Community learns more about pension plan impacts on city, county
Published 8:16 am Friday, November 10, 2017
About 30 people listened as Tim Abrams with the Kentucky Retired Teachers Association shared some of the highlights of proposed changes to Kentucky’s pensions Tuesday night.
“I think if anything good has come out of this, it has shown people the importance of being involved in democracy. You do have a voice,” Abrams said to the group, more than half of whom were teachers and retired teachers.
He shared about attending an event in Bullitt County where representatives told attendees they no longer planned to vote for the bill because of the outcry they had heard from constituents.
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“We ask everyone here to call your representative, your senator, and let them know (your thoughts),” Abrams said.
Abrams was joined at the event, hosted by the Women’s Network, by Boyle County Treasurer Mary Conley, Danville City Clerk Donna Peek and Danville City Manager Ron Scott. Each shared information about how the proposed changes could impact their respective organizations and answered questions from the public.
Abrams said the proposal made by Gov. Matt Bevin includes components that the Kentucky Retired Teachers Association views as violating an inviolable contract, such as suspending cost-of-living adjustments, which he said is required by state law.
Other groups are attempting to work on alternative plans, he said. The Kentucky Retired Teachers Association would prefer the plan to remain as a defined benefit plan, which he called a “better plan” and a “more efficient way.”
“It’s important for us to stick up for the defined benefit for future teachers,” Abrams said. “It’s disingenuous to say, when we talk about the number of active employees versus retirees — that’s not how defined benefit plans work. Future employees aren’t paying for your retirement … With future employees not paying to the system, that money won’t be there for long-term investment.”
The state, he said, will have to pay more money in to keep the system afloat.
“If (Bevin) shuts this program down, they’re going to have to raise more revenue to pay for this,”Abrams said.
Abrams said he fears for future teachers. He has a daughter who is early in her career; friends of hers are looking to return to college to find a new career because of the proposed pension changes.
“That breaks my heart that we’re doing this to our young folks that want to teach kids,” he said.
He said another disingenuous statement being made was that all the parties were brought in to talk about the plan.
“That was somewhat true, but they didn’t ask for ideas, they told us what they were going to do and how they felt about it. We told them we couldn’t do anything until we saw the plan,” Abrams said.
He said there were obvious problems, such as limiting retired teachers to working 100 hours a month, even though schools don’t hire substitute teachers based on hours. Bevin’s plan also gives school districts the ability to “wipe out” sick days, he said. Those are two of several issues, Abrams said.
Educators have come up with an alternative plan proposal, which was discussed Monday at an event at Woodford County High School. Abrams referred to this plan, which would include:
• freezing sick leave credit for retirement as of June 30, 2018, meaning any sick days accrued after that would not count toward retirement plans;
• continue with a shared pay-in from the employees, the district and the state; if the plan fell below 95 percent funded, it would shift to the districts and employees to make up the differences; and
• offer voluntary, pre-tax contributions to a 403(b) plan and options on investment of those funds.
“It seems like a pretty good plan. We would like them to take a look at it,” Abrams said. “We don’t want it to be done in secrecy and for no one to know what it says.”
Abrams said another concern the KRTA has with Bevin’s proposed plan is that it brings all of the pensions under one “super retirement,” which would be under an 11-person board, 10 of whom are appointed by the governor.
“I don’t care who the governor is, that’s a lot of power and a lot of money,” he said.
He said the state brought in all those impacted to work on a shared responsibility plan for the Teachers Retirement System health insurance in 2010, at which time it had no funding, but was a pay-as-you-go system.
“In seven years, it’s at 21-percent funding … It’s well on its way to being fully funded,” Abrams said. “It’s disingenuous — people talk about having $6 million of unfunded liability. That’s misleading. That’s going down each year.”
He said that was one reason so many were upset.
Abrams was asked why Bevin was attempting to get the pension proposal pushed through quickly in a special session.
“I have no idea,” he said. “Almost half a million people in Kentucky will be affected by this in some way. Why are we going to make a knee-jerk decision to do something when you don’t fully know what the unintended consequences are going to be?”
He said there was another misconception that teachers all retire at 49 and live off a huge pension.
“There are few retiring at 49 and 50,” Abrams said. Now, the average teacher retires at 59 and live off a $36,000 pension.
“People will come back and say, ‘You all have these fluffy, nice pensions,’” he said, but reminded them that those pensions are Social Security-free. Most have a master’s degree in education, he pointed out.
In comparison, said Mary Conley, Boyle County treasurer, the average state retiree makes $20,000 or less, with Social Security benefits.
Abrams said the debate about Social Security couldn’t be solved at the state level and is not something teachers are refusing to do — it’s something that has to be worked on at the federal level, another misconception being spread around.
“I think as tough as this pension issue is, the tax reform issue is going to be uglier,” he said.
Conley talked about the difficulty cities and counties across the state will be facing. If no legislative changes occur, she said, they would see a more-than-50-percent increase in cost for each non-hazardous employee and an estimated 60.2-percent increase in cost for hazardous employees, such as police officers and firefighters, which would lead to a $633,000 increase in the county’s budget.
“The changes being discussed — many of those will only scratch the surface of taking care of our unfunded liability,” Conley said.
