Time to reform public pensions in Kentucky

The issue on which former Kentucky Gov. Matt Bevin was strongest is probably the issue that caused his loss in his 2019 re-election campaign.

Bevin constantly talked about how Kentucky's chronically underfunded public pension plans for government employees and public educators were a ticking time bomb in the state's financial well being. For years, the state failed to adequately fund pensions to meet their obligations. Not only did he stress the need to provide adequate funds, but he pointed out that the current system was unsustainable and needed to be reformed, as a dwindling number of current employees could not continue to keep the pensions of a growing number of retirees afloat.

One on one or in small groups, Bevin was meticulous and eloquent in explaining the situation. He noted how prior governors (dating back to Paul Patton) had failed to include full pension funding in their budgets they submitted to the legislature, and how the General Assembly had failed to add in adequate funding. He constantly stressed that government has a legal, financial, and moral obligation to pay retirees and current employees what they're owed. And he also pointed out that something is going to have to be done if future employees are to have a retirement plan.

The state manages several different pension systems, all with varying degrees of financial health. But there's a key difference between one of them -- the retirement system for teachers -- and the rest.

When Social Security was established, for whatever reason, the teachers retirement system declined to participate. Teachers don't pay into Social Security, and thus are unable to draw when they retire. And unless they have worked other jobs where they do pay into Social Security for a substantial period of time, they aren't entitled to draw. Even then, there are limitations on how much they're eligible for.

As previously noted, Bevin was great at explaining the pension situation on a small scale or individualized basis. But, facing a hostile press corps, his public statements on the matter were twisted and misinterpreted by reporters, and his remarks and proposals were savaged by teachers who didn't understand the problem.

Most current state employees -- think those who drive snowplows, patch potholes, process unemployment claims, investigate child abuse, etc. -- will draw not only their defined benefit pension, but Social Security. Since teachers don't get Social Security, they're adamant about future hires not being moved from their current system to a 401(k)-like defined contribution plan the way newly-hired state workers were a few years ago.

Word has it that when a pension reform plan was being formulated a few years ago, it would have moved future teachers into the same type of system as now exists for the new tier of state workers. Teachers would have become eligible for Social Security, and their state pension plan would be a defined contribution plan. But for whatever reason, that proposal was rejected by the Kentucky Education Association.

Since then, Kentucky may have changed governors, but Republicans have strengthened their hold on the legislature. They passed a pension reform bill two years ago, but it was overturned on a legal technicality, not on the merits of the bill itself. The General Assembly hoped to readdress the matter last year, but the session was cut short by the emergence of the Wuhan Chinese virus and legislation ground to a halt.

Now, when the legislature comes back into session in February, they're said to be again looking at pension reform. Bevin's not around to be the villain anymore, and the legislature can definitely override any veto Gov. Andy Beshear may issue. This may be the best time to enact real, meaningful reform that preserves and protects the existing system while ensuring stability and availability for all future employees.

At a minimum, here's what needs to happen.

• Fully fund the existing systems for current employees and retirees. Under Bevin, pensions were fully funded by the state for the first time in years. The state must continue to provide the actuarially-required contribution to keep the funds solvent, especially since the various pension funds' investments may not survive a stock market crash.
• Fund those systems using existing revenue streams. Various education groups, including KEA and "120 Wrong," like to shout, "Find Funding First!" In other words, they're advocating for tax increases to fund the pensions. But taxpayers balk, and rightly so, when their tax dollars go to provide retirements for others that are better than their own retirement plans are or will be. If you're going to have to get by on Social Security or what you've managed to save, why would you want to prop up someone else's retirement plan? In addition, the economy is fragile enough now as it is due to the goverment's response to the virus. People are out of work and businesses are closing. They certainly can't afford tax increases, especially when that money will go directly into the pockets of those who really haven't been impacted by the government-ordered closures or limitations.
• Move future teachers into a Social Security plan. There is no reason not to do this. And it would prove beneficial to them if they come from, or move to, jobs where they do pay into Social Security. It makes no sense for teachers to be treated differently than social workers -- or, for that matter, teachers and other certified school staff and the classified employees, such as janitors, cooks, and bus drivers, who participate in the County Employees Retirement System (an offshoot of the state employees system) and thus pay into and draw Social Security. If this is done, then future hires can be enrolled in a defined contribution plan since they'll have Social Security as a backup, just as newly hired state employees do.
  
• Increase the retirement age and/or years of service requirement for eligibility to draw full retirement benefits. The current levels are ridiculously low. As of now, a state employee or teacher can retire after 27 years of service with full benefits. That means, if you start work when you're 23 years old, you can work 27 years and retire when you're 50. If you live until you're 80, you'll have drawn benefits longer than you worked. This contributes greatly to the system's unsustainability. And there are a large number of employees who work that minimum, or buy time and work even less, and then retire with full benefits and go to work in the private sector, often making more money than they did on the public payroll. Requiring 30 years of service before retirement is entirely reasonable. A 35-year requirement is even more so. Requiring that same 23-year-old to work 35 years means they'd retire at 58, which is still a lot younger than the retirement age for many private-sector employees.

It will be interesting to see how any reform efforts play out in this legislative session. It's a short 30-day session, and the General Assembly has to tackle a one-year budget because last year's biennial session got cut short. There are a number of other matters that need addressing, and the body may have to take up impeachment of the governor after a citizens' petition was filed. And they will have to get all this done quickly enough to leave time to come back to override any gubernatorial vetoes that may be issued.

But pension changes need to come sooner, rather than later. Politicians kicked that can down the road far too many times. Bevin was prescient on the issue, but his inability to get the point across to the general populace just delayed what must be inevitable. If Bevin had enjoyed the chance to make the case for reform on a smaller scale, without the hostility from the press and those who willfully misrepresented his goals, it could have been done by now. But the opportunity is now before the legislature, and they need to take advantage of that chance before any more damage is done.