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Count costs before boosting benefits

By JIM WATERS

Guest columnist

Senate Bill 151 (SB 151), the pension-reform law being challenged in a case the Kentucky Supreme Court will hear later this month, made so few changes to teachers’ benefits that Attorney General Andy Beshear — obsessed with hijacking protests over the bill for use in his gubernatorial campaign — wound up raising issues that unwittingly assist reformers’ demands that the law be followed when benefits are enhanced.

For example, Beshear claims the bill violates Kentucky Revised Statute 6.350 (KRS 6.350) requiring an “actuarial analysis” of the cost of any “bill which would increase or decrease” pension benefits.

But if challenges using the argument of a missing cost analysis are legitimate when benefits are reduced, doesn’t consistency and fairness demand such concerns also be offered regarding proposals raising them?

Yet since KRS 6.350 passed in 1980, legislators have approved numerous raises in benefits without so much as a second thought given as to their future costs.

Take, for instance, generous enhancements in 1983 for teachers and school administrators, including raising their benefit factor from 2 percent to 2.5 percent — a colossal amount considering it’s an accumulation of a percentage of an employees’ final average salary multiplied by each year they work and funded at that higher level for every year of their retirement.

Pensions for teachers and administrators awarded a 2.5 percent benefit factor for each of 27 years’ work will be 67.5 percent of their final average salary in retirement versus the 54 percent they would have earned with the lower 2-percent factor.

Multiply that huge hike in benefits by the more than 70,000 active TRS members, and taxpayers have a much-higher pension bill, especially considering there are numerous ways of fattening future benefit checks to the point that many retirees garner higher spendable incomes during their first year of retirement than they earned their final year on the job.

That benefit package in 1983 made a university graduate who enters the teaching profession when 22 years old eligible for retirement at the ripe ancient age of 49 and greatly enhanced her benefits when retiring at midlife – all without an actuarial cost analysis, despite politicians having promised such evaluations only three years earlier.

Also that same year, the benefit factor was raised to 3 percent for TRS members who work for 30 years.

Plus, those who are at least 55 years old and work for 27 years are allowed to use their highest-three — rather than the previous highest-five — years of salary to further enlarge their pension checks. 

The Legislative Research Commission could produce only one cost analysis despite at least nine different benefit-factor increases for state and local workers in non-hazardous jobs since KRS 6.350 passed 38 years ago.

Numerous other hikes like COLAs and health-insurance benefits have also been granted without the required analysis.

While Beshear’s Democratic Party is largely to blame for violating KRS 6.350 during their legislative control throughout the years, some longtime Republican leaders also seem all too willing to downplay the lack of cost analyses.

GOP House Speaker Pro Tem David Osbourne’s bobbing and weaving when asked to respond about the missing actuarial analysis on pension legislation included claiming past “court rulings on the issue” lessen the importance of KRS 6.350 by making it a procedural rather than a legally substantive issue.

Voters will decide if this “we didn’t find out what pension changes would cost because we didn’t have to” approach is politically acceptable — especially considering the commonwealth’s retirement system is reeling under $60 billion-and-growing worth of liabilities.   

One question they might want to ask their political leaders: Shouldn’t we know what pension changes cost, even if the law doesn’t require it?

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 jwaters@freedomkentucky.com and @bipps on Twitter.