STUMP » Articles » Kentucky Pension Update: GIVE US A BUNCH OF MONEY » 15 December 2017, 05:55

Where Stu & MP spout off about everything.

Kentucky Pension Update: GIVE US A BUNCH OF MONEY  

by

15 December 2017, 05:55

I’ve been caught in doing work, Christmas shopping (and wrapping), and so a few things have slipped.

But Kentucky pensions are still there to kick around.

Let’s kick it off with this tweet:


That would be pretty good… if there were indication that ARC payments aren’t enough (at least, not how the Kentucky pensions calculate them).

But let’s see what the Kentucky pensions are asking for.

But before that, a little dark stuff.

UGLINESS IN THE KENTUCKY LEGISLATURE

I was going to make fun of Bevin for this excuse: Bevin says sexual harassment scandal has interfered with pension reform plans:

The sexual harassment scandal plaguing the Kentucky House is a stain on the state that’s distracted legislators from working on pension reform, Gov Matt Bevin said Monday.

It seemed like an easy excuse given that it didn’t seem like Bevin had done enough in doing the homework for his reform plan. Also, many Republican politicians already were asking this attempt to be put off.

Well, then, this happened: A Kentucky lawmaker was accused of molesting a teen. Then he shot himself in the head.

Ugh, this really is an ugly happening (and an awful way to cover a presumed death by suicide). This seems to be the piece that kicked off that particular episode, but I don’t care to read it.

Public pensions are my jam, not this stuff. In any case, what with most of the legislators really not wanting to deal with the pension problem right before/after Christmas anyway, I assume this won’t be coming on til 2018.

Other pieces on whether there will be a special session:

But they will have to deal with it in 2018.

Let’s see why.

PENSIONS: FEED ME, BEVIN

Pension plans will need nearly $800 million more next year, Kentucky Retirement Systems says

FRANKFORT, Ky. – Nearly $800 million more will be needed next year to put the state and local government retirement plans of the Kentucky Retirement Systems on the road to recovery.

That breaks down to $477 million more for three plans that provide pension and health benefits for state government retirees, and $317 million more from local governments and school districts for the pension and health benefits of their employees.

To put the $477 million increase needed for the state government plans next year into context, consider that this year’s total cost to operate Kentucky’s prison system is a bit more than $500 million. Where the money for pensions will come from is undetermined.

But the Kentucky Retirement Systems board of trustees received and approved the recommended increases in taxpayer outlays for public pensions on Thursday. The increases would take effect July 1.

What percentage increase would that be?

The numbers released Thursday show that the state’s worst-funded plan — the main plan that covers most state employees — needs the majority of the new money. This plan, for state employees in non-hazardous occupations, must get its funding boosted a whopping $448 million a year — from $844 million this year to nearly $1.3 billion in 2018-19.

Let me put this into meaningful numbers: that’s over a 50% increase.

That is a hell of a lot.

To be sure, that’s the worst of all the plans and has been underfunded for years.

Let’s see another story on this:
Kentucky lawmakers get expensive ask for pension system

Kentucky taxpayers need to pay nearly $1 billion extra over the next two years to keep solvent a retirement plan for most state workers.

The Kentucky Employees Retirement System board of trustees told state lawmakers Thursday they need to spend $2.8 billion over the next two years on a retirement plan that covers state workers and police officers. That’s $954 million more than was required the previous two years.

Nearly all of that increase is because the board of trustees believes the state will earn less money on its investments and have fewer employees contributing to the system over the next three decades. Board chairman John Farris says the numbers, while more expensive, are more realistic.

So, the reason for this very large increases in ARC are because they’re reducing the expected return on assets and because they’re reducing the payroll growth rate.

Here’s my prior post on the assumptions change.

My prior post on the Kentucky pension liabilities – and why the assumptions are so important.

OLD CHOICES HAVE CURRENT CONSEQUENCES

I want to address one of the stories I came across recently — how pension reform is affecting police recruitment.

State, Local Police Struggle To Recruit, As Pension Reform Prompts Retirements

As state legislators debate what changes will fix Kentucky’s debilitated pension system, state and local police are scrambling to recruit officers.

Louisville Police Chief Steve Conrad said nearly 100 officers left LMPD this year. Sixty-three of those, he said, are officers who retired because of Kentucky’s looming pension reform, prompting him to try to recruit more officers.

“I’m having to manage with what I have … all told, we’ve had 98 people leave already and we’ve got seven more months of this fiscal year to deal with,” Conrad said at his Dec. 6 year-end address to a Metro Council committee. “What is so frustrating is we’ve lost a number of great police officers to fear over the retirement, and nothing has happened yet.”

The plan proposed by Kentucky Gov. Matt Bevin includes a mandate for officers (and all state employees) to contribute 3 percent of their pay toward a retirement health program, as well as a suspension of pension benefits for retirees who return to public service full-time.
…..
Bevin’s plan would also suspend retirees’ pension benefits if they ever return to work full-time in state government. But Miller said a new version of the plan would scale back that provision, allowing hazardous duty retirees who return to the same job to keep their pension benefits, though they would have to stop working for a month after retiring.

“They can cash out if they want to cash out, they can lay out for a month and then boom, they can come right back and continue to work,” Miller said. “We want to make sure that we’re not discouraging people from retiring and coming back to work if that’s what they want to do.”

Ah, double-dipping; i.e., “retiring” to get the pension and then going right back to the job you were already doing.

Mind you, generally people do not accrue additional pension credit when they do that (I believe – it wouldn’t make sense for them to accrue more benefits, but I’ve seen all sorts of insane things in public plan design, so perhaps I shouldn’t assume.)

If, when people return to the job, they accrue no additional pension benefits, then they may actually be cheaper than other options. That said, public salaries are often driven by years of service more than particular position, so they could be more expensive. And then there’s the “employee contribution” aspect…okay, I’m not running the numbers.

Double-dipping is not a good look more than actually being more expensive – the pension fund would pay the accrued pension benefits (made from past operational expenses), the regular operating budget pays for current salary.

That said, the decisions that have spurred these current retirements are more the years of underfunding of the pensions, which led to the pensions’ parlous state. And the need for current contributions to pay for past accrued service… so double-dipping can be a problem in terms of the base for contributions.

Anyway, many people retire in these pension reform cases assuming that their benefits won’t be cut once they’re retired. Because that would be mean. Or unconstitutional. But: constitutions can be changed, and “mean” doesn’t mean much when the public purse is beyond pinched and is in a downright vise.

That Bevin says that accrued benefits won’t get cut make people think they won’t get cut once they retire — but we’ve seen how credible Bevin is re: the numbers. Bevin doesn’t control fiscal reality. If the money runs out, and it may…

…then we’ll see what will and what won’t get touched.

KENTUCKY PENSION LINKS NEWS DUMP

My last Kentucky post was November 27, so here are the links to stories I didn’t touch on above.

Enjoy!


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