Pension reform: Will past performance be the best predictor of future behavior?

Editor’s Note: The Bluegrass Beacon is a weekly syndicated newspaper column posted on the Bluegrass Institute’s website after being published by newspapers statewide.

Action must be taken to address benefits given to Teachers’ Retirement System (TRS) members whichtaxpayers aren’t obligated to pay – especially considering the plan’s funding level continues to remain unhealthy even though the state is shoveling an entire $1 billion out of the $12 billion annual GeneralFund budget into it, and when common sense reforms won’t prevent beneficiaries from continuing toreceive ample-sized pension checks.

For example, many retiring teachers exercise a form of pension double dipping by applying the amount ofa benefit earned for unused sick days at retirement – retirees receive 30% of the value of 10 unused sickdays annually, up to 300 for their career – to their final year of salary, which spikes retirement benefits forthe rest of their lives.

Beau Barnes, deputy executive secretary of TRS operations, told the Public Pension Oversight Board (PPOB) at its July meeting that adding sick leave amounts to TRS members’ retirement calculations costtaxpayers $36 million in 2020 alone – and that’s before any interest costs for future payment plans of suchbenefits, which occur to cover past years’ sick-day spikes – are included.

While ending the practice of allowing retiring teachers to use sick day cash-out payments to spike theirpensions is not a panacea for all Kentucky’s public pension challenges, it would take a considerablechunk out of the additional $200 million TRS’ recent experience study claims the system needs in future years – on top of the $1 billion already being paid – to cover its obligations.

Local school districts offer and fund the initial sick day benefit teachers receive when they retire, whichisn’t so problematic.

In fact, it has the upside of providing an incentive which discourages teachers from unnecessarily callingin and setting off a process whereby a substitute must be found for the day with all associated costs and disruptions.

It’s the ongoing pressure on the TRS that must be relieved to keep it sustainable for teachers who relyupon it for their retirement and for taxpayers who pay most of its freight.

Calling it “a very expensive benefit,” Senate Majority Leader Damon Thayer, R-Georgetown, told me inan interview on WVLK radio that he supports allowing teachers to cash out their unused sick days whenthey retire and apply their already-accrued sick days to enhance their pensions.

However, “at some point, we’ve got to cut off that benefit moving forward – no more sick-day spiking.” Doing so wouldn’t deny TRS members from continuing to receive some of the most bountiful pension benefits among American teachers.

Wirepoints reports in a new comparison of pension benefits received by Illinois’ retiring teachers compared to the five largest states along with its neighbors that Kentucky’s TRS members leaving after 30 years enjoy some of the nation’s earliest retirement ages while also receiving among America’s most generous benefits packages, final average salaries, cost-of-living adjustments and starting pension checks when data is adjusted for regional price differences.

Passage of legislation during this year’s General Assembly session creating a new pension approach for teachers beginning their careers in the Bluegrass State proved that TRS reforms can occur in ways thathelp members by creating a sustainable system ensuring a more-secure future yet still offering a generous future defined benefit while also protecting taxpayers by shifting the risk to those who profit most from the plan.

Let the popular maxim “the best predictor of future behavior is past behavior” hold true when it comes to moving forward with more pension reform in Frankfort.

Jim Waters is president and CEO of the Bluegrass Institute for Public Policy Solutions, Kentucky’s free-market think tank. Read previous columns at www.bipps.org. He can be reached at jwaters@freedomkentucky.com and @bipps on Twitter.