With the Kentucky Supreme Court agreeing to a fast-track appeal of Franklin Circuit Judge Phillip Shepherd’s ruling that Senate Bill 151 passed in the closing days of this year’s legislative session was unconstitutional, pension reform will again be front and center as we head into the fall election season.
Recognizing that the past holds important lessons – and warnings – for policymakers dealing with Kentucky’s public pension crisis, the Bluegrass Institute for Public Policy Solutions, a free-market think tank, released “Pension Shock: How did we get here?” today.
The policy brief, which can be read and downloaded here, is the first in a new series of policy briefs which seek to better inform citizens and policymakers about how defined-benefit retirement systems should work and commonsense, actuarially sound solutions for ensuring Kentucky’s disastrous pension history does not repeat itself.
This readable analysis compiled by the Bluegrass Institute Pension Reform Team offers historical evidence that, contrary to claims by politicians, union talking heads and even the media, neither funding nor investment performance are the main culprits of the commonwealth’s $60 billion liability.
“While funding and investment returns certainly are critical elements to health pension systems, they are only two of the Kentucky pension systems’ three-legged stool,” the report states. “Implementing effective and lasting reform will require the truth be told and understood about the third leg of that stool: benefits.”
Unfortunately, public employee union leaders and anti-reform legislators have been untruthful when discussing the true cause of the pension crisis with their constituents. Instead of being honest about the pension predicament, including how the process of awarding benefits is the chief culprit, they instead attempt to use Kentucky’s pension woes to gain and retain power and influence, primarily through their resistance to change.
The result is that reasonable reforms to save and put these systems on a sustainable course for the future have been marginalized or ignored altogether. However, maintaining the status quo, resulting in the combined liability of Kentucky’s public pension systems growing from $960 million in 2000 to around $60 billion today, and funding levels dropping precipitously – with KERS nearing insolvency – isn’t a wise or viable option.
Rather, it would be highly irresponsible, considering the pension crisis is the most looming threat to Kentucky’s economy in decades and is crowding out funding for education, public safety, healthcare and infrastructure.
This analysis includes:
A thorough look at how a single bill passed by the legislature in 1998 is wreaking havoc on Kentucky’s public pension systems two decades later.
The toll that ignoring state law requiring independent actuarial analysis be conducted before legislative votes approving benefit enhancements has had on the public retirement systems, and how the Legislative Research Commission, the administrative arm of the Kentucky General Assembly, attempted to dismiss enforcement of that law.
The number of times and the amounts by which the various systems’ benefit factors have been increased without such an analysis.