Kentucky Public Employee Retirements Surge As Fears Of Pension Collapse Mount

Tyler Durden's picture

Slowly but surely it is becoming increasingly clear to public workers in states with massively underfunded pensions that they've been lied to for the past several decades as their states can't possibly afford to pay for the retirement they've all been promised.  As a local radio station in Bowling Green points out today, fears over potential pension changes in Kentucky have resulted in a surge of early retirements as workers move to lock in payouts before any potential cuts go into effect.

More state workers retired last month than the year before amid concerns that the legislature and Gov. Matt Bevin will make changes to state retirement plans.


David Smith, executive director for the Kentucky Association of State Employees, said state workers have been retiring after consultants hired by the state recommended drastic changes to the pension systems.


“There are folks that are saying you know what, I don’t care, I’m going to lock in my retirement now and get out while I can and fight it as a retiree if they go and change the retiree benefits,” he said.


The Lexington Herald-Leader reports that there was a 20 percent jump in state worker retirements last month.


“Who are they going to replace them with if they truly offer up what they’re proposing or what was proposed? Who is going to want to work for state government? I wouldn’t,” Smith said.

As we pointed out last week, Kentucky's public pensions face a daunting funding hole of $33-$84 billion, depending on your discount rate assumptions, according to a recent analysis conducted by PFM Group.



The problem is that the aggregate underfunded liability of pensions in states like Kentucky have become so incredibly large that massive increases in annual contributions, courtesy of taxpayers, can't possibly offset liability growth and annual payouts.  All the while, the funding for these ever increasing annual contributions comes out of budgets for things like public schools even though the incremental funding has no shot of fixing a system that is hopelessly "too big to bail."



So what can Kentucky do to solve their pension crisis?  Well, as it turns out they hired a pension consultant, PFM Group, in May of last year to answer that exact question.  Unfortunately, PFM's conclusions, which include freezing current pension plans, slashing benefit payments for current retirees and converting future employees to a 401(k), are somewhat less than 'perfectly acceptable' for both pensioners and elected officials who depend upon votes from public employee unions in order to keep their's a nice little circular ref that ensures that taxpayers will always lose in the fight to fix America's broken pension system.

Be that as it may, here is a recap of PFM's suggestions to Kentucky's Public Pension Oversight Board courtesy of the Lexington Herald Leader:

An independent consultant recommended sweeping changes Monday to the pension systems that cover most of Kentucky’s public workers, creating the possibility that lawmakers will cut payments to existing retirees and force most current and future hires into 401(k)-style retirement plans.


If the legislature accepts the recommendations, it would effectively end the promise of a pension check for most of Kentucky’s future state and local government workers and freeze the pension benefits of most current state and local workers. All of those workers would then be shifted to a 401(k)-style investment plan that offers defined employer contributions rather than a defined retirement benefit.


PFM also recommended increasing the retirement age to 65 for most workers.


The 401 (k)-style plans would require a mandatory employee contribution of 3 percent of their salary and a guaranteed employer contribution of 2 percent of their salary. The state also would provide a 50 percent match on the next 6 percent of income contributed by the employee, bringing the state’s maximum contribution to 5 percent. The maximum total contribution from the employer and the employee would be 14 percent.


For those already retired, the consultant recommended taking away all cost of living benefits that state and local government retirees received between 1996 and 2012, a move that could significantly reduce the monthly checks that many retirees receive. For example, a government worker who retired in 2001 or before could see their benefit rolled back by 25 percent or more, PFM calculated.


The consultant also recommended eliminating the use of unused sick days and compensatory leave to increase pension benefits.

Even if all of that is accomplished, State Budget Director John Chilton said Kentucky would still need to find an extra $1 billion a year just to keep its frozen pension systems afloat. Moreover, absent tax hikes the state will ultimately be forced to cut funding for K-12 schools by $510 million and slash spending at most other agencies by nearly 17% to make up the difference.

Meanwhile, PFM warned that the typical "kick the can down the road approach" would not work in Kentucky and that current retiree benefits would have to be cut.

“This is the time to act,” said Michael Nadol of PFM. “This is not the time to craft a solution that kicks the can down the road.”


“All of the unfunded liability that the commonwealth now faces is associated with folks that are already on board or already retired,” he said. “Modifying benefits for future hires only helps you stop the hole from getting deeper, it doesn’t help you climb up and out on to more solid footing going forward.”

Of course, no amount of math and logic will ever be sufficient to convince a bunch of retired public employees that they have been sold a lie that will inevitably fail now or fail later (take your pick) if drastic measures aren't taken in the very near future. 

Nicolai Jilek, the legislative representative for the Kentucky Fraternal Order of Police, said expecting first responders to work until they are 60 is problematic given the physical requirements of the job.


“We’re very grateful that PFM is just offering recommendations … that they are not lawmakers because his plan would be horrible for first responders,” Jilek said.


Stephanie Winkler, president of the Kentucky Education Association, shared a similar sentiment.


“The PFM had some pretty drastic recommendations that we think are not what’s in the best interest of public school employees and public school students,” Winkler said.


