Public education, and more specifically public educators, have increasingly been in the media more this year than in the past several decades. Thousands of teachers in West Virginia, Kentucky, Oklahoma, Arizona, and North Carolina have held work stoppages, strikes, and rallies at their respective State Capitols over the severe lack of funding for their students, teacher salaries, and teacher (and all public employees) pensions. Part 1 in this blog series will address why Kentucky had a statewide day of action rally at the Capitol in Frankfort. I did the heavy lifting for you, researched, studied data, and wore red for public ed. Parts 2 and 3 will address a general lack of education funding and teacher salaries.
As a public educator with 28 years of service to Kentucky, I was one of the thousands who marched this past April on the Capitol for public education. I found the Governor and the state senate’s apparent glee, secrecy, and outright refusal to listen to the public a slap in the face to all of us who have sacrificed and dedicated our professional career to this state. To take our contract and change it is ethically wrong and this is the reason why I fight.
The “why I fight” motivations for many Kentucky educators and other public employees is the state’s blatant disregard for and breaking of its inviolable contract to provide these workers pensions. For more than 70 years, teachers have agreed to this contract with the state to serve all children for reduced pay with the promise of a secure pension at the end of their careers.
For the past 25 years, the Kentucky General Assembly chose not to fully fund the annual actuarially required contribution to maintain the State pension systems. Instead they willfully and knowingly chose to only fund the bare minimum amount required in order to balance the state budget. Now they blame us for the shortfall instead of looking for new revenue streams or updating the tax code. This year, the governor seemingly made it his mission to destroy public pensions under the guise he was “fixing them.”
Kentucky is one of 15 states affected by a federal law known as GPO/WEP (Government Pension Offset/Windfall Employee Provision). With few exceptions, the majority of public educators in the state are not able to draw their full social security benefits now. GPO became effective in 1983 as a provision to the 1977 Social Security Amendments, which affects members who apply for SS spousal benefits. The WEP was enacted as part of the 1983 Social Security Refinancing Act. It’s purpose was to fortify financing the Social Security Trust Fund (Mass Retirees, WEP/GPO Explained at massretirees.com). The Federal Government’s reasoning is that drawing both is considered “double dipping.” This flawed reasoning penalizes teachers who have worked, in most cases, two jobs: one paying into social security, the other paying into their state pension, and not allowing them to be able to draw out 100 percent of what they have paid into social security. Instead, we are told we are lucky to draw approximately one-third of the full amount. Answers to frequently asked questions about GPO/WEP can be found at Social Security Administration, Benefits Planner: Retirement.
Case studies on Public Pension Plans from the National Institute for Retirement Security (February 2015), National Conference on Public Employee Retirement Systems (May 2017), and National Conference on Public Employee Retirement Systems (August 2017) have documented that switching to a Defined Contribution (what you can expect to accumulate and ultimately withdraw from the plan are not predetermined) from a Defined Benefit Plan (an employer, i.e. a state, promises on retirement a specified pension payment, lump sum, or combination thereof that is predetermined by a formula based on the employee’s earnings history, tenure of service and age, rather than depending directly on individual investment returns) will drive up the pension debt and intensify the state funding problem for the pensions. The unfunded obligations are not reduced when new members go into a Defined Contribution Plan. It makes it more difficult to finance the current unfunded obligations of the Defined Benefit Plan. Unfortunately, taking away our Defined Benefit Plan combined with a huge loss on our Social Security benefits makes maintaining a decent standard of life difficult, if not impossible, for Kentucky teachers.
Studies from all three institutes listed above found that switching from a Public Pension or Defined Benefit Plan does not help the unfunded liability problem, but in fact, worsens it. Employees in the Defined Contribution Plan face increased retirement insecurity. The most cost effective way for a state to overcome the unfunded liability is to implement responsible funding policy to make 100 percent of the annual required contribution each year, with the evaluation and adjustment assumptions for funding over time. The Defined Benefit Plan only costs approximately 20 cents per taxpayer dollar and the remaining 80 cents per dollar are funded from investments made and are paid for in advance with these investment earnings and employee contributions leading the asset growth. With the Defined Contribution Plan, taxpayers will pay $1.00 per $1.00 for the services received from public educators/workers.
Opponents of public pensions like to harp on and use accounting tools designed for private-sector companies. They apply these to public sector assumptions (rate-of-return assumptions) without recognizing the reasons behind the private sector rules. These private sector rules should not apply to public sector assumptions as private sector companies can close and/or go bankrupt, whereas states are here to stay. These opponents also love to point to the unfunded liability figures by using private sector rules to compare 30 year private sector figures with 1-year state and local revenues. A 30 year unfunded liability must be compared to a 30 year state and local revenue.
Let’s assume a “best case scenario”: A public educator has 25 years of service, a starting salary of $40,000, and 6 percent net investment in Defined Contribution returns per year, under the Defined Contribution Plan this person’s projected benefit would be $1,600 per month with 7 percent employer contribution and 3 percent employee contribution. The same public educator’s projected benefit in the Defined Benefit Plans would be $2,050 per month with 8 percent pay. In Kentucky, public school teachers pay approximately 10 percent from each paycheck to pre-fund their Defined Benefit Plan, along with an additional 3 percent to fund the pre-65 retiree healthcare. Closing or eliminating this plan is denying public servants the contracts to which we agreed. Dismantling pensions harms taxpayers economically and contributes to income inequality, and a sluggish economy. In the 2017 research paper on Economic Loss: The Hidden Cost of Prevailing Pension Reforms, their analysis finds that in 2025 the national economy is likely to be growing at a rate of 4.00% and by their calculations, if dismantling of public pensions continue, that growth rate will go down to 3.29%, and it will cost approximately three trillion dollars in economic damage.
This is one reason why we fight. Teachers deserve the pensions they were promised. They also deserve answers from their elected officials, holding them accountable for their votes on policies that impact their livelihoods.
Beth Lovett has been an itinerant music teacher in the Knox County school district for more than 20 years. She was a semifinalist for the 2015 Kentucky Teacher of the Year, and recipient of the Ashland Teacher Achievement Award. Lovett has participated with the Innovative Teacher Leader Cohort, the Kentucky Education Association’s (KEA) Upper Cumberland Education Association, Knox County Education Association, KEA’s Arts and Humanities core planning team, KEA’s Arts and Humanities training cadre, and is a Hope Street Group Kentucky State Teacher Fellow alumna.