Kentucky Pension Crisis Goes Nuclear As Teacher Retirements Surge 64% Over Last Year
As the Carrier-Journal points out today, Kentucky's Teachers' Retirement System saw a 64% surge in teacher retirements YoY in the month of September. Meanwhile, system-wide retirements increased a staggering 37.4% in September and are up 23% so far in October.
Of course, as we've pointed out so many times in the past (see: One Chart Explains What Bernie Madoff And Kentucky Public Pensions Have In Common), every successful ponzi scheme requires precisely one critical component to keep it afloat: a steady stream of fresh capital to fund redemptions. Inversely, every ponzi meets it's inevitable doom when participants finally realize they've been duped and all rush for the exits at the same time, which Kentucky employees now seem to be doing.The number of public employees deciding to retire has surged in recent weeks as the governor and legislative leaders prepare to enact a pension reform plan this fall.
The Teachers' Retirement System has received applications of 120 members who have decided to retire on Nov. 1. That's up 64 percent over the 73 members who retired on Nov. 1 of last year.
And Kentucky Retirement Systems reported this week that 677 state and local government employees across Kentucky have submitted notices they will retire this month, an increase of about 23 percent over the 551 retirements the system saw in October of last year.
The increase at KRS was even larger in September when 746 employees decided to retire — a jump of 37.4 percent over September 2016.
Beau Barnes, deputy executive secretary and general counsel for the Teachers' Retirement System, said, "I've not spoken with (the retirees) so I don't know exactly why we see the increase. But we've been getting lots of calls here from members concerned about what's going on."
Not surprisingly, Governor Bevin and others have tried to calm the mass exodus which could very well thrust their state into outright chaos, but Kentucky employees have chosen to take the "better safe than sorry" approach.
The surge in retirements occurs even as Gov. Matt Bevin and legislative leaders have been assuring employees and teachers for months that there is no need to make a rash decision to retire. That's because they say that any reforms passed into law at a special legislative session this fall will not take effect immediately and employees will have time after that session to retire under the same terms as if they would retire now.
"I believe, and appreciate, the governor and the legislative leaders' commitments to giving employees time to make an informed decision," McKim said. "But I guess there are some people who are taking what they think is a 'better safe than sorry' approach."
Larry Totten, president of the advocacy group Kentucky Public Retirees, said, "In spite of my advice, we've seen some panicking and jumping by some people who are worried."
So what does Kentucky have to do to solve their pension crisis? Well, as it turns out they hired a pension consultant, PFM Group, in May of last year to answer that exact question. Unfortunately, PFM's conclusions, which include freezing current pension plans, slashing benefit payments for current retirees and converting future employees to a 401(k), have been ill-received by pensioners. Be that as it may, here is a recap of PFM's suggestions to Kentucky's Public Pension Oversight Board courtesy of the Lexington Herald Leader:
Meanwhile, even if all of that is accomplished, State Budget Director John Chilton recently said that Kentucky would still need to find an extra $1 billion a year just to keep its frozen pension systems afloat. Moreover, absent tax hikes the state will ultimately be forced to cut funding for K-12 schools by $510 million and slash spending at most other agencies by nearly 17% to make up the difference.An independent consultant recommended sweeping changes Monday to the pension systems that cover most of Kentucky’s public workers, creating the possibility that lawmakers will cut payments to existing retirees and force most current and future hires into 401(k)-style retirement plans.
If the legislature accepts the recommendations, it would effectively end the promise of a pension check for most of Kentucky’s future state and local government workers and freeze the pension benefits of most current state and local workers. All of those workers would then be shifted to a 401(k)-style investment plan that offers defined employer contributions rather than a defined retirement benefit.
PFM also recommended increasing the retirement age to 65 for most workers.
The 401 (k)-style plans would require a mandatory employee contribution of 3 percent of their salary and a guaranteed employer contribution of 2 percent of their salary. The state also would provide a 50 percent match on the next 6 percent of income contributed by the employee, bringing the state’s maximum contribution to 5 percent. The maximum total contribution from the employer and the employee would be 14 percent.
