Attention, Kentucky: Closing a Pension Is Never a Good Idea

Jennifer Watkins

Those who do not learn from history are doomed to repeat it—and it’s prime time for Kentucky lawmakers to learn a history lesson.

Kentucky’s public pension funds face very real challenges, caused by decades of underfunding on behalf of the state. While public employees contributed with every paycheck, the state continuously kicked the can down the road. Now, rather than address the state’s pension problems with sound economic policy, political interests seek to close Kentucky’s pension systems and place newly hired employees in a 401(k)-style defined contribution plan.

A report released today by consulting firm PFM recommends the switch away from pensions, while also suggesting several other radical changes, including increasing the retirement age for public employees. The report relies upon junk math that has been discredited in other states in the past, in order to push Gov. Matt Bevin’s political agenda. PFM promotes a failed model, recommending measures that will damage both the fiscal health of the state and the recruitment and retention of public servants.

We’ve said it before and we’ll say it again: Closing a pension system is never a good idea. One need look no further than the states and cities that have closed their pension systems to learn of the costly ramifications that follow.

In 1997, the Michigan State Employees’ Retirement System (MSERS) pension plan was closed and new hires were placed in a 401(k)-style plan. At the time of the plan’s closure, the funded status was 109%. With no new employees paying into the pension fund and an aging demographic, plan costs soared and the funding level dropped; by 2012, the plan was severely underfunded at 60.3%. After 20 years under the 401(k) plan, the state’s Office of Retirement Services found that the median balance in these accounts is just $37,260.

While Michigan continues to suffer the consequences of the MSERS closure, other states and municipalities have realized the error of their ways and taken steps to reinstate closed plans.

In 2005, West Virginia reopened its pension system for teachers after closing the plan in an attempt to improve funding levels in the early 1990s. In less than a decade after the plan’s reopening, funding levels more than doubled and teachers now enjoy access to a secure, dignified retirement.

After the Great Recession decimated 401(k) accounts across the country, state employees in Connecticut banded together and campaigned for the right to join the closed state pension system. They were successful, and in 2012, transfers out of the faltering 401(k) plan and into the pension began. Estimates place the total cost savings for the state of Connecticut as a result of these transfers at $10 million per year.

State employees weren’t the only ones in Connecticut to recognize the value of a pension: Firefighters in the city of New London moved back to a pension in 2014 after the previous defined contribution plan failed to provide adequate financial security for retirees.

Aside from providing employees with the most secure retirement, pensions also serve as a valuable tool to recruit and retain talented workers. In 2012, the city of Palm Beach, Fla., moved from a traditional pension to a hybrid defined benefit-defined contribution plan. The city lost 24 public safety officers to neighboring jurisdictions and another 28 left the following year. Without competitive retirement benefits to offer, Palm Beach’s police and fire departments were inexperienced and understaffed. In 2016, the city council voted to return to a traditional defined benefit pension.

PFM’s recommendation to close Kentucky’s pension systems and shift workers into a 401(k) is faulty and politically driven. Their report seeks to promote Bevin’s political agenda, rather than to offer constructive solutions for Kentucky’s pension systems. Their 401(k) "solution" has been tried before and, as history shows, it’s the wrong choice for all parties involved.

This post originally appeared at National Public Pension Coalition.

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Posted In: Allied Approaches, From AFL-CIO

Union Matters

Failing Bridges Hold Public Hostage

From the USW

From tumbledown bridges to decrepit roads and failing water systems, crumbling infrastructure undermines America’s safety and prosperity. In coming weeks, Union Matters will delve into this neglect and the urgent need for a rebuilding campaign that creates jobs, fuels economic growth and revitalizes communities.

The Seattle Department of Transportation (SDOT) gave the public just a few hours’ notice before closing a major bridge in March, citing significant safety concerns.

The West Seattle Bridge functioned as an essential component of  the city’s local and regional transportation network, carrying 125,000 travelers a day while serving Seattle’s critical maritime and freight industries. Closing it was a huge blow to the city and its citizens. 

Yet neither Seattle’s struggle with bridge maintenance nor the inconvenience now facing the city’s motorists is unusual. Decades of neglect left bridges across the country crumbling or near collapse, requiring a massive investment to keep traffic flowing safely.

When they opened it in 1984, officials predicted the West Seattle Bridge would last 75 years.

But in 2013, cracks started appearing in the center span’s box girders, the main horizontal support beams below the roadway. These cracks spread 2 feet in a little more than two weeks, prompting the bridge’s closure.

And it’s still at risk of falling.  

The city set up an emergency alert system so those in the “fall zone” could be quickly evacuated if the bridge deteriorates to the point of collapse.

More than one-third of U.S. bridges similarly need repair work or replacement, a reminder of America’s urgent need to invest in long-ignored infrastructure.

Fixing or replacing America’s bridges wouldn’t just keep Americans moving. It would also provide millions of family-supporting jobs for steel and cement workers, while also boosting the building trades and other industries.

With bridges across the country close to failure and millions unemployed, America needs a major infrastructure campaign now more than ever.

 

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There is Dignity in All Work

There is Dignity in All Work