Exclusive from Kentucky. A new drive-by attempt at pension theft.

Nina McCoy, a retired teacher from Inez, Kentucky, looks on as she and other 120 Strong protesters hold a rally outside the Capitol Annex on Wednesday as they protest teacher pension reforms. “Here they are again, trying to mess with our pensions,” McCoy said. “Nothing is going to work if someone isn’t paying into them.” Dec. 16, 2020. Photo: Louisville Courier Journal

By Randy Wieck, Kentucky teacher and pension activist. I asked Randy to bring us up to date in Mitch McConnell’s home state.

At a time when the Republican super majorities in the Kentucky Legislature would seem to have more pressing issues to face – Covid-shuttered schools and businesses, unemployment supplements, eviction waivers, universal Covid testing and tracing – they nonetheless carry on with a new drive-by attempt at teacher pension “reform” which, once again, is a thinly veiled attempt to dismantle (let us be honest and use the proper term – gut) the Kentucky teacher defined benefit pension plan; kill it once and for all.

The idea of properly funding the plan, according to relevant GASB accounting standards, and repairing the damage inflicted over several decades of underfunding – is one legislators choose to duck. Better to chisel Kentucky’s way out of the debt it has run up through using funds that should have gone to the teacher pension (known as the actuarially required contribution), and which were instead used for other purposes. Perhaps they are following the lead of Kentucky Senator Mitch McConnell who refuses to allow federal aid to states beset with heavy, unforeseen expenses during a worldwide pandemic.

Rather than supply much-needed and adequate funding to TRS, (some $2 Billion per year for the foreseeable future) legislators instead prefer to “reform” the plan, placing new-hires into the old “beating-a-dead-horse” hybrid pension system.

Why not simply begin to pay back the missing funding and repair the damage inflicted by the legislature, and not by teachers who have dependably paid one of the highest pension contribution rates in the country (13%)? 

Teachers who question the current “reform” proposal have been met by cries, such as that from Representative Kevin Bratcher R-Louisville, that teachers should get out of politics and elections because it “poisons the well” when pensions are discussed.

The current proposal of “reform” or dismantling the DB pension – has a 90% funded “trigger” which, when the plan falls below that percentage – permits the board of trustees of TRS to cut benefits: “If funding is below 90%, the TRS Board of Trustees shall utilize the adjustments necessary to maintain the trust funding until restored to at least 90%.”  One major problem: TRS is currently funded at 40%, despite the pollyannaish propaganda of its current managers. TRS has not been 90% funded since the early 2000s.

This is, in its simplest form, another “sewer” bill; you may remember that: where many of the same legislators attempted to push through TRS pension reforms in 2018, late in the night, in a bill where the word “sewage” was suddenly replaced by “pension”.  Luckily, teachers caught wind of that – no pun intended – and staged sick-outs, and converged in their thousands on the state Capitol. The legislators backed down. (PBS Frontline recounted these events in the Emmy-nominated documentary “The Pension Gamble” – worth a view). 

This time, teachers are home-bound, avoiding crowds, and struggling to supply acceptable virtual instruction. Yes – just the right time to attempt to slip this new pension reform sewage into law.

20 thoughts on “Exclusive from Kentucky. A new drive-by attempt at pension theft.

  1. Most likely Kentucky’s TRS funding problem is a “mouse” compared to the elephant in Illinois’ living room. Yet, you are worried about the teachers there. Besides being a great artist, you are a selfless humanitarian.

    1. Actually the Kentucky teacher pension fund has a larger unfunded liability than Illinois’ TRS without the constitutional protection we have.

      1. I looked, and found a link for underfunded state government employee pensions, not only for TRS.

        https://fee.org/articles/the-5-states-with-the-most-underfunded-public-employee-pensions/

        According to it, Illinois has a liability of $10,707 per resident, and Kentucky has a liability of $9,632 per resident. My guess is that Illinois’ “constitutional protection”, is not long for this world. I hope I am wrong. I can easily imagine TRS pensions being whittled down to zero.

