Level-dollar conversion is designed for states running a surplus. When used with a budget deficit it harms pensions, which I believe is the intent of Senate Bill 1.
A family with extra money can be better off going from a 30-year to a 15-year mortgage — but not if the kids have to do without lunch money and the broken washing machine can’t be replaced. If level-dollar conversion increases a budget deficit and causes head-count reduction, it actually hurts pensions.
Republicans know the only legal way to steal or reduce a teacher’s or public worker’s pension is through Chapter 9 municipal bankruptcy. States cannot declare bankruptcy, but school districts, cities and counties can. Gov. Bruce Rauner in Illinois is currently trying to shift teacher retirement liability off the state’s books onto school districts. Gov. Matt Bevin, I believe, will try this in Kentucky.
Level dollar, combined with the Kentucky Retirement Systems setting higher actuarially required contributions, is being used to destabilize the County Employees Retirement System and Teacher Retirement System and to push that destabilization onto school districts, cities and counties.
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Phase-in bills are being offered to desperate local governments and school districts, but I fear they could be a bankruptcy trap giving only temporary relief. Freeing CERS and keeping TRS as a state responsibility are the keys for local government and school district survival.
Chris Tobe of Anchorage is a former Kentucky Retirement Systems trustee and author of “Kentucky Fried Pensions 2018.”