By state Reps. Joe Graviss, D-Frankfort, and Buddy Wheatley, D-Covington
With Gov. Bevin expected to call a special legislative session soon to pass his public pension plan, we are reminded of Henry Ford, who famously said his customers could have cars painted “any color, so long as it’s black.”
For weeks now, the debate has focused solely on the governor’s bill and a few tweaks he’s made. Legislators have been told that he wants an up-or-down vote on his bill, specifically, and that we would be free to make additional changes in 2020. But there are other, less bumpy routes leading to the same destination.
The two of us serve on the General Assembly’s Public Pension Oversight Board and have a thorough understanding of the damage the governor’s bill would do if enacted. We share the same goal of protecting our public health departments, rape crisis centers, domestic violence shelters, regional public universities and other quasi-governmental agencies from a crushing 68 percent increase in pension costs, starting in July. This bill, however, is not the way to do it.
Governor Bevin’s bill offers these critical agencies and universities massive debts; costs taxpayers hundreds of millions of dollars; harms the nation’s worst-funded public retirement system; and it would severely undermine retirement security for potentially thousands of career employees who have dedicated their lives to public service – not to mention it would face likely legal challenges which would put us all back to square one.
The governor’s plan freezes these agencies’ payments to Kentucky Retirement Systems for a year, and we agree on that. It’s the long-term fix we differ on.
Our recommendations – think of them as different colors on Henry Ford’s Model T – are faster, cheaper, and far more legal.
The first necessary change is slightly increasing the projected investment target that KRS uses for the fund that these quasi-governmental agencies and state government pay into.
The KRS Board of Trustees dropped the rate dramatically in 2017 to the lowest in the country, when that decrease should have been phased in over years. We propose moving it up slightly, where it still remains the lowest public retirement plan target in the country, but more closely aligns with KRS’s actual investment experience over the last decade.
Second, our plan recommends an annual payroll growth of 1%, versus the 0% KRS now uses. State government has already shrunk to levels not seen since the 1970s, but basing pension contributions on 0% growth over the next 24 years is unrealistic and unfair, given a growing population and the need for employee raises to combat inflation.
A third hallmark of our plan is a five-year shift in excess payments from the retiree health insurance fund to the pension side of the ledger. All normal costs continue to be properly funded to maintain the health fund.
This will not put at risk current or future benefits – the fund would have all it needs during those five years and still be fully funded by the end of the amortization period – and we have already set aside much more money for retiree health insurance than most other states. Many retiree health systems, in fact, have no savings at all, choosing instead to pay for actual costs month to month.
Finally, we think it is prudent to freeze the employer contribution rates that the quasi-governmental agencies currently pay KRS. They are paying KRS almost 50 percent of their payroll now and can’t afford anything higher.
This is very reasonable because this retirement fund is seeing a positive cash flow. We can revisit this freeze in the future, if KRS investments ever suffer a sustained downturn. Using a 20-year investment horizon also helps smooth the peaks and valleys.
Taken together, these proposals erase the long-term liabilities faster than the governor’s plan, and they do it without illegally reducing employee benefits or harming the quasi-governmental agencies that are already in a precarious financial position.
We did not get in this situation overnight, and it will not be solved overnight. Public employee retirement plans are similar to a 30-year home mortgage. While it would be great to have 360 monthly payments in the bank, the reality is that we don’t have it or need it all right now.
Our plan is much like restructuring the mortgage so that the bank does not take the home. By making modest adjustments to the terms of the loan to lower payments, we can still pay it off within a year of what the current law already calls for.
Unlike the governor’s bill, our recommendations maintain current services in a way that still meets the long-term goal of making KRS more solvent. Our plan won’t be tied up in court because of legally questionable actions; it won’t force some of our most critical agencies to close their doors; and it allows a quality workforce to continue serving you.
At the very least, members of both parties and stakeholders should be able to sit down and discuss this as a viable alternative. We stand ready and willing to work with any of our colleagues who are seeking to do the most good for the most people at the best price.
