For The Oldham Era
Published: March 18, 2015
By RAE HODGE
Approximately 50 percent of Kentucky’s 40,000 public school teachers are already eligible to retire. If all–or even most–retire this year, they might not have a pension to retire on. The state’s public school teachers aren’t allowed to draw Social Security when they retire. Nor are they allowed to draw their spouse’s Social Security if their spouse dies.
When the pension money runs out, many of the teachers who spent their lives and careers educating generations of Kentucky families could have no income to live on.
“We’re very concerned. If these teachers retire, the Kentucky Teacher Retirement System has to have money in the bank to meet payroll,” said Stephanie Winkler, president of the Kentucky Educators Association.
“If they don’t do anything now we’re going to be $500 million in the hole by this time next year. It’ll be $500 million that needs to be made up in liability that the state owes. The more we do now, the better off we’re going be later on.”
House Bill 4 is one proposed solution. Sponsored by Kentucky House Speaker Greg Stumbo, D-Prestonsburg, the bill sought to allow KTRS to use $3.3 billion in state bonds to pay out debts. By doing so, Stumbo argued, KTRS could prevent accumulating more debt as inflation rates rise nationally. Debt would instead be locked into a low-interest bond rate.
On Mar. 13, however, the bill was gutted in the Republican-controlled state Senate, where opponents removed all funding provisions, and replaced them with instructions that the issue would be studied instead.
“As much as we were disappointed by what the Senate did to the bill, it’s understandable,” said Winkler. “It’s a huge amount of money. And we felt encouraged that both sides seemed to want to keep the dialogue going. We’re hopeful the conversation isn’t over.”
Ninety percent of students in Kentucky attend public schools. In Oldham County Schools alone, there are approximately 850 teachers handling 12,017 students. The KEA reports 150 certified members, which also include librarians whom have teaching certification.
Tracy Green, spokesperson for Oldham County Schools, backs the move to bond KTRS’ debt.
“We support the bond funding,” said Green, who added that the pension problems in both KTRS and Kentucky Employee Retirement Systems overlap for those who aren’t teachers, “And the rest of our employees go through KERS so (the liability) is bad for everyone employed here.”
Green also said that Oldham County Schools’ Superintendent Will Wells has contacted both state Sen. Ernie Harris state Rep. David Osborne, both Prospect Republicans, to express their support for the bonding bill.
When asked whether the school would be supportive of the Republican plan to study the bonding before taking action, Green described the schools support for immediate action from the legislature, concerning the rising interest rates of KTRS’ debt.
“Because of the low interest rate, bonding makes sense now, and it might not make sense later,” she said.
Winkler said the current strain to pay member benefits has caused the KTRS to start selling property.
“Right now we’re having to liquidate assets to make payroll,” said Winkler.
She says the source of the problem isn’t that the Kentucky General Assembly hasn’t been making their Actuarially Required Contribution (the amount of money, known as the ARC, which the legislature must put in the KTRS pot in order to balance the books every year), “but that they are not going back and reviewing the changes in inflation and expense.”
The unaddressed changes have resulted in the pension fund having only 54 percent of what it needs in order to pay out to those teachers who are eligible to retire.
Rep. Osborne said the calculations needed to secure the pension “have been talked about considerably among House members, which is one reason we’re cautious. The KTRS is making assumptions of 7.5 percent returns.”
The expectation that the KTRS’ can achieve 7.5 percent investment has received round criticism, particularly following the re-evaluation of the aggressive 6 percent expected-but-not-achieved rate of return for the KERS.
“There’s no reason to expect that they can get those returns,” said Osborne. “If they haven’t been able to do 7.5 percent in the kind of upward market we’ve had recently we might need to re-evaluate. So I don’t have any faith in those numbers.”
But Osborne relented, admitting that the legislature is actively seeking out professional investment opinions. “At the end of the day, if all the professionals rally around and sing Kumbaya and agree that 7.5 percent is right, then we have to do it.”
Osborne’s concerns also center on creating a structure for KTRS’ future.
“It’s premature to throw money at it but that said we’re ultimately going to have to start the process,” he said. “I kind of fall a little in between each side of it. I don’t have any ultimate problem with bonding, but to blindly bond without examining some of the structural causes that have created def is not real practical.”
Osborne expressed his support for an amendment proposed by Shelbyville Republican Rep. Brad Montell, which would authorize the study while funding the ARC
“It’s obviously concerning and I thing that’s one of the valid reasons for showing some good faith on our part, and say we’re not going to let it turn into another KERS,“ said Osborne. “If we would go ahead and put the money in for the first year so everybody understands this isn’t kicking the can down the road. We know we’re going have to pay it, so let’s start the process.”
Green concurs with Osborne on this point. “We would not consider ourselves knowledgeable enough in those markets. The legislature needs to find these things out so we can move forward,” she said. “We would support any action that moves the process forward so if the legislature finds that concurrent ARC funding this year, along with a study, is the best way to move we would support it.”
Green insisted that in order to keep up the Oldham County streak of notable academic excellence, benefit option have to be kept in shape. “Pensions are a huge retention tool for our teachers,” said Green.
Osborne said when it comes to retirement, he’s “not sure how much of a driver it is toward the profession,” but that “Once people get into it and become seasoned professionals, obviously their thoughts start to change a little.”
However, Winkler agrees with Green when it comes to retaining teachers in Oldham, the state’s eighth largest school district. “If you want to attract and retain good employees you have take care of them.”
Kentucky is one of 17 states which currently does not allow teachers to draw a Social Security when they retire thanks to a measure passed in the 1980’s.
“It’s basically a penalty for public service,” said Winkler.
The Era asked Osborne whether Kentucky should allow teachers to collect Social Security if the state can’t provide its obligated pension to them. And whether the conference committee where the bill resides has discussed the option.
“I don’t think that it has become a dramatic part of the conversation yet,” he said of the ongoing bonding discussions in Frankfort. “Certainly, there are those conversations where it comes up, where we ask ‘What is the ultimate consequence?’”
Winkler has a response: “If we don’t invest in public education we’re not investing in jobs, creating productive workers, and contributing to society.”