Policy group’s proposal ignores the sad state of Ky. pension system

Despite its headline, “Time for sensible approach to paying Ky. pensions,” the commentary by Jason Bailey of the Kentucky Center for Economic Policy was anything but sensible.

Indeed, the column was a recipe for continuing the gross mismanagement by the Kentucky Retirement Systems.

Any pension system is a matter of numbers and so should be based on a long-term plan to pre-fund the pension account of each member for the 50 to 60 years or more over which many persons are members.

The underlying mechanics are money in — contributions by employees and employers plus the compounded return on investment — and money out through benefits. Just go online and search for retirement calculators.

Bailey erroneously argues that pre-funding pensions is not ultimately a necessity and there will never be a point in time where full pre-funding is required.

He is critical of trying to get all 16 pension and retiree health plans to full 100 percent funding in less than three decades.

This is contrary to good sense and any generally accepted accounting standard. For example, underfunded pensions greatly lower credit and bond ratings of government agencies costing them much more in interest.

Compounded return on investment can and should provide about 70 percent of the benefits. Since fiscal year 2000 the compounded return on investments at the Kentucky Retirement Systems through mismanagement has been 7.9 percent projected, and 5.1 percent actual.

Bailey ignores this mismanagement and argues that reducing the projected ROI to a rate still higher than the 5.1 percent actual ROI spurred a crisis.

He criticizes a 48 percent pre-funding of health insurance benefits, saying that other states are funded at seven percent.

Rather than reform investments and stop over-projecting ROI, his approach is to let the governments pony up the difference. And then he criticizes the increased contributions required of the governments.

Both Democrats and Republicans should be calling for plain vanilla investments that match the market and asking whether the same secret investments with poor returns and high fees previously made by both parties are still being made.

No one should draw out of a pension any more than they actuarially put in. For example, a member who lives five years longer than the life expectancy will get paid for his or her lifetime and a member who lives 5 years less does not have a payment made to his or her estate or beneficiary. Bailey ignores this aspect of pensions.

This is a Tim Longmeyer and Harry Moberly problem; both are examples of super-sized pensions.

When Longmeyer went from deputy Jefferson County attorney to secretary of the Personnel Cabinet his salary doubled and his pension doubled, costing the taxpayers about $2 million over what he is entitled to.

Moberly made about $40,000 per year as a state representative but is getting over $150,000 in his legislative pension because of his salary at Eastern Kentucky University.

All the while the rank-and-file retirees who have not gotten an incremental increase since 2010 and employees who rarely get a pay increase are paying for the super-sized pensions for politicians.

There are many more criticisms of Bailey’s argument and the Kentucky Retirement Systems and I wish I could address some specific solutions. But space does not allow.

Suffice it to say, over-projecting returns from under-performing investments — along with super-sized pensions for the politicians who bring us the mismanagement they should be guarding against — do not create a sensible approach to pensions.

A great deal of reform is needed.

James P. Benassi is a Louisville attorney. Reach him at jimpat@mw.twcbc.com