A quasi-government group’s response to Gov. Andy Beshear’s signature of legislation creating a separate board for the County Employees Retirement System (CERS) – which covers local government workers and classified school personnel – illustrates the wrong-headed mindset at the heart of all of Kentucky pension woes.
“House Bill 484 creates a nine-member CERS Board of Trustees that has a singular fiduciary duty to CERS,” gushed a statement from the Kentucky League of Cities (KLC), which praised Beshear for signing the legislation and Bullitt County GOP Rep. Russell Webber for shepherding the bill through the General Assembly.
But that statement, along with the manner in which the legislation establishes the new CERS board, reflects a long-standing philosophical flaw that fails to recognize: there are two groups involved – taxpayers as well as beneficiaries – to which all public pension board members should have “a fiduciary duty.”
KLC’s reaction, like all existing Kentucky public pension policy, prioritizes beneficiaries’ interests while diminishing those of the taxpayers who actually fund state retirement plans.
Taxpayers in the private and nonprofit sectors not only fund state workers’ and teachers’ salaries but also the majority of their pensions, including filling the gaps when benefits are enhanced or retirement-systems’ investment returns fail to meet assumptions.
Taking into account that many cities and counties were already struggling to keep up with increased pension costs during the booming Trump economy before the coronavirus’ nasty attack, how much more pressure will now be applied to the unappreciated taxpayers to fill in the COVID-19 gaps?
Considering the stock market’s recent historic and precipitous drop, prepare for the retirement systems to demand more money from Kentucky taxpayers in the form of an increased actuarially required contribution (ARC).
Shouldn’t both groups– the taxpayers who primarily fund pension systems and take all the risk as well as the members who receive all the benefits– have a seat at the table?
Yet Kentucky’s public pension systems have been unfairly established on the premise that the actuaries running the retirement plans and the boards overseeing them should operate largely devoid of any meaningful participation by either taxpayers or their elected officials.
The foundation for that premise is in state law itself.
KRS 61.650 states that systems’ board members and employees, including actuaries, shall act “solely in the interest of members and beneficiaries; for the exclusive purpose of providing benefits to members and beneficiaries” and “impartially, taking into account any differing interests of members and beneficiaries.”
Downplaying the concerns of either group involved is unacceptable, but so is denying either group a voice.
Unlike the Teachers’ Retirement System, which includes the State Treasurer – who at least voters can hold accountable for bad decisions or faulty performance – the new CERS board will lack any taxpayer representation, much less objectivity when it comes to investment and actuarial decisions directly affecting the forgotten funders.
Three of the nine members can be current CERS beneficiaries with the other six, who, while appointed by the governor, must all come from within the system: two each from KLC and Kentucky Association of Counties – both employer agencies in the system – with the final two spots reserved for the Kentucky School Boards Association, representing local boards of education which also are CERS employers.
Just as it would be wrong to disregard the concerns of teachers and state workers and their union leaders and allies regarding their compensation and benefits, it’s equally unfair to deny taxpayers outside the public sphere who provide the majority of funding and take all the risk a seat at the table.
Doesn’t the commonwealth have a “fiduciary duty” to them as well?
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 email@example.com and @bipps on Twitter.