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, 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 He can be reached at 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.”


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 He can be reached at 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 and @bipps on Twitter.

Bluegrass Institute responds to proposed pension plan

BIPPS Logo_pick

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

Bluegrass Institute Pension Reform Team presentation in E’town tonight

BIPRT Bill SmithDr. William Smith, a Madisonville dermatologist who served on Gov. Matt Bevin’s pension-transition team, leads the Bluegrass Institute Pension Reform Team.
Dr. Smith will present “Sound Solutions for Kentucky’s Pension Crisis” at tonight’s meeting of the Central Kentucky Tea Party.
This presentation is based on Dr. Smith’s recent appearance before the state’s Public Pension Oversight Board and is drawing interest from around the commonwealth of Kentucky.
Tonight’s meeting is at 7 pm at the Nolin RECC, 411 Ring Road in Elizabethtown.

Pension wars arrive, but peace is possible

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.

A serious assessment offered by an independent consulting group hired to audit Kentucky’s public-retirement funds represents an important step in addressing the commonwealth’s pension crisis.

If you think “crisis” is overstating the dilemma, then you may have set up a tent in the camp of former Gov. Steve Beshear, who, in an interview with a radio talk-show host about his recent book, “People over Politics” with its chapter entitled “Channeling Chicken Little,” attempted to downplay the situation.

At one point, he called the problematic actuarial process at the heart of Kentucky’s pension predicament “a game.”

I’m pretty sure the half-million Kentuckians who swear they’ve seen that sky dropping would characterize the dire situation as anything but “a game.”

A somber Mike Nadol, managing director of PFM, wasn’t playing games, either, when he recommended “freezing accrued benefits” in the state’s pension funds, explaining it’s “the same general concept that would be undertaken for a private-sector plan that was in fiscal distress at below a 60-percent funded level.”

If the threshold for “fiscal distress” is 60 percent, the only Kentucky retirement plans not in distress are those belonging to legislators and judges.

For everyone else, it’s anything but fun time.

And for the 89 percent of Kentuckians not eligible for a public pension but concerned about whether funding will be available in the future for anything but retirement checks, the $48 billion pension hole the commonwealth finds itself in also is not “a game”

In fact, it all may be developing into something more like “Kentucky’s pension war,” as one headline screamed atop a story covering the response of stakeholders and various groups to PFM’s recommendations.

Wars usually start because of misunderstandings.

One such misnomer in this conflict claims taxpayers through the General Assembly have been chintzy when it comes to funding pensions.

However, as Senate budget chairman Chris McDaniel, R-Taylor Mill, noted in an op-ed, the amount of the commonwealth’s annual budget dedicated to pension payments during the past decade swelled from 5.4 percent to 13.8 percent.

Tightfisted? Hardly.

Another misunderstanding claims Kentucky must continue to fund every benefit ever granted during the 60-year history of the pension plans at the same level for the forever future.

Not according to the PFM audit, which, for example, rightly recommends ending the practice of allowing beneficiaries in the Teachers’ Retirement System to not only receive one-time payments for their unused sick days when they retire but also to spike their benefits by applying the value of those unused days to their pensions, increasing the size of their retirement checks for the rest of their lives.

Nadol’s group says the state instead should “allow for sick time to be cashed out at a more modest level in a one-time payment that doesn’t increase an ongoing benefit-obligation stream or add to the unfunded liability pressures that the systems face.”

That hardly sounds unreasonable to most levelheaded Kentuckians.

Just like propaganda is part of any war, expect a narrative from those opposed to reforming the benefit structures of Kentucky’s retirement systems to channel Chicken Little by painting every reform attempt by the Bevin administration and this legislature – who obviously approach the situation seriously – as an effort to take away all benefits, even those already given.

However, Nadol says PFM’s recommendations “would involve fully continuing and protecting and preserving those benefits that have already been earned through existing years of service.”

Pension benefits already awarded would be there, period.

Granted, there could be future changes regarding benefits not yet funded, including suspending cost-of-living increases until control is gained over the systems’ funding levels and more cost-sharing of health-insurance premiums.

The upside of the changes will be the sky will not fall, the retirement systems will survive and those who have served our commonwealth will continue to receive their pension checks.

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.

Bluegrass Institute Pension Reform Team presentation tonight in Northern Kentucky

BIPRT Bill SmithBluegrass Institute Pension Reform Team leader Dr. William Smith will present “Sound Solutions for Kentucky’s Pension Crisis” at tonight’s meeting of the Northern Kentucky Tea Party at 7 pm at the Holiday Inn at 7905 Freedom Way in Florence.

While much of the discussion about pension policy has centered on legislative funding and investment returns, the Bluegrass Institute is calling policymakers and taxpayers to focus on the underlying cause of the $48 billion unfunded liability plaguing the commonwealth’s retirement systems.

This presentation was made recently to the state’s Public Pension Oversight Board and is drawing interest from around the commonwealth.

For a preview of this presentation and to hear some of the comments made by the Institute’s team at the PPOB, click here.

Q&A will be included as part of the presentation.

Please come and bring someone with you to hear this important presentation.

For more information on scheduling a Bluegrass Institute Pension Reform Team presentation, contact Bluegrass Institute President and CEO Jim Waters at or 859.444.5630.

Report: Sound Solutions for Kentucky’s Public Pension Crisis

Read the report here.