Future Shock: Legislators stoking the coals on Kentucky’s runaway pension train
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For Immediate Release:
Contact: Jim Waters
Thur., Jan. 5, 2012
270-782-2140
Future Shock: Legislators stoking the coals on Kentucky’s runaway pension train (right-click & save target as...)
A failure to meet pension-payment requirements 11 of the last 15 years leads to a 3,000 percent increase in the Bluegrass State’s unfunded liability since 2000(FRANKFORT, Ky.) – A new Bluegrass Institute report cautions that a failure to enact meaningful reform of Kentucky’s public pension system threatens to crowd out essential government services, including public safety and education. The report is the second of the institute’s four-part “Future Shock” series and chronicles the disintegration of the commonwealth’s six retirement systems. It urges lawmakers to undo past decisions resulting in unintended – and undesirable – results.
Addressing the deepening pension crisis “has become a societal issue,” writes Lowell Reese, the report’s author who also owns Kentucky Roll Call, a public affairs company, and is a former state Chamber of Commerce executive. “The standard of living of all Kentuckians is at stake.”
A failure by the state to properly fund, manage and maintain Kentucky’s retirement systems has deepened the commonwealth’s unfunded pension liability from less than $960 million in 2000 – a manageable amount – to $31.4 billion in 2010, Reese said.
He notes several issues that any successful reform must address:
Our six state pension plans are currently underfunded by more than $31 billion. The Legislature plans to continue underfunding each plan’s annual Actuarially Required Contribution (ARC) for several more years, some as late as 2024. This underfunding will cause the pension deficit to continue to balloon, putting more pressure on the commonwealth’s economy, diminishing the ability to grow jobs and leaving tax hikes as the “most likely” source for needed funding.
Very soon, city and county governments will experience enormous financial pressure. Unlike state government, city and county governments must fully fund their Actuarially Required Contribution (ARC). The ARC rate for cities and counties has skyrocketed from 6.34 percent of payroll in 2003 to 16.28 percent today. It is projected to jump to 23.51 percent by 2018. The ARC for hazardous-duty jobs like police and fire protection has skyrocketed from 16.16 percent in 2003 to 32.9 percent today, and is projected to be 46.29 percent of payroll by 2018. Unlike the General Assembly, which has nearly unlimited taxing authority, local governments are greatly restrained in their options for new funding sources to close widening pension gaps.
Benefit creep. According to Reese, there are at least 41 different ways legislators have bestowed “overly generous retirement benefits on public employees, and they authored and allowed abuses for decades.” By gradually bumping these benefits up several times over the decades, legislators have added billions of dollars in additional benefits for which the cost is ultimately guaranteed by Kentucky taxpayers. Some examples include a typical 37.5 hour work week; 11.5 holidays a year; accumulation of more than six weeks of “comp time” to add to end-of-career compensation and enrich pension payouts; accumulation of months and years of sick leave; one full day to vote; and two full days a year to donate blood; hazardous duty employees may retire after 20 years, regardless of age; 11 years of no increase in the percent they pay for health insurance; and guaranteed pension payouts, despite the economic condition of the state or returns on market investments.
State pension plans are considered “inviolable contracts” by law. The pension plan in place the day a state employee is hired is guaranteed for life for them – and their surviving beneficiary – regardless of economic conditions or returns on market investments. The inviolable contract, through force of law, obligates Kentucky taxpayers to pay the bill no matter how big it becomes.
Kentucky’s pension plans are shrouded in secrecy. Public employee pay plans are public record and available on the Internet. Yet the day these workers retire, their pension benefits are hidden from public view even though they are predominately funded by taxpayers. To fully understand the abuses taking place – like double- and triple-dipping – pension benefits must be transparent and open to public scrutiny.
“While we recognize a tough economy has resulted in poor market returns on pension-investment funds, the reality is that past and present legislators made the decisions that led us into this mess and they are the only people who can make the tough decisions necessary to get us out of it,” said Phil Moffett, the institute’s president and CEO. “Strong leadership is needed to stabilize the system so it doesn’t continue to threaten our entire economy. As part of this series, we will offer free-market solutions that, if followed, will help address this problem in a productive way that protects current retirees and future taxpayers.”
For interview information, contact Jim Waters at 270-782-2140 or jwaters@freedomkentucky.com.