State can mitigate pension problem by paying what it promised
As a retired teacher, I am alarmed by the drastic changes proposed by our recent consultants. However, since I have a personal stake in this matter, I’d like to paraphrase from another plan proposed by a financial and public administrative advisor from the Kentucky Center or Economic Policy, Jason Bailey.
PFM (recent commission) asserts that the method of calculating contributions as a percent of pay, an industry standard, is faulty. To sustain the system, the state must ensure a growing workforce and their salaries, not cut staff and benefits which would undermine this contributing workforce. None of the 127 plans studied by the National Association of State Retirement Administrators used as a median expected return lower than 7.52 percent, which the PFM did.
CERTS (county employees) and TRS (teachers) are better funded than KERS (state employees). The state’s failure to fund its share of TRS resulted in its being underfunded. Yet, it still earned 8.1 percent over the last 30 years and earned 15.4% return last year because the state stepped up to pay more of its share. These funds should be ok as long as the state meets its share yearly and phases in increases around 50 million to cover the years the fund’s obligation wasn’t met.
KERS is in a more peril. Yet again, PFM estimates the increase funding need to be 474 million. However, the state could stabilize the fund and prevent negative cash flow by paying the required matching funds for each year’s benefits. This would free up $2 billion in assets from being liquidated to meet yearly demands. Yes, this fund would need a strong influx of cash, but more in the area of 245 million as opposed to 474.
Why should the average person care? To attract and retain qualified public servants and prevent reduced retiree spending in local economies, we must fix the pension. We must also increase revenue growth with tax reform.