Tuesday, February 27, 2007

Legislature Shirking Duties On Public Pensions

Emperor Nero has earned enduring scorn for not putting out the fire that burned Rome when it was small enough to handle. Kentucky governors and legislators have done similarly in recent years with the public employee pension plans and the growing threat could burn up our state's bank account.

House Bill 418, passed by the House of Representatives unanimously on Monday, addresses the pension shortfall but does so ineffectively. Kentucky's elected officials aren't exactly fiddling like Nero while the crisis bears down on us, but HB 418 will be a short-lived band-aid approach. The end result may well be about the same.

HB 418 would extend for one year the practice of calculating public employee pensions based on the three highest years of an employee's salary. The good this bill does is to hold off, in theory, the expected tidal wave of government retirees whose pensions we will have great difficulty paying. With the "high three" extended, the hope is that those employees of retirement age will keep working and drawing only one paycheck rather than retiring and coming back to work to draw two checks.

We would like to hope that HB 418 will help as it is intended to do, but far more needs to be done. Here is why: Kentucky's pension problem is not just about investments falling short of future liabilities, it involves how our entire public employee system works. We must end the often-abused system of double-dipping if we are to have any hope of averting disaster with our public pensions. When government employes retire, they should be thanked for the years of service and paid promised pension checks. But we must stop bringing them back at anywhere near their last salary. That practice is breaking the bank.

Rather than nibbling at the edges of the pension situation, Kentucky needs to either encourage would-be retirees to go ahead and leave en masse or to stay around a few more years and -- most importantly -- to train their replacements. In either case, the lack of systematic succession training in government offices is hurting our state financially and will get worse as our population of public retirees swells to unprecedented levels. Instead of hiring back recent retirees at or near their last salary in addition to their pension, we should make training of new employees part of their job before they go.

The reason this will help is that we would be replacing our highest-salaried employees with younger new employees at significantly lower cost. The savings could then be applied to the pension plans.

Continued failure to end double-dipping and to institute effective employee succession planning will result in the public pension plans being unable to meet their obligations. The only solution at that point will be massive tax increases.