PENSION REFORM - WHAT YOU NEED TO KNOW ... AND DO

Perhaps the most common question asked by students in classrooms across the country: “Why do we need to know this?”

The best teachers love that question, because they have an answer – and they are able to explain ‘why’ the information being presented matters.
 

As your area Superintendents – leaders who are committed to ensuring the best for your children and the future of your community – we are coming together to share information that is incredibly important to our communities – and to answer that age-old question: ‘Why’ YOU need to know this.
 

We’re talking about pension reform in the Commonwealth.
 

Gov. Bevin’s administration is planning a special session of the General Assembly in November to address the unfunded status of retirement funds affecting state and county employees. That includes anyone who works for your local school district, as well as local law enforcement, fire fighters and other city, county and municipal employees.
 

Below are some basic questions and answers intended to explain ‘why’ it is absolutely essential for this issue to be addressed responsibly and appropriately, and the disastrous consequences every resident of Kentucky will face if it is not.
 

How does the state pension plan work?

 

There are actually eight government pension plans in the state of Kentucky. All of them are underfunded – some worse than others and appropriately fitting the definition of ‘crisis’– but each is a separate entity. These plans cannot borrow or take money from one another, but many are grouped together under one umbrella to invest and manage funds.  The Kentucky Teachers Retirement System (TRS) is independent and has its own governance structure.

 

What’s the problem?

 

Kentucky’s current pension program is $33 billion in debt. However, that figure reflects the combined underfunding of all eight pension plans. The TRS is currently funded at 54.6 percent. School support employees are part of the County Employees Retirement Plan (CERS) plan, currently funded at 59 percent.

 

What are some of the facts that are not being widely communicated?

 

  • Since the 1930’s, teachers do not pay into or draw from Social Security.
  • Teachers contribute 13 percent of their pay into TRS, which is the only source of retirement income for teachers.
  • Per TRS statistics, the average teacher retires at age 59 and works more than 30 years.
  • Fewer than 5 percent of certified school employees retire before age 50. Four times as many retire at age 65 or older than at 50 or younger.
  • Nearly 60 percent of retired teachers earned $40,000 or less in 2017 – remember, no Social Security!

 

I’m not a government employee. Why should I care?

 

First – The most important factor in a student’s success in classroom – and in life – is the influence of a great teacher. Our communities are blessed with teachers who love kids and who have dedicated their lives to education. That’s why they do what they do! But we already face a shortage of teachers in Kentucky and across the country. Taking away the promise of a stable retirement would dramatically reduce the number of young people entering the teaching profession.

 

Second – Public employee pensions are partially funded by taxpayers. There are only two ways to balance any budget – whether at your household level or at the state level or beyond. The first is to bring in more money; that means higher taxes. The second is to cut expenses; that means services. That includes reducing staff numbers, lowering the quality of services, or reducing or eliminating programs. These cuts would result in a negative classroom impact for your child or grandchild and for future generations that follow.

 

What are the options being proposed, and what are the potential consequences?

 

One suggestion is to move teachers from the current plan to a Social Security/401(k) plan. West Virginia made this mistake a few years ago; the results were catastrophic, and we project the same or worse for Kentucky. Social Security already has an unfunded liability of $12.5 trillion ($38,000 per household in America) – even worse than our current TRS pension plan ($3,300 per household in Kentucky). A Social Security/401(k) plan is just more expensive for taxpayers. Gov. Bevin’s $1.2 million pension study affirms this fact on page 16 of that report. Professionals project that the Social Security tax must increase by an additional 3 percent to offset the funding gap, making this approach even more costly down the road for taxpayers. Also, it must be noted that moving teachers to Social Security is irreversible – permanent! A hasty, poor decision cannot be rectified. Just ask West Virginia, which has tried to switch back to a TRS plan for teachers once they learned the Social Security/401(k) route was incorrect.

 

Under this proposal, as the quality of education declines (a sure outcome if the teaching profession becomes less attractive), quality of life by every measure would decline, immediately and irrevocably. This includes healthcare, recreation, service industry, emergency responders, roads and infrastructure – everything we enjoy about living in Kentucky depends upon the support of an educated and motivated workforce.  Education drives economic growth and vitality. Education is not a cost, it is an investment.

 

So what is the alternative?

 

Given that a Social Security/401(k) approach will certainly cost taxpayers more money, we support a ‘Shared-Responsibility Approach’ – an approach used successfully in 2010 to fix the health insurance fund. Employees (teachers), employers (Boards of Education), and the state can work together in a sensible, economically feasible solution that will result in long-term TRS solvency. The evidence is clear: Kentucky must undergo significant tax reform that results in more revenue.  This affords all people a better plan that costs less to support and maintain, and supports growth for Kentucky.

 

We also support the independence of the CERS pension fund. CERS should have its own independent governance (like TRS) that makes investment decisions based upon what is best for their plan participants.

 

How can I help?

 

Contact your elected officials – now, before the special session begins. Tell them you support the shared-responsibility approach for TRS and independence and stability for CERS.

 

We hope now you know why.

 

Kentucky Pension Presentation





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