Bluegrass Beacon: Will pension funding engulf entire budget?

BluegrassBeaconLogoEditor’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.

Your humble correspondent warned for years that the day would come when public-pension funding crowded out government services Kentuckians on both sides of the political aisle care deeply about.

I’ve also warned repeatedly that dumping more money into the systems without stopping the bleeding of the nation’s worst pension crisis among states will create additional pressures on an already-strained budget while failing to fix the woes of our retirement systems.

Despite fervently hoping such prophecies were wrong, they now find fulfillment in Gov. Matt Bevin’s proposed two-year budget.

Bevin recommends cutting 70 programs, including health screenings for various cancers, which especially benefit low-income, disabled and poor Kentuckians, while at the same time dumping more than $3 billion – nearly 15 percent of the commonwealth’s next entire two-year General Fund budget – into the deepening public-pension hole.

Even after more than $2 billion was included in the 2016 budget – including an additional $1.2 billion for the Teachers’ Retirement System – the pension plans’ funding levels have continued declining.

You can’t keep digging the hole and simultaneously expect to move closer to climbing out of it.

Many states face similar pension pressures, yet none have made spent, taxed or borrowed their way out of their holes, most of which aren’t nearly as deep as Kentucky’s.

The governor deserves credit for taking a stand in his recent budget speech to a joint session of the legislature against borrowing our way out of this mess, making it clear such an alternative is off the table. Doing so, he rightly states, would be like a family using the Mastercard to make payments on the American Express balance.

However, instead of going ahead and doing what that same family would if it wants to climb out of its financial hole – reducing spending – he proposes increasing it for public-retirement plans at the expense of just about everything else.

“Never once in the history of Kentucky has the (actuarially required contribution) been fully funded for all our pension systems – not one time, which is why we now find ourselves in the situation where they are all so severely underfunded,” Bevin said, sounding like many of his predecessors who found it easier to blame pension problems on funding deficiencies rather than the fact that the commonwealth has for years offered benefits at unaffordable and unsustainable levels.

“This year they will be funded in their entirety,” he boasted.

As if I should stand up and clap vigorously like I did when the governor announced something must be done about school systems’ central-office administrators making six-figure salaries while demonstrating little, if any, positive impact on student achievement in the classroom.

Bevin’s boast isn’t really that helpful, considering the ARC, which is simply the cost of current benefits plus debt payments from the past, isn’t “fully funded” because it’s been arbitrarily decided rather than actuarially established.

Instead of awarding only benefits that are properly prefunded – as defined-benefit systems are supposed to do – Kentucky’s retirement plans have for years colluded with politicians to increase benefits retroactively, thus disrupting the systems’ funding levels.

Of course, these unfunded benefit enhancements created a bigger ARC.

However, to blame Kentucky’s pension woes on inadequate funding by the legislature is like a couple with a $45,000 income getting evicted after purchasing a $1 million home and being unable to make the payments, then blaming their eviction on the fact they couldn’t make the payments rather than on the reality that they purchased a home they couldn’t afford.

It’s unfair for politicians and these systems’ administrators to make promises to beneficiaries they can’t afford to keep.

It’s also patently unfair to leave taxpayers in the private sector trying to support their families and who often don’t enjoy nearly the same level of retirement benefits holding the ARC bag into which they must dump an increasing number of their hard-earned dollars to pay the principal and interest on those promises.

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 jwaters@freedomkentucky.com and @bipps on Twitter.

BIPPS’ new pension strategy provides benefits, protects taxpayers

BIPPS Pension Point (4)

Bluegrass Beacon: Keep making the General Assembly great again

BluegrassBeaconLogoEditor’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. Following original release of this column, Gov. Matt Bevin announced he will not call a special session of the Kentucky General Assembly. 

WLEX weather anchor Bill Meck was no doubt the most interesting speaker at this year’s Kentucky Public Retirees’ Annual Conference in Frankfort.

Since I didn’t receive an invitation to this glorious affair, I’m not privy to what Meck, a storm chaser who once created “Danger From the Sky,” an award-winning documentary on severe weather, said that might relate his illustrious career forecasting weather patterns to the clashing of budget realities with promises – real and perceived – made to Kentucky’s public pensioners.

