Teachers paid for their pensions; Kentucky failed to do the same

Published 10:27 am Thursday, September 28, 2017


Ky. Retired Teachers Association

Bob Martin’s Sept. 21 column, “Kentucky’s pension problem stems from defined benefits system,” is poorly researched and obviously failed to examine the fiscal history and performance of our pension systems.

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Mr. Martin claims that pension systems, by nature, are unsustainable retirement programs and that this is the reason for our current woes. Yet, for more than 60 years, Kentucky’s pensions were fully funded and fiscally healthy. A combination of poor actuarial assumptions and a lack of contributions by our State Government from 2004 to 2016 created this “mountain” of unfunded pension liabilities.

Yet, since establishing the Teachers Retirement System (TRS), teachers have contributed roughly 10 percent of their salary every year — no missed payments. Even with aggressive actuarial assumptions, the commonwealth didn’t even make those payments.

The State of Kentucky essentially borrowed money needed for the pensions to fund other priority projects and programs. I encourage Mr. Martin to actually read the PFM report.

Mr. Martin incorrectly claims that switching to a 401(k) defined contribution plan will basically solve our pension issues. However, three states that converted to a 401(k) defined contribution plan — Michigan, Alaska and West Virginia — all saw dramatic increases in their unfunded liabilities. When payments stop coming from new teachers and are directed into a 401(k), the problem gets worse.  

Mr. Martin also presumes that you can get much more sophisticated investments under a 401(k) plan. The reality is your investment choices are limited and administrative costs more expensive. According to the National Institute on Retirement Security, Pensions deliver retirement income 48 percent cheaper than traditional 401(k) plans. Economies of scale means pension plans can invest in a much broader array of investments whereas a defined contribution plan offers limited fund investments. The TRS has averaged 8.1-percent return on investment for the last 30 years and is nationally recognized for its practices.

Pension plans are not sustainable if one of the parties — in this case, the state of Kentucky — refuses to contribute its required amount to the pension plan.

After 13 years of abdicating its fiduciary responsibility to the more than 51,000 retired teachers, now Frankfort wants teachers to bail them out by writing off its debt. While Frankfort is able to deliver almost $800 million in corporate tax incentives since 2012, they don’t have money to pay their debts.

We already had to deal with a massive bailout in 2008 — we need to teach Frankfort that they have to pay their debt like everyone else.

Tim Abrams is executive director elect of the Kentucky Retired Teachers Association.