Monday, November 24, 2014

Pernicious Pension Problems

Pension funds for Kentucky state employees are in serious trouble since they are virtually un-funded because they are consistently under-funded. The day of reckoning will arrive some day, with teachers and others expecting what is actually unavailable, absent corrective measures taken immediately. The largest state pension fund has only 21% of the money needed for future payments and is continuing on a downward trend. The teachers' retirement system has only 51% of what it needs for future payouts.

The Kentucky Employees Retirement System was 85% funded in 2004. Since then, it has lost 75% of needed income. The legislature is responsible for setting up and reforming the state retirement systems. It has made some strange decisions over the years in comparison with the requirements of retirement systems in the private sector. A non-hazardous duty state employee (clerk) hired before 2008 may retire with a full pension at any age when he/she has worked 27 years. A hazardous-duty worker can retire after 20 years service with a full pension.

If the clerk began work at age 21, he/she can retire with full pension and draw it immediately at age 48, and draw it until death, with the average life-span of someone born in 2012 being 81 for women and 76 for men. A man who is 65 today can expect to live until age 84; for women, it's age 87, according to data compiled by the Social Security Adminstration.

The hazardous-duty worker beginning at age 21 may gain full retirement at age 41 and perhaps be paid a pension for more years than he's lived. By contrast, a railroad brakeman/switchman (a hazardous job) who's worked night or day in all kinds of weather may not retire for full pension until he's 65-67 years old depending on his birth-date, no matter how many years he's worked. The normal railroad retirement age with full pension is 65-67. The Social Security retirement age is 66, no matter the number of years worked.

The Kentucky state-clerk can take three months off, reapply for work in the same system, then draw his full pension plus his newly-earned income but never has to pay into the retirement system again. The hazardous-duty worker only has to take one month off for that deal. By contrast, a railroad retiree may not work again as a railroader without forfeiting his pension.

Kentucky schoolteachers may retire after 27 years of teaching with no reductions in their pensions. A teacher beginning at age 22 can retire at age 49, then work at anything else and earn another pension or Social Security, or move across the state line and teach until earning another pension. The same lawmakers who have voted themselves enormous pensions and perks, much in the news lately because of political shenanigans/appointments leading to huge pensions, have set up all these systems. To the worker in the private sector, this is a huge racket.

The teacher-system (KTRS) is urging lawmakers to issue a 30-year bond of $1.9 billion or $3.3 billion, according to the Lexington Herald-Leader, to save its system, i.e., borrow money now and pay huge interest virtually into infinity just so teachers can quit while relatively young and do whatever...or nothing. Is requiring them to teach until age 62, for instance, too much to ask? While teachers may complain of brain-burnout, they certainly work for the most part in ideal conditions that wreak little havoc on the body.

The same might be asked concerning the state-clerk, whose most rigorous physical demand may be walking from car to office and back each day. The argument that state employees work for less and so deserve extra consideration doesn't hold water now, if it ever did. The average annual salary for a schoolteacher in Kentucky (180 days of work) was $49,730 by 2012 and probably is more than that now.

None of this is to say that state workers do not deserve both adequate compensation and reasonable pensions. It is to say that the system needs new retirement guidelines, not more money. Paying people for up to three or four decades for doing nothing is more than the budget should be expected to handle. Until reform is effected—considering “grandfathering,” of course—the pension problem will multiply exponentially. Finding a legislator with enough spine to tackle this job is too much to expect, perhaps, but something sensible must be done.

And so it goes.
Jim Clark

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