      2. Unfortunately Kentucky does not have the constitutional pension protection that Illinois has.

  2. Public employees hired an investment manager in Kentucky that lost a lot of money. See –https://www.pionline.com/courts/kentucky-sues-blackstone-former-krs-execs-over-fiduciary-breaches

    There are lots of reasons for pension systems being underfunded. Life has lots of hazards. How do we decide which hazards should be should burden the taxpayers when it’s not their fault?

    Readers understand your position that public school teachers should have no risk Other than the Illinois court’s interpretation of the ambiguous constitutional provision, what philosophical, moral or other principle warrants your position? Remedies should not fix your problem while harming others. Your representatives (unions) made contracts with our representatives (legislators). None of these representatives foresaw the crises that now burden us all.

    Maybe if you and your ancestors suffered discrimination since 1619 you’d have a basis to seek special treatment. But as a retired white schoolteacher from the suburbs I don’t see it. Nor are you required to convince me because (absent a Biden Bailout) I have no financial risk. I just think that general public support from those asked to pay warrants your articulation of a rationale that makes sense.

    You lost the fight on graduated income tax. Property taxes simply lower everyone’s home values and speed the exodus from Illinois.

    1. You are wrong on a number of important points.
      There are not “lots of reasons” for my pension system’s underfunding. There is just one: 70 years of the state not meeting its contractual and constitutional obligation. Employees paid. Investment returns have been good. Only the state legislature’s refusal to consistently pay what it was legally required.
      The constitutional provision is not in the least ambiguous. It is precise and parsimonious. “Benefits shall not be diminished or impaired.” Only a fool would call that ambiguous. Or so the court said, if not in those exact words.
      The issue is not who should carry risk. A contractual agreement requires both sides to meet their obligations. One party to a contract cannot change the conditions of the contract unilaterally because of a crisis they themselves created. That is what the Illinois Supreme Court ruled in their unanimous decision. I suggest you read it.
      The court’s ruling was not dependent on the race of the public pension member. The court didn’t rule that it only applies to white teachers or Black teachers or Latinx teachers or women teachers or male teachers. All teacher members of TRS regardless of race or gender are united in demanding that contracts and the law treat us all the same.
      We’ve been fighting for that principle since America was founded.

      1. Lots of contracts get breached notwithstanding what the law requires. A state or municipality that has more debts than assets breaches contracts all the time. COVID-free tenants who can afford rent don’t pay and nothing can be done about it. Your supreme court can’t assess taxes. Your population voted down graduated taxes. One hopes you have the education and forensic skill to provide justification for the proposition that retired public employees stand at the head of the line among Illinois citizens and taxpayers. “All [people] are created equal” and “equal justice under law ” are also high-minded principles. What is it about teachers that sets them apart? Clearly the ability, collectively, to disrupt the rest of society gives them power. A “contract” gives them legal arguments. Take it to a higher level of abstraction and let us know what gives them the right?

      2. It is difficult for me to invest much time and energy with someone whose moral and legal commitment to the teachers of their community is that breaking contracts and promises happens all the time

  3. I agree that wrongs are committed all the time, and many contracts are attempted to be breached. Murder occurs all the time: society still considers it wrong, and seeks to exact justice. Contracts are meant to be honored; the exceptions to this do not change the basic principle. I doubt you, Jerry, would be so willing to accept egregious wrongs to you with the explanation “shit happens – get used to it.”

    1. I agree with your observations — but your ending quote does not express the point I am trying to make. The “system” provides a remedy for what happens when a municipality can’t keep its promises — bankruptcy. I’m not aware of any other remedy to resolve the problem in an orderly fashion. Absent bankruptcy, if the pension fund runs out of money the retirees and spouses who don’t get their checks and don’t get their health benefits paid will have to sue. Probably they’ll have to sue for one check at a time because there is no acceleration clause and the total amount owed depends on health and life expectancies. I understand that the state can’t file for bankruptcy and the state can block a municipal bankruptcy. That is the real world we live in absent a federal bailout. I think bankruptcy would be better than default but that’s a simple personal judgment and I don’t feel the need to go to confession for thinking that.