Perhaps Meck warned his audience that allowing distractions like deceptively calm weather prior to a tornado to cause a delay in taking cover from a fast-arriving storm is akin to ignoring or downplaying the seriousness of situations, whether they involve storms or diminishing public-retirement plans.

Opponents of proposals containing meaningful changes in the manner and level at which benefits are awarded by Kentucky’s retirement systems appear only too eager to allow distractions to result in more of the same kind of timid legislation passed in recent years and inaccurately labeled “substantive pension reform.”

Had such measures been sufficient, we wouldn’t find ourselves with a $65 billion-and-growing unfunded liability and retirement systems sliding toward the precipice of insolvency.

Nothing, including the ongoing sexual-harassment scandal, should waylay Frankfort from tackling this crisis.

In fact, failing to do so will only darken the black cloud hanging over the Capitol.

An unwillingness to create a fairer, properly prefunded and more sustainable retirement-benefits structure cannot in any sense be considered consequential progress.

We’ve seen too many fluffy proposals in recent history epitomizing little more than whistling Dixie past Kentucky’s economic graveyard as communities scrape for dollars to pay ballooning pension bills while still funding services citizens expect from local governments.

It’s substantially affecting taxpayers in places like Hopkins County, where in just the past few years, workers from outside Madisonville who work in the county seat were hit with an occupational tax while payroll taxes on employees in the city increased, property taxes rose by maximum-allowable rates and diners began forking over a supersized 3 percent restaurant tax.

Taxpayers across the commonwealth facing similar predicaments want such whistling to end.

But it doesn’t have to end with a forced special legislative session in December.

Successful special sessions require a ton of solid agreement among legislators before the opening gavel falls.

Excessive debate in such a session likely would cause it to either run too long or shut down without a decision, which would be an unmitigated political disaster for the GOP.

Gov. Bevin’s intentions are right in his desire to call the legislature back to Frankfort during the interim to address the pension predicament.

However, using his considerable leadership skills to make 2018 the most productive legislative session in Kentucky’s history would in no way diminish his standing.

For years, House Democratic leaders enabled by their party’s governor wasted time during regular gatherings of the legislature with frivolous bills, ensuring that General Assembly sessions – especially in earlier weeks – moved lethargically and avoided any real meaningful reforms in most policy areas.

Hitting the ground running on pension reform during the regular budget session in early January would allow for the quantity and quality of debate in a Republican-led House that creates room for fresh ideas, including a new paradigm for retirement systems protecting taxpayers, benefitting beneficiaries, offering real changes and garnering enough votes to pass.

Republicans’ greatest accomplishment during the 2017 General Assembly was their impressive focus, boldness and work ethic during the first week of the session.

The results added up to possibly the most-productive week in Kentucky’s 225-year legislative history.

For an encore, why not spend the first 30 days of the 2018 session fully debating and fixing the pension systems with politically successful legislation and the second half passing a tough, conservative budget, making it Kentucky’s most momentous legislative session in history?

Jim Waters is president and CEO of the Bluegrass Institute for Public Policy Solutions, Kentucky’s free-market think tank. Reach him at jwaters@freedomkentucky.com and @bipps on Twitter.

Bluegrass Beacon – Clear the air: Reveal retirees’ benefits

BluegrassBeaconLogoWhen addressing generous benefits received by Kentucky Teachers’ Retirement System (TRS) retirees in this column, a voluminous email response – mostly critical – is the norm.

“I seriously have issues with using the word ‘lavish’ for teachers’ pensions,” a science teacher in Jefferson County wrote. “The word produces images of wealthy retirees sitting out on their yachts or on a sunny beach somewhere enjoying their retirement.”

She went on to remind me about many predicaments Kentucky teachers face: long hours, rising health-care costs and “crippling student loans.”

She failed to note, of course, that such conditions aren’t unique to her profession.

Workers in most, if not all, occupations face similar concerns year-round and not just the 185 days Kentucky teachers are mandated by law to work annually, although many work far more than the minimum.

An unnecessary obstacle in determining whether benefits are adequate for retirees and affordable for taxpayers is a lack of transparency regarding individuals and their public-pension benefits.

