Webster responds to Bevin’s proposal to slash teacher pensions

In a recent news conference, Kentucky Governor Matt Bevin revealed the results of a study done by the PFM consultant group. This report referenced the growing debt that Kentucky’s pension system is amassing. Kentucky has one of the most poorly funded public pension systems, missing 64 billion dollars. If the pension system were to be fully funded this next fiscal year, Kentucky would be 1 million dollars in the red, according to State Budget Director John Chilton. Bevin campaigned on fixing the pension system, and offered three suggestions at his late August press conference.

Bevin offered to raise almost all taxes on Kentuckians and to reduce and cut services such as fire and police. Most boldly however, Bevin offered to cut benefits for current retirees, as well as change the regulations for current teacher’s retirement plans. Among these changes, the retirement age would be raised by ten years to 65 years for public employees like HC teachers. This would be a drastic change for teachers who were planning on retiring in their late 50’s or early 60’s, some even threatening to retire before legislation becomes enacted. Bevin also discussed moving teachers’ pensions into 401k style investment plans, which are fluid and subject to rise and falls in the stock market.

However, these are not the only options that are on the table. Kentucky could do any of the following to alleviate the pension crisis without changing the current requirements for public employees. The state could move money into the system from the lottery, increase the state income tax by 1-3%, or create a more financially secure system for 401k plans. Each of these options have their drawbacks but would help to fix the current state of crisis and insecurity.

By reforming the pension system, we ensure that we don’t lose our teachers, who in turn ensure that our children are successful as adults.

The most viable of these is creating a more financially secure system for 401k plans. A 401k retirement plan, first created in the late 1970’s, allows employees to put money aside into a separate account for retirement. Seems simple, but in reality, it’s more complicated. A 401k plan is tied to the government, which can take a hit when the stock market crashes or exhibits erratic behavior. In that sort of event, the money is hard to reach because of drastically high fees, leaving employees without funds when they need them. However, if the government were to invest 401ks into something like precious metals, they would be protected in essence from the stock market. After all, silver and gold have never been worth nothing. If Kentucky were to do this it would lower the cost to the state without cutting teacher’s benefits.

The easiest option on the table would be to use proceeds from the state lottery, much like how New Jersey did earlier this year. New Jersey used almost 1 billion dollars in lottery proceeds to try and balance out the state’s similarly failing pension system. Thus far it has been successful, but the end outcome remains to be seen. The New Jersey Treasury Department has said that lottery system is projected to put almost 37 billion into the pension system over the next thirty years. In theory, this could stave off Kentucky’s debt problem, at least until a more permanent solution can be formulated in the State Budget Office.

Perhaps the most effective option on the table is also the one that will hurt the most people. Last year the State of Kentucky made 32.7 billion dollars in revenue. Theoretically, if the state income tax was raised about 3 percent, the state would rake in an extra 3 billion dollars annually just out of the middle class. However, tax raises would disproportionately affect the poor in Kentucky. Many of them can barely afford the cost of living as it currently stands, and a tax hike would worsen their burden. This makes this option less viable, as the cost is simply too much. An extra three billion dollars would be beneficial to the state pension system however. When state legislators convene later this year in a special session, they will have to weigh the costs of this plan, which is one of the three currently pushed by Gov. Bevin.

In no way is the pension crisis going to easily resolved. No matter what is put into place, some constituency is going to be hit hard. Thus it is important to consider all options on the table, and not just the ones that sound politically beneficial.