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 titled “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.
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 lifetime retirement checks.
Nadol’s group says the state should instead “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.”
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 www.bipps.org. He can be reached at firstname.lastname@example.org and @bipps on Twitter.