Pension-reform reset: A win-win for teachers, taxpayers
By JIM WATERS
If, as numerous rankings indicate, Kentucky is a physically unhealthy state, we may be an even- unhealthier commonwealth when it comes to our public pension systems.
Despite dumping a greater portion of the state budget into the public retirement systems than at any point in history, those systems still languish with hazardously low funding levels.
No plan reaches the 90 percent funding level considered healthy by experts.
Neither the Kentucky Employees Retirement System (KERS), County Employees Retirement System (CERS), Teachers’ Retirement System (TRS) nor State Police Retirement System (SPRS) reach even 60 percent funding levels, meaning those systems’ assets don’t even come close to fulfilling promises made to future retirees.
There’s been so much incorrect information spewed about the retirement crisis that the Bluegrass Institute for Public Policy Solutions, the organization I’m honored to lead, has created KentuckyPensionTruth.com, a new website to help Kentuckians understand how we arrived at this point and provide a clearinghouse – a one-stop shop, if you will – of public pension research, analysis and commentary from around the state and nation.
One of the site’s most important sections are readable answers to 22 Frequently Asked Questions.
Question No. 21 of those FAQs simply queries: “So what’s the answer?”
“Simply keeping the current employee benefit structure in place and only increasing payments to fund the ARC won’t solve the problem,” the answer states.
So what will?
We include a paradigm that hits the reset button for the TRS by creating a new plan for future teachers, which will provide them a generous, stable and mobile retirement plan while also protecting taxpayers from another mountain of pension debt like we face currently from rising in the future.
Some key points about the plan:
• Stability is achieved by requiring a 9 percent payroll contribution from members while the state’s portion would be set at 6 percent, which, unlike the current arbitrary funding approach, would never change.
• Members would assume a greater risk in exchange for a more stable system offering still-generous benefits.
Rather than taxpayers being on the hook for downturns in the stock market or other negative scenarios, the system uses a process to control costs by adjusting benefits and retirement eligibility in future years.
This will keep the system’s funding demands within a narrow pre-determined range and prevent unfunded liabilities from burdening future generations of taxpayers and employers.
By offering a 2.5 percent benefit factor for each year of service, teachers who dedicates 30 years to Kentucky classrooms will receive a retirement benefit equaling 75 percent of the average of their five highest years’ salary and 80 percent for 32 years of service – generous benefits according to industry standards.
• While the 9-percent contribution is similar to what employees currently pay, this new plan doesn’t include benefit enhancements tacked on in the past by past politicians using the pension systems primarily for personal political gain, courtesy of Kentucky’s taxpayers.
For example, this new paradigm locks in teachers’ benefit factor at 2.5 percent and would not allow that to rise to 3 percent after 30 years in the system – as the current defined-benefit plan does. But neither does it start a teacher out at a lower level of benefit, which some in the current system have experienced.
Also, it doesn’t allow retiring teachers to utilize sick days in order to spike pension benefits for the rest of their lives nor determining pensions based on the three highest years of salary rather than the highest five.
Making these changes alone will save millions, if not billions, as we cease placing new teachers into a failed system, reduce political infighting and provide TRS retirees with more stability, security and generosity than experienced by most Americans in either the public or private sector.
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 firstname.lastname@example.org and @bipps on Twitter.