Pension crisis: The broken promise

Story by Ashley Traylor, News Editor 

Murray State alumna, Nicole McGregor teaches sixth grade reading at Mayfield Middle School and though retirement is not around the corner for her, the Commonwealth’s looming pension crisis makes her fearful for life after retirement.

“We want to be there with our [school] kids, and I cannot stress that enough,” McGregor said. “It’s going to be hard to walk into work every day and be like, ‘Yeah I’m here. I’m here for them,’ but what am I going to have in ten years when it’s time for me to retire? Am I going to have to work until I’m 80 just to be able to live?”

McGregor is referring to the current pension crisis in Kentucky. A pension program is a retirement plan where an employer contributes money into a pool of funds set aside for the employee’s benefit. The Commonwealth has eight types of pension plans, one being the Kentucky Teachers’ Retirement System (KTRS).

The KTRS is a defined benefit retirement plan that pays a specified amount of money based on the teacher’s service and average salary, along with the employer’s contribution.

Kentucky has one of the weakest and worst-funded pension systems in the country, with only about 37.4 percent of the funds to pay retirees compared to the nation’s average of 74.6 percent, according to Kentucky’s pension website. The pension debt is $33 billion, in addition to $6 billion in health care. The pension debt will continue to rise without measures to balance the budget and fund the pension system.

Gov. Matt Bevin said he is committed to fixing the pension crisis the state is drowning in.

“We must act now to get our financial house in order,” Bevin said in a statement regarding the crisis. “There is no other viable option. I am convinced we can get this done and am committed to doing so. For those retired, for those still working and for those yet to come: We will save the public retirement system.”

McGregor said it’s scary to think about the underfunded pension system, that could be depleted when she retires.

“I am nine years in and haven’t paid into the Social Security and don’t have that backing and don’t have 401K,” McGregor said. “It’s almost like until now, what I have been doing for retirement will be a loss.”

Most employees pay into Social Security and a 401K plan and are able to draw from both upon retirement. However, through the pension system, teachers receive a benefit that KTRS estimates is about three times what the average Social Security check is at a cost that is nearly the same or cheaper for the state.

For nearly 20 years, the state has not appropriated and invested enough money into the plan for it to remain fully funded. In the 1990s, when the plan was fully funded, the government added benefits without funding them. One of those benefits was the cost of living increase for the Kentucky Retirement System members.

Gov. Bevin plans to call a special session in October to discuss changes to the pension plans, but he has yet to set a date for the legislative session.

The governor hired a consulting group, PFM, to analyze the state’s retirement plans and make recommendations to solve the pension crisis.

PFM’s proposals have stirred anxiety among those serving in the state workforce. PFM proposed to suspend teacher’s cost of living adjustments until the KTRS is 90 percent funded. Retired Kentucky teachers currently receive a 1.5 percent cost of living adjustment.

Teachers are able to retire when they have earned 27 years of service, or retire at age 60 with five years of service. PFM consultants suggested increasing the retirement age to 65, along with ending some of teachers’ benefits, like using unused sick days to enhance their benefits.

Teachers accumulate unused sick days that can translate into a higher salary the final year before retirement, yet McGregor said most teachers do not ‘hoard them’ because they want to cash in on them.

“As teachers, we are definitely not selfish,” McGregor said. “We hang on to our sick days because we try not to be sick. We don’t want to miss out on our kids.”

PFM consultants also recommended new teachers get a 401K plan with Social Security benefits, but this comes at a price for employers. School boards would have to pick up additional costs tacked on by the 401K and Social Security plan. Current teachers would remain on the existing pension system.

McGregor said she hopes teachers nearing retirement do not exit the classroom because the state does not reform the pension plan.

“If they see this coming, which I think we all see this coming at this point, if they [state government] can’t do something pretty quickly, I wouldn’t be surprised if a lot of them leave,” she said.

McGregor isn’t the only teacher at Mayfield Middle School fretting about the crisis.

“We have a teacher right now, who I eat lunch with every day, and she is retiring in January,” McGregor said. “She was going to stay through the end of the year, but it’s like ‘I’m getting out while I can.’ She’s an awesome teacher, but she’s leaving early because she’s scared of what’s going to happen.”

Assistant Dean for the College of Education and Human Services, Robert Lyons said he would not assume anyone retiring is doing so because of the state’s pension because personal factors also play a role in a teacher’s decision to retire. But, he recognizes the pension system is a problem.

“It really has to be addressed,” Lyons said. “I really do think there’s going to be changes in it. People in my situation think of: Are those changes to the future or changes to the present? We certainly want to see enough change to make sure the system is around for our lifetime and we want to make sure that it’s not changed so much that there’s still not some benefit to people coming into the profession.”

Lyons said he hopes the pension crisis does not affect students attending school with aspirations to teach.

“We do want people to come into teaching,” Lyons said. “Our economy depends on it. As teachers, it is a fantastic, fulfilling occupation. You are more involved in your community as a teacher, than any other non-elected position that you could possibly have.”  

McGregor said she doesn’t regret her decision to teach and hopes the current economic strain on the state’s pension system will not prevent Murray State students from choosing to pursue a career in education.

Consultants predicted if the pension system is not reformed, it could run dry by 2022.