Kentucky’s legislature is poised to promise aspiring teachers an insecure old age in exchange for more years of work.
Don’t look for a stampede of highly qualified hopefuls to sign up for that.
Granted, the pension overhaul unveiled this week by Republican legislative leaders is decidedly better than what they and Gov. Matt Bevin offered last fall. Bevin’s plan would have cost more than the current system, as GOP lawmakers have recently admitted. A public backlash sent it down in flames.
But even this improved plan would hurt the ability to hire and keep the teachers the state will need to compete in the future.
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And nothing that’s being proposed would guarantee a revenue stream for meeting the state’s existing pension obligations, never mind taking care of future needs.
Kentucky’s public pensions are underfunded, not because of any structural flaws, but because a succession of governors and legislatures chose to underfund them. They did this to avoid slashing education and other public services because revenue chronically falls short of its needs.
Neither Bevin nor Republican lawmakers have shown any real inclination toward tax reform that would increase revenue.
Legislative leaders say their plan would save the state $4.8 billion with almost all of the savings — $4 billion over 20 years — coming out of teachers’ retirements and also by shifting some costs from the state to local school districts.
Remember, Kentucky teachers are not part of the Social Security system which provides retirees monthly payments that increase with the cost of living. Teachers’ average defined-benefit state pension is now $36,244.
Under Senate Bill 1, future teachers would have only investment returns to support them in retirement with no increases when inflation robs their nest eggs and no guarantee the nest eggs would last as long as they live. Also, teachers would have to work longer — at least 35 years — to qualify for the maximum possible retirement benefit.
SB 1 halves cost-of-living increases to retired teachers through 2029. That would cost a 59-year old teacher who lives until 83 and receives the average pension more than $73,000 over her lifetime, according to an analysis by the Kentucky Center for Economic Policy.
The plan, developed in secret by a small group of Republican lawmakers, finally became a bill, with more than half the session gone. The secretive process contrasts with 2013, the last time Kentucky cut retirement benefits for public employees and moved new state and local government hires into the kind of cash-balance investment plans that future teachers would receive under SB 1. The earlier process was open and involved stakeholders.
Despite the lack of openness, Republican leaders are hoping to enact their plan without a lot of changes or debate. But there are questions about the bill that demand explanations. At the top of the list is its “level dollar” funding approach, which first was recommended by Bevin’s consultant. This approach creates an unnecessary burden beginning in 2020 on school districts, local governments and the state.
Traditionally, payments into pension systems increase with payroll. While it’s possible that state payrolls won’t increase, growing school districts, cities and counties are still adding to their workforces. The “level dollar” approach divides the pension obligations into equal yearly payments over 30 years, which needlessly front-loads the payments and will force sharp cuts in other spending. Such funding would increase the state’s required annual contribution to the Teachers’ Retirement System by $392 million a year, according to a report by legislative staff.
Perhaps lawmakers think this approach would impress rating agencies and lower Kentucky’s borrowing costs to issue bonds. Whatever their reason, they should back it up with realistic analysis showing that the benefits would exceed the costs, especially to struggling school districts and local governments.
And lawmakers should think hard about the message they’re sending to Kentucky’s would-be teachers and what that means to the future.