Future Shock Solutions: 16 Steps to treat Kentucky's ailing pension ailment
Why do today what can be put off until tomorrow? Why not take the easy political road and ram through ineffective, watered-down legislation to temporarily bandage a gaping wound?
Unfortunately this seems to be the Kentucky General Assembly’s policy when it comes to fixing the state’s woefully underfunded and unsustainable public pension system.
This do-nothing policy has driven the state’s pension system into a $33.7 billion dollar unfunded liability that will, if not addressed with meaningful solutions, break the financial well-being of the commonwealth.
Contained in this brief is a concise and effective method for setting Kentucky’s public pension system back on solid ground. Any effective strategy toward pension reform should include three parts:
- an honest diagnosis of the problem as it exists,
- a vision or goal to be accomplished, and
- a specific set of actions that can be taken to achieve this goal.
Kentucky Politicians' Opulent Pensions Have Become a Modern Day Gold Rush
Authored by Lowell Reese, owner of Kentucky Roll Call, a public affairs publishing company in Frankfort, and a former state chamber of commerce executive, the report, entitled “Future Shock: Kentucky Politicians’ Opulent Pensions Have Become A Modern-Day Gold Rush,” names both current and previous legislators who personally benefited from critical votes approving House Bill 299 in 2005.
This bill made several changes to legislators’ pensions:
- The policy known as “reciprocity” was adopted. Not only did the law lower the number of high-salary years used to figure lawmakers’ pensions from the previous “high five” to “high three” years, it allowed them to significantly enrich their retirement plans by basing their legislative pensions on jobs they get in other government entities covered by one of the six state-administered pension systems after they leave the legislature.
- HB 299 also lowered from 30 to 27 the number of years legislators must serve before they can start drawing their pensions prior to age 65 without an early penalty withdrawal.
- Any member not in the legislative retirement plan as of 2005 could still join and be eligible for the bonanzas to come. The utter lack of transparency involving the state’s pension systems makes it impossible to know how many legislators participate in this gold rush.
- The legislators’ “assumed” salary amount of $27,500 – used previously in the formula to figure pensions – was replaced with their real salaries. Like one stroke of a canoe paddle can significantly alter its course, the slightest change in the formula can considerably inflate a pension check, as this one does.
Along with noting the 30 state senators (13 Democrats, 17 Republicans) and 48 representatives (30 Democrats, 18 Republicans) who voted for HB 299, known as “the greed bill,” the report also portrays Frankfort as “a culture of pensions” where “it’s common to find people drawing two, or even three, government pensions.”
Legislators stoking the coals on Kentucky’s runaway pension train
This report is the second of the Bluegrass Institute's four-part “Future Shock” series and chronicles the disintegration of the commonwealth’s six retirement systems. It urges lawmakers to undo past decisions resulting in unintended – and undesirable – results.
Addressing the deepening pension crisis “has become a societal issue,” writes Lowell Reese, the report’s author who also owns Kentucky Roll Call, a public affairs company, and is a former state Chamber of Commerce executive. “The standard of living of all Kentuckians is at stake.”
A failure by the state to properly fund, manage and maintain Kentucky’s retirement systems has deepened the commonwealth’s unfunded pension liability from less than $960 million in 2000 – a manageable amount – to $31.4 billion in 2010, Reese said.
Introductory Policy Brief
Since its inception in 2003, the Bluegrass Institute has helped Kentuckians hold government accountable by making its actions more transparent and understandable. Topics have ranged from tax hikes, an impending Medicaid financial crisis, benefits and barriers to digital learning, public charter schools and smoking bans to name a few.
Kentucky’s public employee pension deficit is like no other subject covered in our prior research. The abuse of power exercised by judges and legislators is breathtaking. They have worked together to line their own pockets with taxpayer dollars through lavish pensions for part-time work.
Politicians also have solidified their power bases through the inclusion of dozens of quasi-government agencies and private-sector positions across the state. For instance, taxpayers are being forced to provide pensions to staff employees of the Kentucky Education Association (a private teachers’ union) and other private companies, including a credit union, several attorneys in private practice and not- for-profit organizations.
The Bluegrass Institute will release a series of reports over the next several weeks explaining:
- how Kentucky’s pension mess started and grew
- who the players are and who voted for the bills
- gross abuse of the public pension system
- solutions based on free-market principles
Today we release a condensed view of this research of Kentucky’s pension situation. We will introduce a few public pension basics and identify some of the quasi-government agencies and private entities included in the taxpayer-backed employee pension plans. The Bluegrass Institute believes these groups belong exclusively in the private sector and should not be allowed to participate in our public pension and health care plans.