Kentucky’s public pensions: What may be ahead and why it matters

Published 10:17 am Monday, November 11, 2019

By Brian J. Crall

Guest columnist

Editor’s note: Over the past 15 years the problems with public pensions, in general, and Kentucky’s public pensions systems, specifically, have become widely known. This three-part series attempts to help everyday Kentuckians better understand how we got here, where we are and, finally, what may be ahead and why it matters.

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Looking forward, Kentucky’s various public pension systems have a treacherous path ahead. The healthiest pension fund, Kentucky Teachers Retirement System, has only slightly more than half of the funds it projects it will need to provide the benefits it promised to Kentucky’s teachers. The most unhealthy plan has less than 15 percent of the funds it projects will be needed to provide the benefits promised to hundreds of thousands of public employees and affiliates.

Worse, they are in this position with the stock market at near record high levels and roughly 10 years since our last recession (which historically occur every seven years, on average). The number of active employees in state government is down more than 10,000 since the early 2000s, which means the number of active employees to non-active employees and retirees is inching toward the tipping point when there will be more people drawing from the system than contributing to it.

What most citizens don’t yet realize is that they are responsible for the unfunded liabilities in County Employees Retirement System (CERS) and KTRS through their taxes in their county as well as those in Kentucky Employees Retirement System (KERS) through their state taxes. Jessamine County, for example, just enacted a 10% tax on all insurance premiums paid in the county largely to cover increased employer pension contributions for all eligible county employees. This is just the beginning.

State government doesn’t have the funds to eliminate the $30-$40 billion dollar unfunded liability. Lobbying groups representing public employees know this and yet have not been willing to make reasonable and meaningful concessions on current benefits.

Many say raise the funds. Taxpayers do not have enough additional capacity to dent the unfunded liability even if tax rates in Kentucky were raised to the highest in the nation. Further, if we raise taxes like Illinois, it will similarly hurt the state’s economy by encouraging employers and their taxpaying employees to relocate to surrounding states with better-funded public pensions and lower income tax rates.

Those who suggest expanding gambling or legalizing marijuana will pay for pensions are ignoring the reality that they won’t. Last year, instant racing in the commonwealth generated more than $2 billion dollars in gross revenue for the tracks and casinos, yet only $30 million for the state’s general fund. From a public policy standpoint, counting on these as a solution is a bad bet for public pensions.

In the face of all of this, public employee groups will continue to be faced with pressure to make reasonable, relatively minimal, benefit concessions while public employers continue to face the pressure of paying historic amounts into their pension systems. It is also not unlikely that some group of taxpayers will file a class-action lawsuit challenging the “inviolable contract” and seek relief from the mounting tax burden imposed on them to provide pension benefits for public employees that they, themselves, have never had nor will ever get.

There are no easy answers or simple solutions. Only difficult decisions ahead.

Brian J. Crall, of Nicholasville, represented the 13th District in the Kentucky House of Representatives from 1995-2004. He was deputy secretary of the Governor’s Executive Cabinet from 2004-2006, secretary of personnel, Kentucky Personnel Cabinet from 2006-2007, a board member of Kentucky Retirement Systems and the Kentucky Deferred Compensation Board in 2006-2007 and chairman of the Governor’s Blue Ribbon Commission on Public Employee Pensions in 2007.