Half Missing the Point on Pensions
Recently, Stephanie Steitzer of the Courier-Journal covered Kentucky's state pension system. David Adams at the Bluegrass Institute pointed out:
A story in Tuesday's paper about how legislative leaders are considering more inconsequential tweaks to the system included this gem of a quote from actuary Patrick Welsh:
"If they cut those benefits even more, they further delude themselves (into thinking) they were doing something meaningful. The only way they can do something meaningful is to put money (to cover the underfunding) in there.
"If you never hired another new employee ... you wouldn't be any better off. The only thing they can do is fund it. That's it."
There is no clearer way to frame the issue. Decades of underfunding have created a more than $30 billion shortfall in the system.
This is an essential point, but it is mostly tangential to the article. The article largely concentrates on the information in this chart: that Kentucky's state (employer) contribution is low compared to surrounding states. It concludes from this analysis that the only issue to address is greater funding, because there is little of the employer contribution to cut.
As Welsh puts it in the first part of his quote:
"The state's cost is so little, and there is so little potential to save," Welsh said. "If they cut those benefits even more, they further delude themselves (into thinking) they were doing something meaningful."
That since the state's employer contribution is so little, there are few savings to be found by reforming the system.
This idea is a bit ridiculous. Even though some portion of the contribution is defined as the state's employer contribution and some portion is defined as the employee contribution, the entirety of that total is paid by the state from taxes paid by the Kentucky taxpayer.
It is true that the system is not adequately funded historically, but Welsh and the article ignore the question of whether the obligation is increasing at a rate that is sustainable. The current liability needs adequate funding but that's only half the equation. The growth of that liability needs to be at a rate Kentucky taxpayers can afford, and that will require changing the benefit.
If Welsh were correct that "The only way they can do something meaningful is to put money (to cover the underfunding) in there," then the taxpayers of Kentucky are going to be on the hook for a liability that will only increase from the current $30 billion figure.
"If they cut those benefits even more, they further delude themselves (into thinking) they were doing something meaningful."
Legislators committed to adequate funding in the 2008 special session. Calling that bill "reform" was a delusion. (We all know how that turned out.)
Addressing the issue requires addressing future benefits not just more money from taxpayers.