While each school district publishes teachers’ salary schedules so we can know, for example, that during the 2016-17 school year, a Hardin County teacher with a Rank I certificate and 29 years’ experience earned $69,616 while her counterparts in McCracken and Oldham counties made $62,635 and $69,998 respectively, we cannot make definitive conclusions about benefits since that information is currently not subject to open-records requirements.

We know that a teacher with 25 years’ experience earned at least $82,502 in Jefferson County but a maximum of $64,151 in Clark County.

We also know that Pulaski County Superintendent Steve Butcher’s compensation during the 2016-17 school year was $153,000 while his Whitley County counterpart Scott Paul was paid $129,424.52.

The level of detail offered by the Kentucky Department of Education regarding superintendents’ compensation packages is extensive and broken down into several categories.

Butcher, for instance, received a base salary of $57,311, extended day salary of $17,038.41 and extra service day salary of $78,650.59.

However, the day Butcher, Paul, all superintendents, employees in the TRS or KRS retire, the curtains are closed and information regarding their pension benefits is – unlike their salaries while working – hidden from the public.

We know, for example, that TRS beneficiaries and retirees not yet eligible for Medicare have received their medical insurance at little personal cost.

But retirees, especially those who taught, always protest when we delve into this debate by claiming their benefits are overstated.

Meanwhile, superintendents and teachers across the commonwealth are claiming that even mild reform proposals would drive experienced teachers from the profession while discouraging bright young Kentuckians from being attracted to a career in the classroom.

Yet these same people usually vehemently oppose allowing we, the taxpayers, access to the scope and cost of their benefits.

Wouldn’t making the system transparent so the public can see the supposed miserliness of those retirement benefits help clear the air and allow them to better make their case if it’s the right one?

Wouldn’t making this data available also resolve assertions by some that stated average benefit levels are artificially low because they combine benefits received by those who worked in the system only a few years with those who were career employees and earned higher benefits?

Reform-minded legislators could help make their case for knotty votes needed to cut costs and save Kentucky’s pension systems by doing what they did with their own retirement information during the first week of this year’s General Assembly: make all retirees’ benefits in all systems subject to Kentucky’s Open Records Act, complete with names, agencies and amounts.

Such openness won’t necessarily tell us who’s napping in their yacht or drinking on the beach. But it will go a long way toward giving legislators cover for the tough choices ahead.

Jim Waters is president and CEO of the Bluegrass Institute for Public Policy Solutions, Kentucky’s free-market think tank. Reach him at jwaters@freedomkentucky.com and @bipps on Twitter.

Bluegrass Institute Statement: Proposed pension plan doesn’t go far enough

BIPPS Logo_pickThe Bluegrass Institute for Public Policy Solutions for years has warned that failing to implement real reforms to Kentucky’s ailing retirement systems could threaten the commonwealth’s entire economy and crowd out funding for other important government services.

This is now happening.

Our commonwealth faces a $200 million budget deficit and Gov. Bevin has been forced to ask most state agencies to slash their budgets by 17 percent. Keep in mind that these cuts are occurring during a budget biennium in which an additional $1.2 billion was put into the public-pension pot to shore up the retirement systems, and $2 billion will be spent from the General Fund on the retirement systems during the current fiscal year alone.

Also, independent consultants hired by the state to make recommendations for addressing the pension crisis indicate that an additional $700 million will be needed each year – an additional $1.4 billion during each two-year budget cycle – to keep Kentucky’s retirement systems from becoming insolvent. This would result in nearly $3 billion of the General Fund’s annual $11 billion portion going toward funding retirement benefits for public workers.

The commitment to fix this problem crosses all geographical, ideological and political boundaries.

Whether you’re a taxpayer living in Pikeville or Paducah or your concern is the state’s credit rating or the availability of adequate funding for education, transportation and public safety, you should be very concerned about the fact that Kentucky’s unfunded pension liability threatens to drive up taxes, harm the state’s economy and crowd out funding for most other government services, including education, transportation, public safety and health care.

