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

Get to Know AFL-CIO's Affiliates: National Association of Letter Carriers

From the AFL-CIO

Next up in our series that takes a deeper look at each of our affiliates is the National Association of Letter Carriers.

Name of Union: National Association of Letter Carriers (NALC)

Mission: To unite fraternally all city letter carriers employed by the U.S. Postal Service for their mutual benefit; to obtain and secure rights as employees of the USPS and to strive at all times to promote the safety and the welfare of every member; to strive for the constant improvement of the Postal Service; and for other purposes. NALC is a single-craft union and is the sole collective-bargaining agent for city letter carriers.

Current Leadership of Union: Fredric V. Rolando serves as president of NALC, after being sworn in as the union's 18th president in 2009. Rolando began his career as a letter carrier in 1978 in South Miami before moving to Sarasota in 1984. He was elected president of Branch 2148 in 1988 and served in that role until 1999. In the ensuing years, he worked in various roles for NALC before winning his election as a national officer in 2002, when he was elected director of city delivery. In 2006, he won election as executive vice president. Rolando was re-elected as NALC president in 2010, 2014 and 2018.

Brian Renfroe serves as executive vice president, Lew Drass as vice president, Nicole Rhine as secretary-treasurer, Paul Barner as assistant secretary-treasurer, Christopher Jackson as director of city delivery, Manuel L. Peralta Jr. as director of safety and health, Dan Toth as director of retired members, Stephanie Stewart as director of the Health Benefit Plan and James W. “Jim” Yates as director of life insurance.

Number of Members: 291,000 active and retired letter carriers.

Members Work As: City letter carriers.

Industries Represented: The United States Postal Service.

History: In 1794, the first letter carriers were appointed by Congress as the implementation of the new U.S. Constitution was being put into effect. By the time of the Civil War, free delivery of city mail was established and letter carriers successfully concluded a campaign for the eight-hour workday in 1888. The next year, letter carriers came together in Milwaukee and the National Association of Letter Carriers was formed.

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There is Dignity in All Work

There is Dignity in All Work