Pension plan cools, but freeze still needed
Published 9:02 am Wednesday, November 1, 2017
By JIM WATERS
While waiting this summer for the release of a consulting group’s recommendations on addressing Kentucky’s worst-in-the-nation public-pension crisis, the question arose in this column: Will there be a great pension freeze?
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The column asserted that “the only way Kentucky will survive this fiscal storm is by freezing benefit-accrual rates for all members of every system, and resetting the pension plans” so that in the future “benefits are awarded based on their relationship with investment returns and payroll contributions rather than the warm, but deceptive, weather of political palatability.”
The answer delivered at Wednesday’s unveiling of highlights of future legislation: there’s not a freeze but things are cooling down a bit, but at the rate of a worn-out air conditioner in an old car on a blistering hot day.
Still, get up close and there could be some measure of relief, depending, of course, on what cuts get left on the legislature’s floor.
The plan proposes ending the defined-benefits plan for all current and future legislators, putting them into a 401k-style plan, just as new employees in all plans will be offered beginning on July 1, 2018.
While Frankfort’s politicians have been falling all over themselves to make sure retirees know they won’t lose benefits they’ve already received, they’ve also been acutely aware of the ongoing unpopularity of their own gold rush-like pension plan and agreed to take steps to claw back grossly lavish benefits handed out to retired lawmakers.
“Existing defined benefit members and current retirees will have their benefit calculation based on their legislative salary,” said the document handed out Wednesday.
Does this mean that former big-spending Democratic House budget chairman Harry Moberly will be forced to give up a substantial portion of his $154,912 public pension?
Let’s hope so.
Moberly’s pension was greatly padded thanks to legislation passed in 2005 allowing part-time lawmakers to apply their three highest years of salary in another plum government position to the retirement checks they draw on the legislative pension system.
If Moberly and other self-serving political retirees want to fight that claw-back provision in court, I’m getting my reservation in now for a front-row seat in a Frankfort courtroom.
I can hardly wait to hear them defend keeping their extravagant benefits, which are based on their own personal votes for bills creating such opulence.
Bring it on, Harry.
The new pension proposal also takes a small step toward getting the cost of health-care benefits under control by requiring all employees to contribute an additional 3 percent of their salaries toward retiree health care benefits.
However, a full blast of cool requires replacing one of the main elements of this plan, which still allows beneficiaries to allow current beneficiaries in the systems to “continue to accrue full unreduced retirement eligibility” until they’ve reached 27 years of service.
But who in their right mind would agree to any pension plan that adds more unfunded liabilities to Kentucky’s worst-in-the-nation pension crisis, which has been pegged with being as deep as $85 billion in the hole?
This is where I barely feel any cold air.
At the very least, we must reset the system for current beneficiaries, recalibrating pension-benefit factors based on actuarially sound assumptions, not just what they happened to be last year.
We’re facing the stark possibility that Frankfort will need to find an additional $2 billion in future budgets to effectively address the liability.
Where will this money come from?
Before taxpayers let Frankfort anywhere near our wallets and purses, there must be a breaking of the silence concerning how past irresponsible retroactive benefit enhancements and promises of future such enrichments have been a primary contributor to Kentucky’s unfunded pension liabilities.
By refusing to acknowledge that failure, the new proposal neglects to include safeguards to ensure Kentucky’s dark pension history doesn’t repeat itself.
Jim Waters is president and CEO of the Bluegrass Institute for Public Policy Solutions, Kentucky’s free-market think tank. He can be reached at email@example.com and @bipps on Twitter.