While a proposal recently introduced by Gov. Matt Bevin and legislative leaders attempts to address the pension crisis in a politically palatable way, it does not go far enough in dealing with the structural imbalance of the retirement systems’ benefit structure that has played a critical role in creating the $60 billion-plus unfunded liability.

For example, the plan fails to recognize how increasing benefits and applying those benefit enhancements retroactively disrupted the annual horizontal actuarial reserves established to ensure that benefits are properly prefunded, which led to the current unfunded liabilities that will, without meaningful reforms, drown Kentucky’s entire economy.

By implementing a soft freeze, which changes the benefit structure for new hires into the system while allowing benefits to continue to accrue at current rates for current employees until they reach 27 years of service, the recent proposal, if enacted as is, would result in the state’s unfunded-liability hole continuing to grow deeper.

The Bluegrass Institute has and will continue to advocate for a hard freeze for current beneficiaries, which would end the current unsustainable plan immediately. This approach would allow beneficiaries to receive all they have earned to that point but would also create a new defined-benefit paradigm that’s sustainable due to reset benefit factors, accrual rates and consistent levels of contribution by beneficiaries and their employees. The alternative to a sustainable, actuarially sound defined-benefit pension system that does not increase liabilities – and guards against such increases in the future – is a strict defined-contribution plan.

Other aspects of the current proposal by Bevin and legislative leaders offer reasons for concern, including placing in a defined-contribution, 401k-style plan all new teachers who, in Kentucky, are not enrolled in the federal Social Security plan. However, it’s important to note that the current proposal offered by Bevin simply acquiesces to teachers and their political and union representatives who strongly oppose placing new hires in the Social Security system.

While the Bluegrass Institute does not philosophically oppose defined-contribution plans, we offer an alternative defined-benefit plan that avoids the hard fall and hard sell of a 401k-style plan, addresses the egregious and costly abuses in the current out-of-control retirement systems and ensures a quality benefit for state workers.

For more information, please contact Jim Waters at jwaters@freedomkentucky.com, 859.444.5630 (office) or 270.320.4376 (cell).

Fixing pension problem requires all hands — including those of beneficiaries — on deck to insure ‘this never happens again’

Bluegrass Institute Pension Reform Team and board member Aaron Ammerman pointed out in his letter in today’s Lexington Herald-Leader:

“Paying off the unfunded liability and honoring benefits that have already been earned by state workers will be an extraordinary effort, considering funding also needs to be found for essential state services such as education, health care and infrastructure.”

The Bluegrass Institute has warned for years that the day would come when tough choices necessary to address the worst-in-the-nation pension crisis would threaten to crowd out funding for many government services that most Kentuckians would consider essential.

That day has arrived. To make matters worse, as Ammerman notes:

“To this point, state employees have resisted even the slightest adjustment to future unearned pension benefits, even though past benefits have been guaranteed at great cost.”

Ironically, many of the same voices calling for a hefty increase in taxes to address the commonwealth’s pension crisis also are the staunchest opponents to, as Ammerman puts it, “accepting reasonable changes to future benefits and installing safeguards so that this never happens again.”

 

Bluegrass Beacon: Pension plan cools, but freeze still needed

BluegrassBeaconLogoEditor’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.  

While waiting this past summer for the release of a consulting group’s recommendations on addressing Kentucky’s worst-in-the-nation public-pension crisis, the question arose in this column: Will there be a pension freeze?

That previous column asserted: “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 in the future “benefits are awarded based on their relationship with investment returns and payroll contributions rather than the warm, but deceptive, weather of political palatability.”

The answer has been delivered in the Bevin administration’s proposal: there’s not a freeze but things are cooling down a bit, but at the rate of a worn-out air conditioner in an old car on a blistering hot day.

Still, get up close and there could be some measure of relief, depending, of course, on what cuts from this latest pension proposal get left on the legislature’s floor.

The plan proposes ending the defined-benefits plan for all current and future legislators, putting them into a 401k-style plan, just as new employees in all plans will be offered beginning on July 1, 2018.

While Frankfort’s politicians have been falling all over themselves to make sure retirees know they won’t lose benefits already granted, they’ve also been acutely aware of the ongoing unpopularity of their own gold rush-like pension plan and agreed to take steps to claw back grossly lavish benefits handed out to retired lawmakers.