      That being legal reality as I see it, with many creditors already not being paid (including the sick and the poor), it seems appropriate to ask what gives retired public employees the right to be paid first and in full from the insufficient funds that are available. This is a philosophical and/or moral question. If you accept my premise that there simply won’t be enough money to pay everything that ‘s owed, then many of those whose claims and expectations can’t be met will be asking the same question.

      Fred has said on this site that he follows moral laws but is free to disregard immoral laws. I think it had to do with the draft and someone asked him how he could pick and choose which laws to obey. Fred has no trouble speaking for himself, but I hope he’ll publish my reply to you.

      At some point an official or a court or a legislature is likely to have to decide a question like “must we lay off active employees in order to pay retired employees?” Maybe that point will never come but the level of out-migration from Illinois is not a great portent. I’d agree that murder is an egregious wrong. If pension haircut or health insurance cutbacks are egregious wrongs then the bankruptcy court in Detroit committed egregious wrongs and many (including the judge) felt bad for them. “Shit happens” was not included in the ruling.

      I’m not the only one asking these questions and it wouldn’t hurt for public employees and retirees to start thinking of their answers because they are likely to be on the table after January 20th, when state and municipal bailouts start to get debated in earnest.

      Happy New Year.

      1. Alternative wordy, your legal and moral arguments are false. The state cannot declare bankruptcy because they have the ultimate ability to tax. The state’s moral obligations are to those who served with a promise of fair compensation, which includes a pension. Tax the rich. That is where the money is.

      2. This one’s for Fred: The bankruptcy law (Chapter 9) doesn’t apply to states. Cities also have the power to tax and that law does apply to them. My comments rely on a premise that there won’t be enough money and I’m looking for an explanation of public retirees’ moral logic at a time of scarcity. I could be wrong about revenue shortage — a premise is like a hypothetical. Think of it as a famine or a drought. Are you saying you get to eat and drink more because of a contract right? What are full pension and benefits other than the right to eat and drink more during such a time of scarcity … when under your theory you will BE the rich? Are the voters of Illinois immoral because they turned down the graduated tax proposal, making it illegal to tax the rich for the foreseeable future? I think you understand the issue and I’ll be interested in a substantive response.

      3. The problem here is that you seem to think that “substantive” means lengthy. There is no scarcity for the wealthy, and retired public employees are not rich by any definition. The average teacher retirement check is roughly 50K a year. Your notion that older people on a pension “get to eat and drink more,” is Trumpian bullshit. It is the argument Mitch McConnell used to prevent a vote on 2K by claiming it was “socialism for the rich.” You turn reality into fantasy. By the way, the defeat of the fair tax amendment does not make it illegal to tax the rich more. It the state simply taxed the rich what they owe it would be taxing them more.

      4. “Scarcity” referred to scarcity of revenue for the state and its political subdivisions. That there’s no scarcity for the wealthy is a given. “Average pension” includes many who did not work for a full career. I don’t support cutbacks of pensions for full-career teachers or other rank-&-file workers. “Wordy” or “Trump-like” are simply ad hominem barbs intended to divert attention from the fact that you have not responded to the questions posed. I am positing a situation which is much less of a fantasy than the notion that the problem can be easily solved by taxing the rich. The attempt to enable that failed at the ballot box. A flat income tax rate is part of the constitution just like the pension protection clause.

        I’ll agree that income and wealth distribution in the U.S. are unfair and that much of that unfairness now burdens the poor and middle-class. Similarly, I believe that much of the income/wealth was inherited or gained through tax and political systems that are corruptly perpetuated by the super-rich (many of whom supported Biden). It’s yet to be determined whether Hunter or The Donald did anything illegal. Unfair and illegal are not identical concepts.

