Rottenness in Denmark and Kentucky

By MARSHALL WARD

“Something is rotten in the State of Denmark” is one of the most famous lines from Shakespeare.

It’s in Hamlet. Marcellus, a guard at the Helsingor Palace, speaks the line to Horatio, Hamlet’s best bud.

Something is rotten in the Commonwealth of Kentucky, too, if you're a public employee dependent on a public pensions. Or it will be if Gov. Matt Bevin and his allies in Frankfort have their way.

The governor—hopefully for not too much longer—has let it be known that he is all in for hedge fund guys and Wall Street hucksters taking over the billions and billions of dollars in the states’ pension fund coffers. They can’t wait to get their hands on huge commissions which will be paid straight out of retiree benefits. Of course, that will create the need for greater employee contributions to their pension funds.

Truth be told, the real goal of Bevin and his Republican allies in the legislature is to have ZERO public pensions in Kentucky. “The state has no business to be in pension activities,” said a former Bevinite Republican state representative from Western Kentucky.

I don’t know how many of my fellow Kentuckians know it, but Kentucky teachers receive not one nickel in Social Security upon retirement because the state has never allowed them to pay into it. You can argue on either side whether that was a wise move back in the day, but the fact remains that teacher retirement benefits are not adequate for many teachers. Yet in 2019 teachers pay 12.85 percent of their salaries into retirement funds, according to the Lexington Herald Leader, while American employees in the Social Security system pay only 6.2 percent of their salaries for Social Security (up to a salary cap), and their employers match that, paying 6.2 percent into the system, the IRS website says.  

I was lucky. I taught in South Carolina for 20 years and in Kentucky for another 20 years. I receive a reduced Social Security check plus Kentucky and South Carolina retirement. Without the Social Security check, I would be a nice car payment short of what I need to survive into the 21st century.

And remember folks, this is it. I will not get any more. As costs rise over the next 20 years, I will be left in the dust to pay for ever-increasing costs-of-living even with cost-of-living adjustments

So Bevin and his friends want to put teachers, firefighters, police officers, city and county employees, universities staff and other public servants into 401k’s. Well, teacher salaries are pretty low in the Bluegrass State. A 401(k) plan is pegged to business cycles that naturally fluctuate. Typically, teachers lack the expertise to invest well. (Nobody goes into teaching to get rich.)

Here’s the bottom line: Under a 401(k) plan, teachers might not be able to retire because they won’t have enough income to support themselves and their families.

All evidence points to defined pension benefits plans as superior to all other plans.

Now I want you to think about the long game. The Republicans and Matt Bevin believe they can fool you into giving them four more years in the governor’s mansion. They say that they have fully-funded teacher pensions for the last two years. That’s true. They have restored the health care provisions for teachers. That’s true, too.

But wait a minute, what’s to prevent a reelected Bevin and his House and Senate majorities from changing their minds, stop funding pensions and force teachers into a risky 401()k) plan?

The answer is simple: nothing.

The fix is already in. The Republicans are already sending letters to the editor at small town newspapers. Their strategy is the big lie. They are trying to  totally discredit the pension system by using the phrase, “NEGATIVE CASH FLOW” to describe what is happening to the state pension systems.

The “sky is falling” scare tactic is always the fallback position in the Republican play book. Cut, Cut, Cut our way to prosperity? Typical GOP double-speak.

But guess what? In “Understanding the Impact of Negative Cash Flow on a Public Pension Plan,” Lance Weiss, an authority on public pensions, says that negative cash flow is not an indication of financial distress for a pension plan. We deserve facts, not fake news.

Weiss writes that all pension plans are expected to have negative cash flow over time. When assessing cash flow in a pension plan, it is important to remember why the plan has assets – to pay benefits.

In fact, the primary purpose of pre-funding (all those paycheck deductions over the life of your employment) is to put that money to work (return on investment) to pay a significant portion of the benefit payment.

For example, the Teachers Retirement System (TRS) has about $21 billion dollars in assets. It has had over many years an average of about 8 percent return on investment (ROI). That is one of the top returns in the USA. It can be done!

Fool me Once, Shame on You; fool me twice, shame on me.

Fellow Kentuckians, “something is rotten in the Commonwealth” or will be if Bevin wins on Nov. 5.

But if ole Muscovite Matt loses, he can skedaddle back to New Hampshire or maybe Russia with Moscow Mitch.

-- Marshall Ward is president of the Calloway County Retired Teachers Association.