“Existing defined benefit members and current retirees will have their benefit calculation based on their legislative salary,” said the document handed out Wednesday.

Does this mean that former big-spending Democratic House budget chairman Harry Moberly will be forced to give up a substantial portion of his $154,912 public pension?

Let’s hope so.

Moberly’s pension was greatly padded thanks to legislation passed in 2005 allowing part-time lawmakers to apply their three highest years of salary in another plum government position to the retirement checks they draw on the legislative pension system.

If Moberly and other self-serving political retirees want to fight that claw-back provision in court, I’m getting my reservation in now for a front-row seat in a Frankfort courtroom.

I can hardly wait to hear them defend keeping their extravagant benefits, which are based on their own personal votes for bills creating such opulence.

Bring it on, Harry.

The new pension proposal also takes a small step toward getting the cost of health-care benefits under control by requiring all employees to contribute an additional 3 percent of their salaries toward retiree health care benefits.

However, a full blast of cool requires replacing one of the main elements of this plan, which still allows beneficiaries in the systems to “continue to accrue full unreduced retirement eligibility” until they reach 27 years of service.

But who in their right mind would agree to any pension plan that adds more unfunded liabilities to Kentucky’s worst-in-the-nation pension crisis, which has been pegged with being as deep as $85 billion in the hole?

This is where I barely feel any cold air.

At the very least, we must reset the system for current beneficiaries, recalibrating pension-benefit factors based on actuarially sound assumptions, not just what they were last year.

We’re facing the stark possibility that Frankfort will need to find an additional $2 billion in future budgets to effectively address the liability.

Where will this money come from?

Before taxpayers let Frankfort anywhere near our wallets and purses, there must be a breaking of the silence concerning how irresponsible retroactive benefit enhancements in the past and promises of future such enrichments have been a primary contributor to Kentucky’s unfunded pension liabilities.

By refusing to acknowledge that failure, the new proposal neglects to include safeguards to ensure Kentucky’s dark pension history doesn’t repeat itself.

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 jwaters@freedomkentucky.com and @bipps on Twitter.

Bluegrass Beacon: Taxpayers deserve at least honorable mention in pension debate

BluegrassBeaconLogoEditor’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.

Maybe it’s because I’ve been speaking to Rotarians recently, but I’m thinking stakeholders in Kentucky’s pension fiasco could do a lot worse than adapting and applying Rotary’s Four-Way Test to this crisis: Is it the truth? Is it fair to all concerned? Will it build goodwill and better friendships? Will it be beneficial to all concerned?

While perusing a copy of the Kentucky Retirement Systems (KRS) 2016 Summary Annual Financial Report – Dave Eager, the KRS’s cordial interim executive director, handed me my own bright shiny copy – it became apparent to me that, considering the current tone and emphasis, the proper place to begin the next phase of the debate is at the far end of that gauntlet of goodwill.

Will the reforms finally accepted be beneficial to all concerned?

Dialogue around Frankfort’s political water cooler these days focuses primarily on two of the stakeholders – beneficiaries and politicians – and two major questions:

  • Can Republicans, who control the legislature and governor’s office, get solid-enough agreement among their caucuses, allowing them to come to the Capitol for a special session and pass effective pension-reform legislation in a judicious and timely manner?
  • Will benefits be reduced?

If, however, we’re going to implement reforms “beneficial to all concerned,” shouldn’t the largest stakeholder group of all – taxpayers – receive at least honorable mention in these discussions?

An abundant supply of political hyperventilating to pacify and reassure retiree and beneficiary groups and their talking heads is on full display while a much-larger stakeholder group is in danger of being denied even a place at that water cooler.

Yet while the 364,710 KRS members may form a significant voting bloc, what sincere consideration will be granted in whatever KRS reforms finally get passed to the 1.25 million Kentucky taxpayers, who, reports another glossy publication from Truth in Accounting, each carry a $39,000 burden of debt for the commonwealth’s unpaid bills, including its worst-in-the-nation public-pension liability?

The KRS publication offers a curious take on how it believes taxpayers benefit from this underwater retirement system.

