Just this week, Kentucky’s Superintendents and teachers groups released their version of a plan to fix Kentucky’s pension system.
Unlike the Governor’s plan which would require current teachers to pay 3% more toward their benefits, the new plan from the education groups removes that requirement. It also allows all teachers to remain in the current defined benefit style plan. Advocates of the “shared responsibility plan” admit it won’t help address the funding problem. They say lawmakers must come up with new money by modernizing Kentucky’s tax code.
During an exclusive interview Thursday with the Mountain Advocate, Governor Matt Bevin addressed teachers, those in Frankfort and elsewhere, protesting against his plan to fix Kentucky’s pension problem. “I think people don’t understand the severity of this problem,” He said. “The money is about to run out.”
He believes, “if we don’t fix it, the very people who are protesting are in trouble. They are trying so hard to hang onto something, they run the risk they will end up with nothing.”
The Governor added, “Change is hard for people. I get that. It’s never fun or easy.” That’s why he says his plan does not change the current defined benefit system for current retirees or those already working for the state. It will change for new hires. Bevin says the plan for future hires is actually better for the new workers because it is a 401-K style system. He says this type of plan is better in two ways. First, those style plans allow employees that contribute money toward retirement to take the funds with them if they don’t spend their entire career working for the state. “It’s portable, flexible, and gives you, the individual, control,” he noted. Secondly, the governor says, “Given the exact same assumptions, all things being equal” if you do spend 30 plus years working for the state, employees will get a better financial benefit in retirement. Also, any funds left in a 401-K style plans maybe passed on to other family members after you die.
But Bevin’s opponents, including house minority floor leader “Rocky” Adkins, who joined the Frankfort protest last week, strongly disagree. Adkins has been widely quoted saying, the state should, “keep the plan we have and fund it.”
“What do you suppose that means?” Bevin asked; then answered, “Raise taxes on 90% to pay for the (retirement) of less than 10%.” He went on to say, “Rocky Adkins is, absolutely, either intentionally misleading people, or is grossly ill-informed, with what it is he’s saying. That’s because this system is broken, because it is structurally unsound. We have more retirees than workers… You can’t have more retirees than workers and think you have a sound system. This is political ‘Clap-trap.’”
“The people who have time to protest, have time to protest, because people working second and third jobs, who are out there coaching their kid’s teams,” are the ones paying for this,” he says.
When asked point blank if Frankfort was going to raise taxes on the average worker, many of who don’t even have a pension and may earn less than state employees do, Bevin said “That is a possibility. I don’t want to see that happen. But a lot of these people that protest, that show up at the Capitol, just want to raise everyone’s taxes to pay this off.”
The 30 year fix
The current plan does not offer a quick fix. Bevin states, the purpose of his plan is to “fix this over the next 30 years.” He wants to “pay this off, get it off the backs of people for whom there will never be any benefit at all.” He says financial experts believe an investment of $60 billion dollars will fully meet funding requirements for the retirement system, based on “moderately conservative” assumptions.
So, the plan will require lawmakers to budget approximately 2 billion per year, nearly 5% of the entire current state budget, every year for the next 30 years.
When asked how this plan makes sure funds for fixing the pension fund problem will not be diverted into other things in the future, Bevin answered, “In this bill is something called, ‘Level dollar funding.’ It requires that the amount owed is broken into 30 pieces and, by law, is funded every year. You don’t have the option, by law, of not doing it.” Last year Bevin and lawmakers put $1.2 billion in the budget, the highest amount ever, for pensions. So, where will the extra $800 million each year come from?
“That is a really good question!” Bevin said, before adding, “Everything we don’t do in this plan, has to be made up in the budget. Budgeting in the years ahead is going to be brutal. It’s going to be very painful.” But, he noted again, this is why the pension system structure has to change. “You can not spend money you don’t have.”
Why no Social Security for teachers?
We asked the Governor why a state teacher, who worked in other jobs before, during or after teaching, has to pay into social security on their non-teacher income, but can’t get social security benefits. “Because we are one of 11 states who, long ago, said we are going to forego social security benefits to have our own plan. I have heard from people, (teachers), who wanted this changed. But when I met with the KEA, JCTA, and other groups representing teachers, they all said overwhelmingly, ‘we don’t want social security’. I said that’s not what I hear from your members.” However, Bevin added, “They sent me a letter, on their letterhead, that said we don’t want social security.” So, he says he changed the plan to accommodate the KEA and other groups representing teachers.
The “Death Spiral”
While the two are obviously related, the Governor said he split pension system problem from budget for two reasons. “One, it’s a lot to digest.” Secondly, he want’s to get the state out of what he calls the “death spiral.” Bevin defines death spiral as, “Just keep raising taxes. When you do that, credit ratings suffer, businesses leave, … people leave, … taxpayers leave. It becomes a death spiral. Financially, that’s exactly what we are in, a death spiral.”
The Governor said again he will be calling a special legislative session, “and it’s coming soon.” He believes, “We have to get this done before we get to other issues. We have to know what to budget.” The Governor went on to say, “Every dollar that goes into the pension problem, that has been ignored for decades, comes at the expense of our classrooms, of our law enforcement, of our roads. He notes, “Every dollar these protesters want” comes from the same state budget that provides the other goods and services they also want from the state. There is no magic pot of money this comes from.” “That is the difficult task our legislature has.”
So, given the legislative challenge, we asked the governor directly, do you have the votes to get this passed? His reply: “Absolutely. I am absolutely confident.” Bevin added, “It has to be done. Because, what’s the alternative? The alternative is to allow this system to fail and let this state bleed out? That’s not acceptable… We will get this done.”