Pension reform under GOP control means cuts to benefits not new revenue
Michael Nadol of PFM Consulting Group didn't deliver any dedicated revenue streams to Kentucky lawmakers for state pensions, but cuts to benefits.
At the sake of losing seats in the midterm elections, the Republican supermajority and Gov. Matt Bevin have taken tax reform, as a way to generate new revenue, off the table and put retiree benefits and current benefit plans on the chopping block.
Monday, an independent consulting firm gave its recommendations for fixing the state’s pension challenges by suggesting such drastic changes as removing cost-of-living adjustments paid to retirees, pushing current state employees, teachers and new hires into a 401(k)-style system and increasing the retirement age to 65.
During his Commonwealth Address, Bevin said tax reform and pension reform must be addressed at the same time. After pushback from House Republicans, who took the majority in the last election, meaningful tax reform will most likely not be addressed until after any state Republican primaries for fear of challengers championing anti-tax issues.
According to the Institute of Taxation and Economic Policy, Kentucky’s middle class pays up 10.8 percent of state and local taxes. Kentucky’s lowest earners — those who make less than $16,000 annually — pay 9 percent in taxes while the state’s top earners pay the least at 6 percent. Meaningful tax reform would address the tax burden on the state's middle class and generate more revenue by an increased tax share on the state's top earners.
* source Institute of Taxation and Economic Policy
The governor has taken to the airwaves and social media over the past several days shaming retirees for their earned benefits and Kentucky’s teachers saying they are “hoarding” sick time for pension spiking and are always looking for a way to game the system.
During a livestream Q & A, session Bevin shamed a middle school teacher and attacked Kentucky teachers again after the question was raised of what would happen if the 40 percent of Kentucky’s teachers who were eligible to retire did so. See video below.
For the presentation the consultants gave to lawmakers visit http://bit.ly/2xwtTxN
For the full pension recommendations report visit http://bit.ly/2xw4hRA
For the state budget director’s presentation visit http://bit.ly/2xvI0nf
Law enforcement officers, EMS and firefighters react to the consulting group’s recommendation of increasing the age of retirement to 60.
What you need to know
The pension audit recommendations Bevin and the GOP hope to peddle during a special session include:
• raising retirement age for hazardous employees including law enforcement and first responders to 60 in order to get full benefit package;
• raising the teacher and nonhazardous state employee retirement age to 65;
• put teachers into a Social Security and defined contribution plan and passing on the costs of shifting teachers into Social Security to local school boards;
• remove the option for current teachers and state employees to use accrued sick time or compensation leave as an increase in retirement benefit payments;
• eliminate pension benefit payments from cost of living adjustments between 1996-2012 which the consulting group said could affect retirees’ benefits as much as 25 percent or more;
• a recommended freeze to current workers’ pension benefits and moving them into a 401(k)-style defined contribution plan for the duration of their career;
• they encouraged a buyout as an incentive to move state workers to the proposed defined contribution plan;
• it’s been estimated to cost 42 percent to 93 percent more for a defined contribution plan recommended by the PFM audit group;
• in 2015, Kentucky hired an actuary that said it would cost more to shift teachers into the proposed plan.
Kentucky Retirement Systems’ quick facts
•The average annual benefit for a state retiree from the Kentucky nonhazardous pension system is $16,200 annually;
• in the last 15 years, according to KRS data, the number of active employees in the nonhazardous pension plan has decreased by 9,659 members;
• as a result, the number of retirees has increased, outnumbering the active employees paying into the fund. A defined benefit plan, like a 401(k) wouldn’t increase any funding levels. You take employees out of the system paying for benefits and you decrease employee funding while the state still seeks ways to fund liabilities;
• the ailing nonhazardous plan was fully funded in 2002 with the largest funding gap occurring in fiscal year 2014 with a recommended 32.57 percent contribution rate compared to the actual 17.29 percent contribution rate it received;
• the annually required contributions by the state have since only been paid twice: once during the Beshear administration and most recently by the Bevin administration;
Kentucky Teacher Retirement System quick facts
•Average annual retirement benefit for Kentucky teachers is $36,244 as they don’t receive Social Security.
•The average retiree age of teachers excluding those claiming disability is 59.
•One aspect not in the inviolable contract on the table is accrued sick days teachers have upon retirement. Accrued sick days are multiplied by 30 percent of a teacher’s final daily rate and added to their benefit.
•The average amount a teacher receives as a result of accrued sick days is less than $250 per month, according to data collected by KTRS over the last two years.
•Over the last two years, about 70 percent of the teacher retirees received extra funds as a result of accrued sick days.
•For 42 percent of the teacher retirees that received an increase as a result of accrued sick days, the increase was less than $100 per month.
•According to the KTRS data, 32,267 teacher retirees received an increase as a result of accrued sick days over the last two years.
•Out of the 32,267 retired teachers, 70 percent received an increase under $250 per month.
•Additional break downs in the two-year data is as follows:
$250-$500 per month 20 percent;
$500-$1,000 is 8 percent in last two years;
$1,000- $1,500 is 1 percent.
•As of June 30, 2016, the teacher retirement system’s pension is funded at 54.6 percent.
•It received $973 million in additional funding for the current biennial years, or 94 percent of the funds it requested.
•According to KTRS, it will request an additional $15 million for each biennium.
•For fiscal years 2015 - 2016 it had a $14.5 billion unfunded liability.