Quoting a national group’s numbers, it claims – apparently with a collective straight face on the part of its authors – that each dollar of the $1.9 billion paid to its recipients in 2016 “supported $1.43 in total economic activity in Kentucky.”

Really?

Are we hardworking schmucks in the private sector missing out?

Should we be sending our entire paychecks and savings to KRS to experience this amazing investment phenomenon for ourselves?

It would be safer to hide our money under the mattress, considering KRS’s report goes on to claim incredulously that “in an unsteady economy, the consistent addition of pension funds into the economy is a stabilizing element.”

What if Bernie Madoff made such claims about an underwater business?

Why, he’d be in jail. Oh yeah, that’s right – he is!

This KRS document’s rocket-like spin ignores the fact that just about everyone else – including credit-rating agencies – deems the commonwealth’s pension liability, which is between $38 billion and $85 billion, the primary contributor to that “unsteady economy.”

Neither does it bother to include anything about how the dramatic decline in the systems’ funding levels – including the drop from more than 130 percent funded in 2000 to barely 13 percent currently – was caused not by taxpayers’ stinginess but by the arbitrary, retroactive and irresponsible awarding of benefit enhancements during a period spanning several decades.

As politicians increasingly pound the bully pulpit, sermonizing about how “we have a moral obligation to keep our commitments to those in the system,” we should demand they follow that up with statements about the immorality of government taking more from taxpayers, who, I remind, form the largest of the stakeholder groups.

It’s their hard work, investment and sacrifice that form the foundation of this commonwealth’s economy and future.

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 jwaters@freedomkentucky.com and @bipps on Twitter.

Bluegrass Beacon: Merit pay for teachers merits consideration

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.

Hardin County Schools Superintendent Teresa Morgan at a recent town hall on public pensions bemoaned the fact that interest in vacant teaching positions has dropped in recent years from as many as 100 applicants per opening to as few as 10, with some openings in math and science fields nearly impossible to fill.

Her recruiting pitch is, “We can’t say ‘you will make $150,000,’ but we can say we will pay you a living-wage salary and a pension that you will be proud of – one that you have earned and deserve.”

But touting retirement benefits are an awkward way to recruit and retain teachers.

Instead, why shouldn’t Morgan be able to offer a starting physics teacher a higher salary than, say, a new physical education instructor?

While Morgan is eager to defend extremely generous pension packages, she and her fellow Kentucky superintendents should also acknowledge the consequences of using a one-size-fits-all salary schedule as the primary mechanism for hiring teachers.

This approach shoehorns decisions about teachers’ salaries into only considering numbers, not types, of degrees earned and years of experience.

There aren’t nearly enough incentives to attract candidates for scarce skill areas.

A merit-pay policy could help.

Vanderbilt University recently released a new study claiming merit programs are more likely to accomplish what single-salary schedules based on simply having an extra degree and two decades in a classroom cannot: attract and retain high flyers to subjects where a shortfall exists and motivate current teachers in every area to improve, all of which positively impacts students’ academic opportunities and achievement.

The study found a “statistically significant positive association between teacher merit pay programs and student test scores,” amounting to four additional weeks of learning.

Pop quiz: Quick, name a pension benefit or sick-day policy that’s added an entire month’s worth of learning to a student’s academic experience?

Common sense and the experience of other professions dictate the truth that too many teachers-union leaders and bureaucrats spurn: retaining high performers – especially those willing to accept harder-to-fill positions – requires recognizing some teachers simply perform better and contribute more to our children’s education.

“Nothing demotivates a high performer faster than knowing that the employees who have contributed much less in the organization, have received the same pay increase or bonus,” Susan M. Heathfield writes on The Balance while examining “The Advantages and Disadvantages of Merit Pay.”

Heathfield writes about how merit pay affects professions in general, but it applies to teaching at least as much.

Where are the stakes higher than when we’re preparing future generations to lead this country and commonwealth?

Union leaders and sympathizers will generally circle the wagons faster than John Wayne when the discussion gets serious about merit-pay approaches that require evaluating teachers on a set of performance-related factors.

But they also have some legitimate concerns that must be addressed for a merit-pay system to work in Kentucky.