Kentucky taxpayers and those with a vested interest in the outcome deserve nothing less.
With Gov. Bevin expected to call a special legislative session soon to pass his public pension plan, we are reminded of Henry Ford, who famously said his customers could have cars painted “any color, so long as it’s black.”
For weeks now, the debate has focused solely on the governor’s bill and a few tweaks he’s made. Legislators have been told that he wants an up-or-down vote on his bill, specifically, and that we would be free to make additional changes in 2020. But there are other, less bumpy routes leading to the same destination.
The two of us serve on the General Assembly’s Public Pension Oversight Board and have a thorough understanding of the damage the governor’s bill would do if enacted. We share the same goal of protecting our public health departments, rape crisis centers, domestic violence shelters, regional public universities and other quasi-governmental agencies from a crushing 68 percent increase in pension costs, starting in July. This bill, however, is not the way to do it.
Governor Bevin’s bill offers these critical agencies and universities massive debts; costs taxpayers hundreds of millions of dollars; harms the nation’s worst-funded public retirement system; and it would severely undermine retirement security for potentially thousands of career employees who have dedicated their lives to public service – not to mention it would face likely legal challenges which would put us all back to square one.
The governor’s plan freezes these agencies’ payments to Kentucky Retirement Systems for a year, and we agree on that. It’s the long-term fix we differ on.
Our recommendations – think of them as different colors on Henry Ford’s Model T – are faster, cheaper, and far more legal.
The first necessary change is slightly increasing the projected investment target that KRS uses for the fund that these quasi-governmental agencies and state government pay into.
The KRS Board of Trustees dropped the rate dramatically in 2017 to the lowest in the country, when that decrease should have been phased in over years. We propose moving it up slightly, where it still remains the lowest public retirement plan target in the country, but more closely aligns with KRS’s actual investment experience over the last decade.
Second, our plan recommends an annual payroll growth of 1%, versus the 0% KRS now uses. State government has already shrunk to levels not seen since the 1970s, but basing pension contributions on 0% growth over the next 24 years is unrealistic and unfair, given a growing population and the need for employee raises to combat inflation.
A third hallmark of our plan is a five-year shift in excess payments from the retiree health insurance fund to the pension side of the ledger. All normal costs continue to be properly funded to maintain the health fund.
This will not put at risk current or future benefits – the fund would have all it needs during those five years and still be fully funded by the end of the amortization period – and we have already set aside much more money for retiree health insurance than most other states. Many retiree health systems, in fact, have no savings at all, choosing instead to pay for actual costs month to month.
Finally, we think it is prudent to freeze the employer contribution rates that the quasi-governmental agencies currently pay KRS. They are paying KRS almost 50 percent of their payroll now and can’t afford anything higher.
This is very reasonable because this retirement fund is seeing a positive cash flow. We can revisit this freeze in the future, if KRS investments ever suffer a sustained downturn. Using a 20-year investment horizon also helps smooth the peaks and valleys.
Taken together, these proposals erase the long-term liabilities faster than the governor’s plan, and they do it without illegally reducing employee benefits or harming the quasi-governmental agencies that are already in a precarious financial position.
We did not get in this situation overnight, and it will not be solved overnight. Public employee retirement plans are similar to a 30-year home mortgage. While it would be great to have 360 monthly payments in the bank, the reality is that we don’t have it or need it all right now.
Our plan is much like restructuring the mortgage so that the bank does not take the home. By making modest adjustments to the terms of the loan to lower payments, we can still pay it off within a year of what the current law already calls for.
Unlike the governor’s bill, our recommendations maintain current services in a way that still meets the long-term goal of making KRS more solvent. Our plan won’t be tied up in court because of legally questionable actions; it won’t force some of our most critical agencies to close their doors; and it allows a quality workforce to continue serving you.
At the very least, members of both parties and stakeholders should be able to sit down and discuss this as a viable alternative. We stand ready and willing to work with any of our colleagues who are seeking to do the most good for the most people at the best price.
Kentucky taxpayers and those with a vested interest in the outcome deserve nothing less.
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