End practice of using sick-day benefit to spike pensions

Editor’s note: The Bluegrass Beacon is a weekly syndicated newspaper column posted on the Bluegrass Institute’s website after appearing in publications statewide.

The premise behind allowing local school districts to reward retiring teachers for unused sick days is understandable.

It’s meant to ensure teachers are in their classrooms as much as possible, reducing the interruption for students caused by absences which occur when districts must scramble to find and pay substitute instructors who, in most cases, aren’t able to maintain the same learning pace.

However, the way these benefits are determined and then applied games the system to the point where the sick-day benefit alone is indefensibly costing Kentucky taxpayers millions of extra dollars annually.

It’s reasonable to allow teachers to receive a lump-sum payment at retirement for 30% of the value of the accumulated sick days – up to 10 a year and 300 in a career for most now working in the commonwealth’s public schools.

What’s unreasonable is how the law found in KRS 161.155 artificially inflates these benefits by mandating that “each unused sick leave day shall be based on a percentage of the daily salary rate calculated from the employee’s or teacher’s last annual salary” rather than salaries in the years in which sick days were actually accumulated.

New teachers in the Jefferson County Public Schools (JCPS) with a bachelor’s degree earn under $45,000 while certified specialists who’ve been in the classroom for 30 years are paid around $80,000.

Since Kentucky teachers have a 187-day contract, the difference in daily pay is significant – less than $240 per day for a new JCPS teacher versus more than $400 for a colleague who’s taught for three decades.

Paying the higher per-day rate to all beneficiaries drastically spikes retirement calculations and costs.

But this practice isn’t even the costliest.

Where the cost of artificially inflating the per-day determination of sick-day benefits really climbs is through the current practice of adding the amount of that one-time payment to salaries paid retiring teachers in their final year of work.

Since the total amount of retired teachers’ pensions are determined by the salaries earned during their last three or five years, dumping sick-leave lump sums into that final years’ salary spikes pensions and socks it to taxpayers in the private sector who, if they receive a sick benefit, certainly can’t use it to bloat their retirement checks.

Beau Barnes, executive secretary of the Teachers’ Retirement System (TRS), testified at this month’s Public Pension Oversight Board meeting that the sick-leave policy costs Kentucky taxpayers $47 million annually. That’s in addition to the $408 million of previous unfunded sick liabilities – a cost that nearly doubles if paid out over the planned 20-year period.

Barnes also disclosed that some school districts – TRS doesn’t know which ones – allow teachers to convert unused personal days to sick days, further inflating their final salaries, which over-enhances their lifetime retirement pay.

Districts are responsible for only the 30% lump-sum payments while the state covers the lifetime cost of such spiking. What incentive, then, do local districts have to ensure sick days aren’t used to draw inflated checks from the retirement system?

Legislators are currently addressing some of the commonwealth’s pension crisis by fully funding the retirement systems at a cost to taxpayers of more than $1 billion per year.

Still, passage of a new biennial budget during this year’s legislative session reminds us that thorny challenges remain. Even as lawmakers appropriated an additional $479 million to pay down TRS debt, billions in unfunded liabilities loom along with unacceptably low funding levels for the state workers’ and teachers’ pension plans.

As we spend more to fill these deep pension holes, let’s ensure personal days aren’t turned into sick days and end the practice of allowing retiring teachers to use a one-time, lump-sum sick-day payment to spike their pensions for a lifetime.

Jim Waters is president and CEO of the Bluegrass Institute for Public Policy Solutions, Kentucky’s free market think tank. Reach him at jwaters@freedomkentucky.com and @bipps on Twitter.