For those already retired, the consultant recommended taking away all cost of living benefits that state and local government retirees received between 1996 and 2012, a move that could significantly reduce the monthly checks that many retirees receive. For example, a government worker who retired in 2001 or before could see their benefit rolled back by 25 percent or more, PFM calculated.
The consultant also recommended eliminating the use of unused sick days and compensatory leave to increase pension benefits.
In the end, of course, this just puts all federal taxpayers one step closer to fulfilling their "patriotic duty" to bail out a fraudulent, failing state pension system...which will be quickly followed by Illinois, New Jersey, Pennsylvania...
by Tyler Durden
Oct 11, 2017 5:40 PM
Back in July, the state of Illinois narrowly avoided a junk bond rating with a last minute budget deal that included a 32% in hike in income taxes. Republican Governor Bruce Rauner vetoed the budget and called it a "disaster," but both houses of the state legislature voted to override his veto.
Meanwhile, S&P and Moody's were apparently both convinced that the budget deal was sufficient for the state to remain an investment grade credit and all lived happily ever after, if just for a few months.
But, with the state's past due payables hovering around a record $16 billion...
...which is a 3-fold increase over the past two years...
...one has to wonder, as we have on many occasions, just how solid Illinois' credit rating really is.
But as staggering as Illinois' $16 billion in unpaid contractor bills is, per a report from the Associated Press today, it may not even fully reflect the true extent to which the state has stiffed its vendors.
Of course, in the end, it's Illinois taxpayers who end up getting hurt the most as the state is racking up penalties of 1% per month on unpaid bills that are outstanding for more than 90 days. As the AP points out, there is roughly $5.5 billion worth of trade claims that are past 90 days overdue meaning that taxpayers are paying just over $650 million a year to cover interest payments on unpaid contractor bills.Illinois is chasing a moving target as it tries to dig out of the nation's worst budget crisis, and a review obtained by The Associated Press shows $7.5 billion worth of unpaid bills — as much as half the total — hadn't been sent to the official who writes the checks by the end of June.
Although many of those IOUs have since been paid, a similar amount in unprocessed bills has replaced them in the last three months, Comptroller Susana Mendoza's office said Monday. That's in addition to $9 billion worth of checks that are at the office but being delayed because the state lacks the money to pay them.
The mound of past-due bills tripled over the two years Republican Gov. Bruce Rauner and Democrats who control the General Assembly were locked in a budget stalemate, which ended in July when lawmakers hiked income taxes over Rauner's vetoes.
In some cases, agencies were waiting to send their receipts to Mendoza because lawmakers haven't approved the spending. For example, the Department of Corrections had $471 million in unpaid bills on hand as of June 30 largely for that reason.
"Ascertaining the precise nature of the state's past-due obligations and liabilities is an essential component of responsible cash and debt management," the Democratic comptroller wrote in a letter to Republican Rep. David McSweeney, a budget hawk from Barrington Hills who requested the review.
Mendoza and McSweeney plan to use the findings to urge lawmakers to override Rauner's veto of legislation that would require monthly reporting of bills not yet submitted for processing. The measure, authored by Mendoza's office, would include a breakdown of how old each bill is and which ones have received legislative approval to be paid.
The age of bills is important because many that are 90 days or older face a 1 percent-per-month late-payment fee; about $5.5 billion of the current $15.9 billion backlog is subject to the penalty. Mendoza estimates the state will ultimately pay $900 million in late-payment fees on the existing pile of debt.
The Department of Central Management Services, which handles personnel, procurement and employee health care, has most of the June 30 bundle, with $5.8 billion. That's mostly doctor's bills owed to employee medical providers under the state group health insurance plan.
Add that to the state's $130 billion pension underfunding...
...and you start to understand why Illinois bonds are trading well over par and near all-time highs...makes perfect sense really.