Pension reform will have local economic impact
Published 11:43 pm Thursday, October 5, 2017
We have heard from state officials and state/county workers and educators, but not much has been said about a third stakeholder in all the discussion about state pensions, the taxpayer. I would like to shed some light on predictable repercussions of certain actions that are currently being evaluated by our legislators.
First and foremost, Kentucky has an inviolable contract (KRS 61.692) that prohibits state employees’ retirement benefits from being reduced, altered, amended or repealed. Certain benefits are subject to modification, but the big picture is that the state of Kentucky is in debt in the millions because prior administrations (both Democrat and Republican) for 13 years did not seem to think that it was important, or even necessary, to meet their annual contribution requirement.
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Only after pension fund administrators had to start selling off assets to meet current pension payments, and thusly caused the state’s credit rating to drop, did they decide to do something.
The answer, so far, has been to study the issue, which is important, but the outside researcher PFM’s major proposals are mostly illegal to do, so basically we spent millions on a study that just muddied the waters. I understand, this group has a contract to continue their research for the next year at more millions of taxpayer dollars.
Bottom line, taxpayers will be paying off this debt, over a period of many years. That fact is clear. What has not been clear is the tax effect of some of the proposals to solve the defined benefit program with a defined contribution (401K ) program. Currently active teachers and the school board pay a percentage of their pay into the system each pay period to fund current retiree payments and invest for future retirees. If this source of funding is diverted to another 401K type program for current or new teachers, the payment liability is still there for retirees, but nothing will be going into the fund except the state obligation (your tax dollars). This will be a reality for another 50 years or so, until all retired teachers die – or, even worse, the local school boards will be required to contribute to both. They are already financially strapped with repetitive budget cuts, so our board will have the choice of raising local taxes or going bankrupt. Since Lincoln County School System is the biggest employer in the county, you can imagine the economic impact on our local communities.
And what will be the effect on recruiting qualified teachers? Will a 401K plan be enough to entice them? Of course not, a higher salary will be necessary, based on equivalent educational requirements of other professionals. State legislators don’t need to put these people on an already burdened Social Security system, even if they are allowed to do so.
Will the progress our educators have made these last few years be for nothing? What are taxpayers willing to pay? Oh, and by the way, every teacher and state/county worker is also a taxpayer, so decisions made also affect us.
Peggy Orberson, President
Lincoln Co. Retired Teachers