Economic Consequences of Pension Cuts Concern Teachers

Thanks to Ken Wolf of the CCRTA for sending us this.

Kentucky Governor Bevin’s plan to reform public pensions will have serious economic consequences for all Kentuckians, according to Marshall Ward, President of the Calloway County Retired Teachers Association (CCRTA), a branch of the 31,000 member Kentucky Retired Teachers Association (KRTA).

At a recent meeting, officers of the local CCRTA discussed recommendations made to the Governor by the PFM Consulting Group on August 28.  Among the suggestions were:

  • Cutting past and future cost of living adjustments given to public employees;
  • Moving current state workers and new teacher hires into a 401(k) plan to replace the current defined benefit plan and allowing teachers to pay into and collect social security—whose employee benefits would be paid by local school boards;               
  • Combining the Teachers Retirement System (TRS), now separate, with the Kentucky Employees Retirement System (KERS) and the County Employees Retirement Systems (CERS).

While officers of the CCRTA appreciate the need to address the current shortfall in the pensions systems, they point out that saving money in the way proposed by PFM will bring serious economic problems in the future.

“In Calloway County alone,” Marshall Ward noted, “the reduction in pension benefits that are projected by this report could mean that $3 million to $5 million less would be spent by the 600 retired teachers in our county. This estimate is based upon the amount of pension money that was sent to our retired teachers last year.”  

When we add the dollars paid in pensions in the other Purchase Area counties, he said, the amount of public pension money in our region comes to 150 million dollars.  “Any cuts to current or future public pensions will have significant negative effects on both business and government income in our state,” according to Ward.

CCRTA officers also question the wisdom of combining all of the public pension systems. They point out that the Teachers Retirement System made more conservative investment decisions than did the directors of the KERS and thus TRS assets would be weakened by such a combination.

Ward said that Kentucky teachers are not allowed to pay into nor collect any Social Security benefits and so are very dependent upon the promises made that their pension benefits would be secure.  A recent report from the Kentucky Center for Economic Policy pointed out that “defined benefit plans work well because they create large investment pools, which limit costs for an individual by spreading them over many employees.”

The report added that defined benefit plans also “use professional investment managers [who] are able to generate higher returns than individuals can realize [doing their own investing] in 401(k) defined contribution plans.”