Pension consultant's recommendation for new teacher hires could cost Franklin Co. system $1.6 million and Frankfort Ind. nearly $300,000 annually in Social Security contributions
State Journal, Frankfort, Sept. 3, 2017
Putting teachers 1st?
By Alfred Miller
Local school districts eye pension reform recommendations warily
Kentucky public school teachers had a rough week. On Monday, consultants evaluating the state’s severely underfunded retirement systems recommended imposing a new retirement age of 65 for teachers and cutting various benefits, prompting fears that teachers would start retiring in droves before any such changes were adopted.
Under the current Kentucky Teachers’ Retirement System (KTRS) plan, teachers can receive full benefits at any age with 27 years of service or at 55 with 5 to 10 years of service, depending on whether they were hired before or after July 1, 2008.
When Gov. Matt Bevin, in a Facebook Live video later that day, tried to reassure teachers that “we’re not going to pass anything that will cause a person to wish that they had retired earlier as a result of it,” he followed with comments that inflamed the passions of many against him.
“We’re just not going to do it,” he continued. “Why cut off our nose to spite our face? But I will say this, if you happen to be a teacher who would walk out on your classroom in order to serve what’s in your own personal best interest at the expense of your children, you probably should retire. I’m being completely serious. If that’s truly where you are at this stage in your career, I wouldn’t suggest that being in a classroom is probably the best use of your time. And yet I know for a fact that almost all of you teachers that are watching this don’t think that way.”
“A lot of times, when these political processes begin, it’s a negotiating point,” said Franklin County Schools Superintendent Mark Kopp.
While the consultant recommendations were “very concerning for all educators,” Kopp said he appreciated Kentucky Education Commissioner Stephen Pruitt’s own video message sent to educators Thursday, urging them to focus on instructing students.
“I think most of it is rhetoric right now,” said Frankfort Independent Schools Superintendent Houston Barber. “Therefore, we’ve just remained focused on what we’re doing with children.”
That rhetoric, however, implies a starting point in negotiations that some consider drastic, especially for a retirement system that, at a funding level of 54.6 percent, is in far better shape than the 16-percent-funded KERS (Kentucky Employees Retirement System) non-hazardous pension plan. Both plans have about 120,000 active and retired members.
“While they are in better shape, they are not in good shape,” State Budget Director John Chilton told the Public Pension Oversight Board on Monday, pointing to both KTRS and the 59-percent-funded County Employees Retirement System (CERS) non-hazardous pension plan.
Chilton went on to compare the situation to not making one’s mortgage payments.
“Ignoring what’s going to occur in the future, so far, you’ve only paid 60 percent of what should have been paid,” said Chilton, who noted that if the plans were subject to the same Internal Revenue Code that private plans are, the IRS would have already frozen the benefits.
Making those full “mortgage payments” will require significant changes to the retirement benefits of both current KTRS participants and future ones, according to consultant PFM.
For current plan participants, PFM recommended keeping the current “defined-benefit” plan, provided KTRS establish a retirement age of 65; eliminate “enhanced benefit features” such as the ability to use one’s three highest salaries to calculate pension benefits as well as the ability to cash in unused sick days for pension credit; eliminate “some or all of the portion of any pension benefit payments resulting from COLAs (cost-of-living adjustments) granted between 1996 and 2012”; and suspend future cost-of-living adjustments until the system reaches the 90-percent-funded level.
For future hires, PFM recommended establishing a 401(k)-style “defined-contribution” plan in which the maximum employer contribution would be 5 percent of salary combined with a retirement age of 65 and the enrollment of future hires in Social Security, something that is generally not now provided for non-university KTRS members. The 6.2 percent employer contribution for Social Security participation would then likely fall to local school districts.
“This approach would better align this salary-driven benefit cost with the salary-setting negotiations and decision-making occurring at the local level,” PFM says toward the end of its report. “Because this cost would only be applicable for new hires, the budget impact for school districts would phase in gradually, providing school districts with time to manage and plan for this new fiscal responsibility.”
In other words, local school districts would have to figure out how to come up with what could ultimately be a very significant portion of their budgets. Franklin County Schools estimates its Social Security payment could be over $1.6 million, while Frankfort Independent Schools says its contribution could be $290,000.
“Hypothetically speaking, that would be a challenge for every district to provide the support necessary to make that happen,” Barber said.
Last year, Frankfort Independent contributed $186,000 to KTRS and Franklin County contributed $990,000. Local districts must contribute 3 percent of the salaries of teachers receiving state money to the KTRS health insurance pool and 16.1 percent of salaries of teachers receiving federal money to the KTRS health insurance and retirement pools. The state, meanwhile, contributed $614,000 last year on behalf of Frankfort Independent and $4 million on behalf Franklin County to KTRS.
“If it ever came to that point, we would hope the state would increase its obligation of putting revenue into the SEEK formula,” said Franklin County’s Kopp, referring to the Support Education Excellence in Kentucky (SEEK) funding program that determines how much state funding local school districts receive. “Otherwise, seriously, we’d have to significantly cut staff to meet that amount. That would be very difficult — there’s no other way of saying it.”
Posted: Sunday, September 3, 2017