Public workers and retirees who’ve been urging the state to put more money into the Kentucky Retirement Systems’ accounts may get their wish in the 2012-2014 budget passed by the House and sent to the Senate last week. Unfortunately, it comes at the expense of pensioners who’ll receive no cost-of-living adjustments in their monthly checks over the next two years.
It’s understandable that retirees have mixed feelings about this development, but most realize it could have been worse – the COLA could have been abandoned forever. Tom Moore, president of Kentucky Public Retirees, argued that legislators should have prefunded the increases, amounting to 1.5 percent each of the next two years.
Maybe such foresight is asking too much of a legislature which has a history of neglecting the retirement accounts covering payments to state and local government pension holders. The whole system has a $19.2 unfunded liability and sold off about $1 billion in investments over the past two years just to meet obligations to 123,000 non-hazardous-duty workers and retirees.
By withholding the COLA, KRS would save $400 million over the next biennium and is expected to put that amount toward reducing the shortfall in the system. Those who care must remain vigilant to ensure the money doesn’t meet the same fate as the once-flush Social Security Trust Fund, raided over the years by politicians who spent the surplus on other endeavors and replaced the cash with bonds of dubious standing.
Retirees find themselves in the same boat as active state workers, who’ve had no raises the past two years and will likely see none the next two. But retired people feel the pinch more severely because even though some of their expenses are lower, health care and other costs soar in their twilight years. Some older retirees, Moore noted, are drawing as little as $400 or $500 a month, which may have been sufficient when they quit work 20 or 30 years ago but is woefully inadequate now. What’s called “fixed” income in reality is falling income.
As for workers still awaiting retirement, they can take comfort that their basic benefits – calculated under strict formulas and guaranteed for life – cannot be altered. Their “inviolable contract” allows the critical terms to be changed only for future hires. In 2008, for example, the legislature passed a pension reform package that raised from 27 to 30 years the minimum service required to draw full pensions, but this change applied to people hired after the law went into effect. The old rules still safeguard anyone employed before that date.
Such protections give public workers and retirees a rare sense of security amid rampant insecurity in the business world. While the private sector has broad discretion to alter pension programs, freeze and terminate them, the government must honor long-standing commitments to workers – even if other public expenditures have to be cut to keep the pension checks coming. Still, there’s a gnawing fear that future officials might find some way around the contract if the funds dip low enough to endanger the continuation of essential government services.
A two-year suspension of the COLA benefit seems relatively palatable under the circumstances, so long as the unspent money really does stay out of politicians’ reach. It bears watching.