Monday, November 6, 2017

Shared Responsibility Plan is the Best Option to Address Kentucky's Pension Issues

The Shared Responsibility Plan, released today by a united group of Kentucky educators, is designed to address challenges and financial shortcomings of the current state employee pension fund while also ensuring the long- term stability of the many areas of public service that provide the foundation for life in the Commonwealth of Kentucky. Those include the areas of public education, law enforcement and emergency response, and all aspects of city and county government, such as roads and infrastructure, municipal utilities and judicial processes.

Dr. Tom Shelton, executive director of the Kentucky Association of School Superintendents, said the Shared Responsibility Plan demonstrates the willingness of the state’s education organizations and members to implement changes that will strengthen the pension program and maintain its sustainability.

“We must protect the ability of public education to recruit and retain quality educators,” Shelton said. “Teachers and education professionals build the foundation upon which every other area of public life in Kentucky stands. We often hear that children are the future, and that is true, but it is also true that as leaders, we stand at a pivotal moment in time as the decisions we make today will directly impact the future of our children.”

Representatives from the Boone County Education Association, the Council for Better Education, the Jefferson County Teachers Association, the Kentucky Association of School Administrators, the Kentucky Association of School Superintendents, the Kentucky Education Association, the Kentucky Retired Teachers Association, the Kentucky School Boards Association, and others will share highlights of a Shared Responsibility Plan, which has been presented to state legislative leadership in draft format for their consideration as an alternative to a plan previously released by Gov. Bevin. The Governor is expected to call a special session that will consider changes to the existing state employee pension program. 

Key points of the proposal include the following:
  • The current bill (Governor’s Plan) contains several issues that are legally questionable, including potential violations of the inviolable contract and the potential loss of benefits already earned. We cannot support breaking the law to achieve reduction of the pension liability. Examples include, but are not limited to, forcing employees with 27 or more years of service out of the defined benefit plan into a defined contribution plan, and suspending pre-funded COLA payments to retirees.
  • The likely potential for expensive litigation and the protracted time involved with this litigation mean the Governor’s Plan brings with it unnecessary costs and risks, creating unhealthy discord in Kentucky. Our solution alleviates these issues while providing solvency in the pension funds.
  • We believe there should be no changes made to the system that would negatively impact current retirees. However, we are willing to make sacrificial compromises to contribute to the strengthening of the pension plan so long as those changes fall outside the inviolable contract and do not negatively impact benefits already earned.
  • We are willing to negotiate a new tier of benefits to be developed for future employees that would reduce risk for the state and achieve actuarial savings from the current pension system. However, we believe that the new tier of benefits should remain as a defined benefit plan with comparable benefits to the current system.
  • The new tier of benefits should include an increased level of service required in order to qualify for an unreduced retirement benefit, such as a Rule of 85 (combination of age and years of service).
  • If the new funds established to maintain the pension benefits plans become underfunded, we propose the board administering the system should be required to take action. This would include requiring an increased employee contribution and/or a contribution from the school district or local employer. The plans should be closely monitored and reviewed by the independent Public Pension Oversight Board, which is already in place.
  • For teachers, the new tier of pension benefit shall be governed and administered by the same system that presently administers the existing plan (TRS). This system currently has board positions elected by the system membership rather than political appointees. TRS already has vital systems and structures in place to manage the plan, such as internal investment managers and benefit counselors.
  • For CERS employees, the existing and new tier of pension benefit shall be governed and administered by a new CERS Board charged with managing CERS exclusively. The board would be represented by members reflective of CERS and elected by the system membership rather than political appointees.
  • Such a “Shared Responsibility Plan” was proven to work in 2009-10 with the retired teacher health insurance fund. This solution will work in this situation if we allow those who are significantly impacted by this issue to contribute to the development and design of these plans.
  • The Shared Responsibility Plan, as described, will be no costlier than the Governor’s Plan, when all factors are considered. The Shared Responsibility Plan also eliminates risk from the state.
  • The current unfunded pension liability must be paid regardless of the plans submitted, which include the Shared Responsibility Plan (our plan) or the Governor’s Plan. This must be accomplished through new revenue, budget reductions, or some combination thereof. We are certainly willing and want to work with the General Assembly to support tax modernization and other means of funding to pay off this unfunded liability.
  • Again, with the Shared Responsibility Plan, we have maintained a defined benefit structure. This allows us to recruit and retain high-quality teachers and support staff while ensuring the funds are financially and actuarially sound. We accomplish this through shared responsibility among all the affected parties, while eliminating risk and controlling the investment required of the state for these crucial systems.
  • Finally – Public education is not a cost. Public education is an investment in the future of our citizenry and for the economic vitality of Kentucky. Our children are the most worthy investment of our time, talents and treasure.