        Federal bailouts are being sought because of the reality of insufficient state and local revenue — that’s “revenue scarcity” and it doesn’t seem to be a hypothetical. If there’s a bailout proposal it’s likely to be debated on both an affordability and a fairness basis. As a spokesperson for teachers and other public employees, I think you and others ought to be working on your arguments for how full payments to public retirees can be justified on the basis of fairness when so many others have no savings, little health care, and nothing but Social Security to look forward to.

      5. You have turned facts upside down. Pensions costs did not divert spending for other state functions. It was diverted pension funding for over 70 years that has caused the unfunded liability.

  4. Wow! File this move by the Kentucky legislature under, “Just how dumb do you think educators are?”
    Maybe the educators should all be smoking a cigarette after this one…

    Seriously, this move is such a naked attempt to abolish the defined benefit plan these educators earned and are due. It certainly leaves one astonished and in disbelief. I for one am getting so sick of elected officials making bad financial decisions, claiming ignorance about knowing what was wrong, and claiming the only way to fix things is for educators to relent on their promised and well-earned pensions. Funny how they always tell us how smart they are when they’re running for office.

    The public (in every state) needs to get educated and vote spend-happy politicians out. Unfortunately the ballot box is the only way to hold these irresponsible and dangerous people accountable.

  5. Any scarcity in the pension assets at this time was the creation of the KY legislature, and not teachers, over many years of ignoring the recommendations of actuaries hired by the state of KY to evaluate the health of the KTRS. If a theft has occurred – pension theft – why not make the pension whole again? Simply repay the borrowed, diverted, stolen – funding. Or perhaps it would be less harmful for teachers to stop work. Then the state could fire us all, as Reagan fired the air traffic controllers. THAT would teach us a lesson regarding our status in society. Yessiree.

  6. https://kycir.org/2020/07/23/attorney-general-revives-lawsuit-against-state-pension-officials-and-hedge-funds/

    The situation in Kentucky is simply fraud by investment managers who caused great losses. Those managers were picked by politicians who may have been Republican or Democratic. Those politicians presumably are immune from prosecution or personal liability. It’s like any and all decisions by people who don’t know or care what they are doing because they have no real stake in the consequences of their actions.

    The tough question is who should pay. Pay the malefactors, pay the lawyers, pay the judges, pay the experts etc. It’s easy enough to push it to the taxpayers. True, there may be no other recourse. But isn’t it a bit unfair to limit it to the Kentucky taxpayers? It’s like holding the citizens of New Orleans harmless against hurricanes. Or like subsidizing those with mansions at Kiawah Island, S.C. rebuild their homes after a storm surge.

    I don’t have any better solution than to say that everybody should be responsible for the misfortunes of the few. And I could make the argument that the USA should be more responsible because we have collectively accumulated more than our “fair share” of this world’s goods.

    I can’t prove it, but I expect that most readers would say that their current share of this worlds goods is just about right … maybe even too small. We condemn carbon emissions but drive our own cars. We claim COLA entitlement when famine overtakes Africa. We are selfish pigs who accept the premise that our city or state or nation should honor our expectations because we have contract rights or a better legal argument.

    Let me tell you a true story. At a public university the faculty negotiated a change in the health insurance so that the university had to pay for dependents defined as anyone living in the faculty member’s house during the time he/she lived there. Once the ink was dry, they began to invite sick children from Africa to spend the summer in their houses and to ask the university to pay for their transportation and medical care. This was the faculty’s idea of doing good at someone else’s expense. It cost the university millions of dollars. Were the faculty and their union representatives acting honorably, fairly, charitably? Each reader will have his/her own view on this but I think most would agree that this type of arrangement could bankrupt the university (however well intentioned). But, sure enough, it was in the contract. You won’t read about it in the press because the university and the faculty were too embarrassed.

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