to a host of other factors, including investment returns and payroll contributions.

It’s not realistic in such a system for benefits to always increase but never decrease, and for those increases to be applied retroactively and prospectively.

Yet this has been the scenario in Frankfort.

Benefits have been handed out arbitrarily by legislators while retirement systems’ boards are relegated to dealing with investments.

In the late 20th and early 21st century, sky-high returns on investments masked the problem. Flush with cash, politicians maintained this scheme with few consequences.

But then the economic weather turned bad, leaving taxpayers out in the cold.

The fact is, if Kentucky had abided by the rules of a defined-benefit system by funding pensions based on normal payroll costs and conservative investment assumptions, the resulting greater-than-assumed rates of return on investment funds during those fat years would have created surpluses for use in leaner times.

The only way Kentucky will survive this fiscal storm is by freezing benefit-accrual rates for all members of every system, and resetting the pension plans so that beginning January 1, benefits are awarded based on their relationship with investment returns and payroll contributions rather than the warm, but deceptive, weather of political palatability.

Jim Waters is president and CEO of the Bluegrass Institute for Public Policy Solutions, Kentucky’s free-market think tank. Read previous columns at He can be reached at and @bipps on Twitter.


  1. Edward Lentz says:

    Do we wish to spend lots of money trying to persuade the courts to change the definition of inviolable contract AND lots more to pay the state’s obligation or would it be better to just pay the state’s obligation? After all, the employees upheld their end of the deal while the state chose not to.

  2. Alma Markham says:

    It looks like the state has been “messing” with our pension again. What happened to the money we, as state employees, paid in. While it is a choice now for state employees to join the retirement system, not so for us older retirees. It was manatory back when I first became a state employee. So what happened to the money we paid in. The past governors chose to use that money for things that it was not intended for. Now you tell us there is no funds, Try replacing it from their checks and see how fast they will squack!!!!!!! There are retirees out there that depend on this retirement to survive. Sure can’t do it on Social Securiy alone (again that was money WE paid in, again the government used it for what it was not intended) and now the state of Kentucky wants to do the same with our retirement.

  3. Sue Ramsey says:

    How can you fail to even mention the actual and verifiable fact that this crisis was not caused by public employees, who have never failed to contribute their statutory contribution to their pensions, as established by the Kentucky Retirement Systems, while governors and legislators repeatedly ignored their statutory obligation to fund the state’s share. This occurred in budget after budget for more than 15 years. To now point the finger of blame towards those who have been victimized defies logic and is outrageous on its face. We are stakeholders because we upheld our part of the inviolable contract between the Commonwealth and its public servants; however, we are also taxpayers who support the economy of this state and who will pay our share of any tax increases the legislature sees fit to enact. We have already sacrificed the COLAs we were once promised, and our benefits are effectively frozen. We made a career of serving the public at a middle class wage. Now it is time for the public we served to step up to the plate in our defense instead of blindly following in behind organizations such as yours who support our financial ruin.

  4. Denise Johnson says:

    Let’s not forget that the state of Kentucky “borrowed” funds from KTRS and has failed to repay the loan. This has certainly contributed to the shortfall of funds.

  5. It took six mindless paragraphs comparing our pension to trees in florida? Seriously? six mindless paragraphs about florida trees in the 19th century. Do you have a template you go back and it is write by numbers?

    State workers and retirees were promised a pension when they signed on. There is a inviolable contract for this for retirees and tier 1 employees that must be met. must You want to change our benefits AFTER we have worked a whole career. Had we known, we would have planned differently or taken different career paths. We were made a promise and it is time to keep that promise. You and your staff ignore that promise and act like it should not be kept. People can’t live on what they might make next year or the year after based on what the market will do. I was told what my benefits would be on day one and at the twilight of my career this is what I expect. This is what I was promised from day one. I upheld my part of this promise every single day.

    I don’t expect you to reply because you never do. You never engage the people directly that comment on these articles. You are either too smug or too afraid to reply to us directly and you attempt to sway the public against us. The issue for me really is other than state workers and retirees, who actually pays attention to you? How many hits to this page other than us? Do you really think you have the right to sit there and be so arrogant as to tell us what we actually deserve when we were promised something from day one?

  6. James Lang says:

    If there is to be a freeze/reset of the whole system, is the money we have paid into the system thus far still there or does that just go away? Thank you.