For example, including test scores in the evaluation process requires having a valid, reliable testing system that assesses students in the fall when they enter a new grade and then again in the spring – with results being available in a much-timelier manner than currently happens – to show the teacher’s value and impact upon her classroom.

This allows a teacher assigned a group of struggling, disadvantaged students from low-income homes in the inner city an opportunity to reap rewards for improvement she brings to those in her class between August and June rather than basing the merit of her work on how she stacks up against teachers in a suburban school with kids from wealthier homes and lots of advantages.

Merit pay would offer Kentucky a chance to build a reputation of attracting the best and brightest into its classrooms – even with more modest pension benefits.

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

Bluegrass Institute responds to proposed pension plan

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For Immediate Release:  Wednesday, October 18, 2017

Contact: Jim Waters @ 859.444.5630

(FRANKFORT, Ky.) – Bluegrass Institute president and CEO Jim Waters issued the following statement regarding the proposal released today in Frankfort to address Kentucky’s pension crisis:

While the Bluegrass Institute is reviewing the much-anticipated plan released at a news conference this morning by Gov. Bevin, Senate President Stivers and House Speaker Hoover, we’re troubled more by what’s missing from this proposal than by the very modest changes it offers, changes for which there was much hype but little help for – and quite possibly additional harm to – hardworking Kentucky taxpayers in the future.

For example, an absence of any recognition of the practices of increasing benefits and then applying them retroactively – the main culprits in creating the unfunded liabilities in all the major retirement plans – means there also will likely be no safeguards against the same kind of actuarially and financially irresponsible practices in the future.

Also, the plan proposes allowing Teachers’ Retirement System (TRS) beneficiaries to collect lavish sick-day benefits for at least five more years, which will continue to grow the system’s liability. It will also incentivize teachers to do what the administration and legislative leaders said their plan would address: push teachers to retire sooner than they otherwise would.

The sick-days’ policy deepens the state’s unfunded pension liability by offering a benefit enhancement that’s not actuarially established and properly pre-funded and ensures that TRS beneficiaries continue to reap more in taxpayer-funded pension benefits during their first year of retirement than they earned in their final year of employment.

This occurs because TRS beneficiaries not only receive a check for 30 percent of the value of unused sick days they’ve accumulated throughout their careers – they’re paid for up to 10 unused sick days of the 185 days they work per year – but they get to spike their pensions for a lifetime by applying that same amount to their retirement benefits. It’s a corrupt practice that needs to end immediately.

The 30-percent value of those days is determined on the retiree’s final – and usually highest – year of salary, even though the accumulation of days occurs each year, when the salary levels usually are lower.

We’ve also heard or seen nothing today about protecting taxpayers from future shenanigans by actuaries beholden to the systems, who offer false assumptions to supersize benefits for those in the system who pay them.

Finally, nothing in today’s comments or in the plan itself gives even a political nod toward making the system more transparent. If taxpayers are going to be asked to pay more for this system, they must know a lot more about the types and amounts of benefits they are funding.

An alternative plan offered by the Bluegrass Institute Pension Reform Team includes the creation of an independent actuarial oversight board whose members are not beholden to the pressures applied by politicians or the systems’ bureaucrats.

Frankfort’s politicians have been spending too much time in this pension debate wringing their hands over how to keep the political class and state workers – Kentucky’s largest voting bloc – happy while hoping taxpayers will consider the whole matter too complicated and complex to understand, much less engage about.

The message out of Frankfort is that we the taxpayers have no say in this matter and will be forced to continue to pay for these lavish benefits while also funding the increases that will come with forcing a level-dollar approach on payments.

Hardworking, taxpaying Kentuckians – many of whom already struggle to pay their bills and find decent benefits – also will be asked to believe this is “reform,” even if it means more money for government and less for their families.

While we hear the politicians blather on ad infinitum about the “moral obligation” we as a commonwealth have to those on the public dole, we’ve heard little about government’s “moral obligation” to protect the life, liberty and property of its tax-burdened citizens.

For more information and comment, please contact Bluegrass Institute president and CEO Jim Waters at 859.444.5630 (office) or 270.320.4376 (cell) or jwaters@freedomkentucky.com.