GOP plan doesn't fix pension debt
Over the last two days, Gov. Matt Bevin has taken to the conservative airwaves saying he and the Republican supermajority have a pension reform plan that will move new hires into a defined-contribution 401(k)-style system. What he didn’t reveal were any plans to identify new revenue sources to address the glaring funding shortfalls or discuss the high cost associated with a transition into a 401(k)-style plan.
Instead of speaking to state media about his plan, Bevin was interviewed Monday by FreedomWorks, a conservative organization originally founded as Citizens for a Sound Economy in 1984, that promotes “a desire for less government, lower taxes and more economic freedom.”
Bevin said he would call a special session in the next couple of weeks with a proposal for moving new hires to a defined contribution plan to address the continuing unfunded liabilities in the state pension systems.
“We have an obligation and we do not have that money (the unfunded liabilities),” Bevin said. “It’s a ridiculous amount of money we owe. To fix this, will require a 30-year fix...you can’t perpetuate an insolvent system. Some of the people most adamantly opposed (to the proposal) are those that don’t just understand it.”
Bevin told FreedomWorks and later 84 WHAS’ Leland Conway on Tuesday, he and state lawmakers have met over the last few months for up to six hours at a time and the proposal would also affect state employees who decide to stay “above and beyond,” their expected retirement date.
While the estimated unfunded liabilities currently are at $40 billion, Bevin told FreedomWorks the state could be on the hook for as much as $80 billion.
When considering how this will not only affect current retirees if their pension system is closed, the economic impact on communities in which they live and spend money and the quality of the state’s upcoming workforce, Bevin and the Republican lawmakers touting this proposal are inflating the problem with a difference between $40 billion and $80 billion.
Most notably, the proposal doesn’t address ways to fund the pension funding shortfalls or the costs associated with transitioning to a defined contribution plan and doesn’t take into account the devastating effect the transition costs would have on an already weakened state budget.
When considering the costs of transitioning to a 401 (k)-style system in Michigan where it had an estimated unfunded liability of $26.7 billion in 2015, its Office of Retirement Services (ORS) estimated the costs for the transition in the first year would be $591 million and increase to $2.1 billion in five years.
According to the report, once a pension system is closed, the system has less investment power. A copy of that report obtained by the Kentucky Government Retirees group can be found here.
The Kentucky Center for Economic Policy noted also in its study that “because of portfolios less balanced by workers of different ages,” the experts have estimated it to cost between “42 percent and 93 percent more for a defined contribution plan to provide the same level of retirement benefit as a defined benefit plan.”
The Kentucky Democratic Party has also made open records requests for the legal and structural considerations made by the PFM Consulting Group who has cost taxpayers $1.1 million to date.
We requested “copies of documents referenced to as an analysis, legal or otherwise, during the public hearing of Kentucky’s Public Pension Oversight Board (PPOB) on August 28, 2017, where the Pension Performance & Best Practices Analysis Reports presented by PFM Group Consulting LLC cited recommendations of Kentucky’s inviolable contract policies,” and any documents used to “support the overall recommendations, and any correspondence with employees of Stites and Harbison PLLC specific to this public report,” and correspondences with State Budget Office Director John Chilton, the law firm and state officials.
The Governor’s Office Deputy General Counsel Michael Alexander responded to the request saying the office had found 57 pages of responsive email records with some attachments and had located an 11-page “preliminary draft plan restructuring and legal analysis” with a five-page preliminary draft memorandum from the law firm of Stites & Harbison dated May 12, 2017.
Alexander responded that all the requested records were either preliminary drafts exempted from open records request or fell under client and attorney privilege.
While the FreedomWorks interviewer touted state pension shortfalls across the nation at $1.1 trillion, it should be noted that Bevin instead corrected him quoting upwards of $4 trillion as touted by the American Legislative Exchange Council (ALEC), the conservative group who annually hosts a conference pushing its agenda and pre-drafted bills to lawmakers across the nation, which Bevin attended this summer.
ALEC, as noted in the link above, has pushed for states to do away with pensions and move to defined contribution, 401(k)-style plans for several years. It shouldn’t also surprise Democrats to note ALEC has advocated for such issues as charter schools.