Someone asked Conley if the state was “shifting the burden” to the local governments.
“A lot of that is moving money around, and smoke and mirrors,” she said. While it might result in increased taxes, Conley said it won’t be possible to increase taxes to meet the level of unfunded liability.
“It’s a burden we’re going to have to deal with one way or the other,” she said, explaining it might result in staffing changes. She said it would also impact the number of retired individuals who have been rehired and those who are close to retirement. According to Bevin’s proposed plan, after July 1, 2018, if someone retires and later wants to return to work, their benefits will face suspension while they work. They also can’t build their retirement further.
“Where’s the incentive to come back to work for county government?” she said. “We’re still required to pay the employee and employer share, but they won’t get the benefit … these are some difficulties that we’re all going to have to deal with, not only in the school system but also in the county and city government.”
Conley quoted the Kentucky Retirement’s Annual Financial Report, which she said she found interesting.
“Pension benefits paid to retirees and beneficiaries of the Kentucky retirement systems have a wide-ranging impact on the state’s economic health. In fiscal year 2016, the Kentucky Retirement System paid almost $1.9 billion dollars to its recipients. More than 94 percent of these recipients live in Kentucky,” she said, reading from the report. “Not only do these dollars impact those receiving a benefit, but according to the National Institute of Retirement Security, each $1 paid out in pension benefits (generates) $1.43 in total economic activity in Kentucky.”
The report also states that the “consistent addition of pension funds is a stabilizing effect” on Kentucky counties, in spite of the unstable economy, she said, calling it “one of the most important things” to consider.
Donna Peek, city clerk for Danville, spoke after Conley and said she appreciated the willingness of teachers to be so vocal about the plan.
“Someone said something that rang true to me. ‘If not for teachers, this bill would have already been passed.’ So I appreciate all of the teachers standing up, being out there, making your voices be heard.”
Peek said hazardous-duty employees, such as Danville’s police officers, would not “take as much of a hit” as non-hazardous employees would under the proposed plan. Many law enforcement agencies in cities and counties in the state are paid non-hazardous duty, because some of the smaller government entities can’t afford the hazardous pay levels. That’s something that wasn’t considered, Peek said.
While non-hazardous employees would see a suspension of benefits if they started working in local government after retirement, hazardous duty employees would not. “I think that’s something that will have to change a little bit,” Peek said.
She attended an event in Somerset last week and representatives present said they did not plan to support the bill as written. “Hazardous duty has really put a wrinkle in the (plan),” she said.
Peek said it would impact the city if restrictions were placed on those that have been rehired after retiring, because the city has three such employees, two at the water plant. Replacing an employee with that “quality” of experience would be difficult, she said.
Conley said Boyle County has several of those kind of employee, including many working as court security.
“Because of this scare, we are losing employees … Most of these people retiring are running the show. We’re losing a lot of key people,” she said. “That ultimately affects the way we do our job for you.”
Peek said there was already a backlog in getting new hires, especially in the police department, and in getting people through retirement. “(The plan says) we have to have this ready to go July 1. How do cities fund that? You’ve got to get your system ready. What about Kentucky Retirement? Nothing against them, they just don’t have the employees to make it work,” she said.
Conley called it a “mass exodus.”
Under the proposal, those who retire before July 1 have to wait three months before being rehired and won’t have to stop their pensions; those who wait until after will have to wait six months, Peek said.
City Manager Ron Scott said the governor is “committed” to getting a plan passed.
“It’s highly probable something is going to pass,” he said. “He’s emphatic he’s not going to back away from this.”
Repeating similar conversations from teachers, Scott said the cities and counties were being forced to make up for some of the unfunded liability. “We made our required contributions on time every year. It’s the state who didn’t,” he said.
If the city is required by the state to make up for an unfunded liability, that cost could be as high as $750,000, Scott said.
“We can’t find enough money to pay the rates that have been proposed so far,” Scott said, adding that he was hopeful to find a way to spread the cost over time.
Danville might have to consider contracting certain kinds of work out, but not everything can be done in that way. Scott said he didn’t see where rushing into a plan was a good solution either, but that he thought it would be “difficult” for the General Assembly to not follow Bevin’s lead.
“Does it need to be addressed? Yes. Rationally and reasonably,” he said. “… not at the cost of retired employees who weren’t paid a lot of money and counted on that and depended on that for some basic quality of life.”
Scott said if Bevin’s plan was approved, he feared the city would have to raise pay to attract employees, since the retirement plans would no longer be as attractive.
“There’s two things that attract employees to city work. One, you want to do public service, serve the public. It’s not glamorous. The other, in terms of monetary, it’s not pay, it’s the retirement … If we do not have the pensions, if we go to the 401(k), that means we’re going to have to raise salaries, to have a meaningful percent of that to put away,” Scott said. “When your water goes off at 2 a.m., you’re going to want someone to go out there and fix leak or respond and do the things that are essential to citizen safety and comfort.”
SO YOU KNOW
For more information about the Kentucky Retired Teachers Association’s stance on the proposed pension changes, visit teachfrankfort.org.
The full plan is available for viewing on www.amnews.com.