Kentucky Analysis Dispels Myth of 401ks as Pension Saviors

Newly elected Kentucky Gov. Andy Beshear has released a financial analysis of a 2017 pension reform proposal that his predecessor Matt Bevin had commissioned and then kept hidden from the public. What the report shows will not be welcome news to those who claim defined contribution plans are the answer to saving struggling retirement systems.

“The proposed 2017 reforms would have cost the state more and forced out many more career employees,” Gov. Beshear said in statement when he made the analysis public last week.

According to the 65-page report, Bevin’s pension overhaul plan would have saved Kentucky money in the short term, but over the long term it would have cost state taxpayers more money while providing fewer benefits for retirees.

“It is unlikely that most of the potential savings will be realized as it is likely the system will experience an increase in the number of retirements when a member becomes first eligible for an unreduced benefit,” said the analysis, “as the new provisions provide a large economic incentive for the member to retire at first eligibility and seek other employment.”

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One of the key aspects of Bevin’s pension reform plan was moving new employees in the Kentucky Retirement Systems into defined contribution plans instead of leaving them in the hybrid pension plan that was established in 2013. But the analysis said that the defined contribution plan would have been more expensive and cost 4% of employees’ salaries rather than the 3% with the hybrid plan.

The Kentucky Center for Economic Policy (KCEP) said “benefits for new employees had already been cut so substantially that there was simply no room to save money from additional cuts, and this shift actually increased costs.”

The report also said that closing the existing plan to new employees would have been costly over the long term because the plan would continue to pay benefits to retired members for many years but would have fewer employees paying into it.

“It is reasonable to conclude that the employer contributions will need to increase to offset the lost earnings,” said the report.

The actuarial analysis estimated that the eventual expected rates of returns in closed plans would have to be between 3.75% and 4.5% rather than the plans’ current assumed rates of 5.25% to 6.25%. It also said that it would have resulted in additional costs of $5 million to $11 million per year over the next 30 years.

Even though the analysis had been commissioned by Bevin when he was governor, he had blocked it from being made public. In 2017, Ellen Suetholz, a former state government attorney and member of the Kentucky Public Pension Coalition, submitted a request that the analysis be made public. But Matthew Kuhn, deputy general counsel for the office of the governor, denied the request saying that the analysis was just a draft and therefore not subject to the state’s Open Records Act.

Beshear, who was Kentucky’s attorney general at the time, found that the denial violated the Kentucky Open Records Act, a decision that was upheld in circuit court. Bevin sought and received a stay from the Kentucky Court of Appeals, which kept the analysis from being made public until it was released last week by Beshear.

“No amount of lipstick was going to make this pig attractive,” Jim Carroll, president of Kentucky Government Retirees, said in a Tweet. “Did Bevin think we didn’t know that closing down a DB plan incurs costs? Did he think we were stupid?

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Tags: Andy Beshear, Kentucky, Kentucky Retirement Systems, Matt Bevin, Pension Reform

Congress has passed a bipartisan agreement designed to secure pensions and healthcare for nearly 100,000 coal miners and their families. The Bipartisan American Miners Act has been included in the final funding package that kept the government open beyond Dec. 20 when the current temporary funding measure expired.

The coal miners pension bill amends the Surface Mining Control and Reclamation Act of 1977 (SMCRA) to transfer certain funds to the Multiemployer Health Benefit Plan and the 1974 United Mine Workers of America (UMWA) Pension Plan to provide health and pension benefits to the coal miners and their families.

It also adds miners affected by 2018 coal company bankruptcies to the group whose retiree health benefits are considered when determining the amount that the US Treasury Department must transfer under current law to the Multiemployer Health Benefit Plan.

The Treasury Department must transfer additional funds to the 1974 United Mine Workers of America (UMWA) Pension Plan to pay benefits required under that plan. That occurs if the annual limit on transfers under the Surface Mining Control and Reclamation Act of 1977 is greater than the amount required to be transferred for existing obligations of the Abandoned Mine Reclamation Fund. The bill also increases the annual limit on transfers to $750 million from $490 million.

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Other features of the bill include allowing in-service distributions under a pension plan or governmental section 457(b) plan at age 59-1/2, instead of the current age of 62. It also extends and increases the Black Lung Disability Trust Fund excise tax.

“Today we came to an agreement that will finally secure pensions and healthcare for our coal miners and their families,” Sen. Joe Manchin (D-WV), one of the sponsors of the bill, said in a statement. “We have honored the promise this country made to them back in 1946.”

Both the House of Representatives and Senate are expected to approve the government-funding bills by the end of the year and send it to President Trump, who has said he will sign it into law.

The United Mine Workers of America International, which represents 80,000 miners lauded the legislation.

“The inclusion of Bipartisan American Miners Act in the appropriations legislation to be considered by Congress this week is a tremendous victory for tens of thousands of retired miners, their families and their communities,” Cecil Roberts , president of United Mine Workers of America International, said in a statement.

“We are close, but the fight is not yet over. We will continue our efforts to ensure that this language stays in the legislation throughout the process, because there are still those who oppose allowing retirees from living out their days with the measure of comfort and dignity that they have earned.”