Bluegrass Institute urges legislators to support pension transparency

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Bluegrass Institute President Jim Waters offered the following prepared testimony supporting making individual public retirees' benefits transparent at a recent meeting of the Public Pension Oversight Board in the Capitol Annex in Frankfort:

I would like to thank the members of the Public Pension Oversight Board for the invitation to participate in this meeting today.

The Bluegrass Institute is a state-based, nonpartisan, nonprofit research-and-education organization that offers free-market solutions to Kentucky’s greatest challenges based on the principles of economic prosperity, individual liberty, a respect for the lives and properties of others, and limited, transparent and open government.

Since the Bluegrass Institute’s founding 13 years ago, making government at every level – federal, state, county and local – more transparent has been a vital part of our mission.

We’ve found strong support for our efforts on both sides of the political aisle, including from leading policymakers in both parties. Influential Kentuckians from former state Auditor Adam Edelen and former Assistant Attorney General Amye Bensenhaver to legislative leaders, including Sens. Chris McDaniel, Joe Bowen, Jimmy Higdon, Damon Thayer and Rep. Kenny Imes, as well as representatives of Rotary clubs, tea parties and other liberty and good-government groups – have joined with the Bluegrass Institute to work to make government more open across the board, including as such openness relates to local taxing districts, the state Board of Education and legislators’ votes.

Influential Kentuckians from former state Auditor Adam Edelen and former Assistant Attorney General Amye Bensenhaver to legislative leaders, including Sens. Chris McDaniel, Joe Bowen, Jimmy Higdon, Damon Thayer and Rep. Kenny Imes, as well as representatives of Rotary clubs, tea parties and other liberty and good-government groups – have joined with the Bluegrass Institute to work to make government more open across the board, including as such openness relates to local taxing districts, the state Board of Education and legislators’ votes.

While this board has demonstrated strong, ongoing support for shining a brighter light on the retirement systems’ investment fees and practices, we respectfully ask you to expand your strong support for transparency into the largely untouched arena of benefit structures in general, and more specifically, benefits paid to individual retirees and how these benefits were determined.

We’re especially concerned about the way benefit enhancements have been applied retroactively and guaranteed prospectively, which may yield immediate short-term political benefits but adds to the systems’ funding deficits, drives up costs for taxpayers and, in fact, may very well be statutorily impermissible.

The Bluegrass Institute Pension Reform Team is preparing a presentation with well-researched and credibly-sourced information on this issue. We would respectfully request the opportunity to present that at the next meeting of this board, as well as to all appropriate legislative committees.

But even some statutorily permissible practices – such as legislation passed more than four decades ago allowing retirees to hide their individual benefits behind the cloak of secrecy – is a detriment to attempts to address what a recent S&P Global Ratings survey recently termed the nation’s worst pension crisis. Using S&P’s numbers, eliminating the commonwealth’s $31.2 billion pension deficit today would require $7,349 dollars from the piggy banks of every single one of Kentucky’s 4.3 million men, women and children.

Factoring in life expectancy, investment returns and individual contributions, state retirees cover, on average, less than six years’ worth of their entire retirement benefits for a lifetime with taxpayers financing the remaining portion of those obligations. Therefore, the same taxpayers are entitled to have access to those individual pension records through an accessible and user-friendly website.

After all, if, as KRS 61.780 requires, entities deriving at least 25 percent of their funding from public dollars are subject to open records, why wouldn’t the information regarding individuals’ retirement benefits – of which taxpayers cover a major portion over a lifetime – also be available?

Kentucky taxpayers currently have access to the salaries and benefits of all workers enrolled in the retirement systems if they are on the job. However, on the day they retire, KRS 61.661 pulls the blinds on their retirement benefits even though the same taxpayers who fund their positions while they work also carry the lion’s share of funding those benefits.

Considering the severity of the commonwealth’s pension crisis and the fact that it jeopardizes funding for other important policies like education and public safety and threatens the economic security of the commonwealth itself, amending the statute and making individual pension records available online would not only be appropriate but would go a long way toward giving taxpayers more confidence that public dollars are being expended in an effective and responsible manner.

When we ask for transparency of individual retirement benefits, it’s as important to know what we’re not asking for as it is to know what we seek.

For one, we’re not asking the commonwealth of Kentucky to violate federal law. There have been misstatements by some in the House leadership that releasing individual retirees’ benefit would somehow violate federal policies. However, this should not be a concern as other states, including Oregon, Nevada and Pennsylvania, release individual retirees’ pension information.

Neither are we asking for information that subjects anyone to identify theft and fraud. We’re not interested in addresses, phone or Social Security numbers. Rather, we seek individuals’ names, their agency, status and expected – or current – benefits so we can determine whether taxpayers truly are receiving sufficient bang for their many bucks. Similar dire concerns in those other states that such transparency would lead to identity theft and fraud by opening up their systems simply have not materialized.

What has occurred in Kentucky is a significant increase in spending on the public-pension system. During this year’s budget session alone, an additional billion dollars was added to the retirement systems. Taxpayers have stepped up this year – and no doubt will be asked to do so again. It behooves lawmakers to bring more transparency to individual retirement benefits and with it, more confidence to those taxpayers.

The Bluegrass Institute is doing its part by offering legislators and candidates for state House and Senate offices the opportunity to lead by example by signing the Legislative Pension Transparency Pledge. This 67-word pledge vows support for “making the commonwealth’s legislative pension system fully transparent, including requiring the disclosure of the name, status and projected actual retirement benefits and benefit payments from the Legislators’ Retirement Plan, Judicial Retirement Plan, Kentucky Teachers’ Retirement System and Kentucky Retirement Systems of all current and former members of the General Assembly.”

Nearly 90 current sitting lawmakers and candidates have signed the pledge, including Sens. Joe Bowen, Chris McDaniel, Damon Thayer and Jimmy Higdon, and Representatives Brian Linder and Tommy Thompson on this committee. The list of the names of all pledge signers are available at www.bipps.org.Each of our 38 state senators supported making the legislative pension system transparent during this year’s General Assembly; I want to thank Sens. Bowen, McDaniel, Thayer, Higdon and others for leading that effort.

I also wish to thank Rep. Yonts, who, as chairman of the House Standing Committee on State Government, was one of the 19 committee members who supported the Senate legislative-pension transparency policy when it reached his committee. Despite a 19-2 vote on March 23 – five members did not vote – and a recommendation for support by the entire House, the legislation failed to even receive a vote on the House floor.

Signing this tightly focused pledge would assist conscientious lawmakers when the time comes to make difficult decisions that could affect the structure of the benefits that hundreds of thousands of Kentuckians rely on. In fact, when the state of Oregon made individual retirement benefits transparent, it gave policymakers the ability to effectively – and in the end, successfully – make their case for difficult choices related to pension reforms.

Such transparency will, no doubt, reveal some less-than-flattering information. That’s okay.

“People in an open society do not demand infallibility from their institutions,” former Chief Justice Warren Burger once wrote in a decision about open courts. “But it is difficult for them to accept what they are prohibited from observing.”

Instead, they ask: Why the secrecy? What are the systems and our policymakers hiding?

Former Attorney General Jack Conway once observed that citizens cannot have confidence in their government without full transparency.“

The people in delegating authority do not give their public servants the right to decide what is good for the public to know and what is not good for them to know,” Conway said in a video designed to educate legislators concerning the importance of an open government. “Being transparent isn’t always easy or convenient. Yes, it would be easier if some issues could be discussed in private first. … But keeping secrets undermines the public trust.”

And if the public’s trust was ever needed, it’s now – in the face of the nation’s worst pension predicament.

Thank you for your interest and attention.