News Release: Funding a minor contributor to pension crisis

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For Release: Monday, March 5, 2018

(FRANKFORT, Ky.) –– “Inadequate funding” is a popular claim often repeated by defenders of the status quo regarding Kentucky’s $65 billion public-pension crisis. However, facts assign a much-larger role to the failure of the retirement systems’ benefit structures to protect the commonwealth against risks and costs of crushing liabilities.

“It’s easier to simplistically claim more dollars will magically solve Kentucky’s pension problems than to face the daunting and politically perilous task of changing how benefits are determined and awarded,” Bluegrass Institute president and CEO Jim Waters said. “Senate Bill 1 (SB 1) filed last week reflects a commitment by legislative leaders to face reality and implement consequential reforms.”

A new policy brief by the Bluegrass Institute Pension Reform Team supports SB 1’s proposal to place all new workers in a cash-balance plan and address costly abuses of the current system as an acceptable compromise between ideological proponents of 401k-style plans and those who advocate for continuing the current and unsustainable defined-benefit plan. The status quo is wholly unacceptable as it continues to retroactively award benefits at arbitrary and unsustainable levels while promising such enhancements will continue in the future – practices which have greatly weakened the systems.

“The definition of economic insanity is to keep doing the same things the same way – including continuing to kick the pension-crisis can down the road – and expect different results,” Waters said. “Despite lifting rocks big and small looking for every available dollar to pour into our public retirement systems – including deep funding cuts for education and health-care programs – while spending record amounts to shore up the commonwealth’s retirement plans, liabilities continue to worsen, threatening our state’s economic security.”

Even the systems themselves acknowledge that funding, which will comprise nearly 15 percent of the General Fund with plans to include $3.3 billion for public workers’ retirement benefits in this year’s biennial budget, is a minor contributor to Kentucky’s pension fiasco.

Senate President Robert Stivers, R-Manchester, during Wednesday’s initial committee hearing on SB 1 noted an internal study by the Teachers’ Retirement System covering 2008-2013 “was only 9 percent of the problem” while “systemic problems … in KTRS accounted for 91 percent of the problems over a six-year period. So even if the funding had accrued at the level requested, there would still have been 91 percent of the unfunded liability based on systemic problems.”

We strongly support President Stivers’ attempt to expand the scope of the pension debate to include addressing structural weaknesses in the systems, including how retirement benefits are determined and awarded.SB 1 reflects this concern by suggesting steps to bring some fiscal sanity to current pension-spiking practices, including capping the use of unused sick days to increase lifetime pension benefits, incentivizing teachers to work longer before retiring and reducing future automatic cost-of-living increases for TRS retirees.

The bill also contains reforms to lawmakers’ pensions, including stripping egregious benefits from retired politicians who voted for past legislation allowing them to pad their own retirement checks by getting appointed to other high-paying government positions.

“Even with the reforms in SB 1, it will take a generation or more to pay off the deficit,” Waters said. “Being willing to offer these substantial reforms in a challenging election year is an example of the kind of political leadership it takes to bring Kentucky’s retirement systems back from the economic abyss.”

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.