Jim Carroll, president of Kentucky Government Retirees, said his group would likely sue if the legislature proceeds with PFM’s recommendation to roll back the cost of living adjustment that retirees received between 1996 and 2012.


“We think its very clear that the cost of living adjustments that were granted to us are ours as long as we are retirees in the system,” Carroll said.

As such, no matter the long-term consequences, we suspect the "kick the can down the road" approach to pension reform will continue to win right up until the plans actually run out of money...then we'll all lose together.

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I hate cunton's picture

I just saved 15% on car insurance.  I need it because my pension is gone.

nmewn's picture

"Take the money and run

Like a thief across the neighbors lawn

Take the money and run..."

Seems like there was a song about that ;-)

Normalcy Bias's picture

This National Pension Implosion is going to pit 'Public Service' workers/retirees against private sector workers/retirees, most of whom don't have squat for retirement. It's not going to be pretty.

nmewn's picture

Yes, for the commie snowflakes now busy Goolaging and coming up with the Steve Miller Band...

Take the money and run
Like a thief across a neighbor's yard
Take the money and run
Like a ghost out in the night. Take the money and run
'Cause you found out that it wasn't hard
To take the money and run
Because you were out of sight. You cannot tell me any more lies
You cannot pull the wool over my eyes
Take the money and run
Take the money and run 'Cause the summer sun is sinking down
Take the money and run
'Cause the four winds may not blow
Take the money and run ...distinctly not the Steve Miller Band ;-)
ejmoosa's picture

If someone promises you something that seems to good to be true, don't you also have a responsibility?


max2205's picture

Overpaid govt workers milked the system designed to pay them in retirement. ... they deserve all this and moar 

junction's picture

The ZIRP program to bail out Wall Street is the reason why pension plans are in so much trouble.  

blue51's picture

It is also a sleuth way of killing off the unions . What would be the motivation to be in a construction union , if there wasn't a pension offered

Five Star's picture

Every states pension funding shortfall, adjusted for real market values, in terms of the state's current tax revenues:

It's terrifying:

blue51's picture

It certainly is scary. I have 31 years in a union pension , and we get notifications on how the fund is struggling to get out of " endangered zone " .

NoDebt's picture

If your pension isn't out of the "danger zone" after a 9 year long strsight-up bull market what do you think is going to happen to it if we have even the slightest downturn, or even a flat market for a couple years?

Dude, you've been fucked.  I take no pleasure in being "that guy" who tells you you've been had, but YOU'VE BEEN HAD.  You're screwed.  Get out as soon as possible or just sit there as they slowly (or quickly) rip it all away from you.


Manthong's picture


Well, at least they have a Senator Leader Deep State owned mumble mouth.

Manthong's picture


You know, those A-holes in the state house and guberment school system might want to recollect their heritage……….

Lajaw's picture

And yet, his union bosses will surely get theirs.


Antifaschistische's picture

Since 98% of Public Sector employees don't understand the concept of amortization and discounting....they should be forced to publish numbers....what do you anticipate paying out over the next 5, 10, 15, 20 years AND how much they actually CURRENTLY have.

Even a public sector employee have 100 mill in the bank, and you need to pay out 500 mill.

NoDebt's picture

"As such, no matter the long-term consequences, we suspect the "kick the can down the road" approach to pension reform will continue to win right up until the plans actually run out of money...then we'll all lose together."

No, sir, we we'll definitely NOT "all lose together".  The retireees will lose and taxpayers will win.  Well, no, not win, but they will at least stop getting fucked up the ass quite as hard.

The minute you cut benefits the income statement (and balance sheet) of the pension fund instantly gets better looking.

I'm sorry if retireees of these busted-ass pension funds didn't see it coming (you should have).  I'm sorry you thought we were going to be able to pay you for an all-expenses-paid 40 year long retirement, but we're not paying for it.  I'm sorry that the living have decided that we're not giving everything we have to pay for you, the dying, but that's how shit goes.


SmackDaddy's picture

Agreed. Although a bit ironic coming from an investment advisor.

Arbeit macht frei.

Manthong's picture


If you don’t think this story is way cool, you are a schmuck.

Stan Smith's picture

+1 and many many many more.

It's funny how if you made cuts -- not even draconian ones -- these things end up looking better.    But the biggest issue in my mind id pension funds promising 7% and realizing returns of half that.   And there's little to no honesty about that all, ever.   That's why these thing are going bye bye.

fattail's picture

2 word solution:  Cash out.  Cash out before your benefits are cut.  The net present value of the cash flow with all of those COLAs in it, plus the years of early retirement, will dwarf the monthly checks ex-COLA that you start getting 10 years later.  If you need money, you can get another job after you retire from the state, or just work for cash under the table.

But, that only works if you panic first.  Waiting around to be a hero will only get you another 10 years working for the state.


And this is how all of these pensions die.  We just need the next market crash.

Blankone's picture

From what I have been told it does not work that way. A couple people looked into cashing out of a state pension. They found that they for the most part would simply get what was contributed by themselves, not even sure they got the state's part of the contributions and for sure did not get years of interest and predicted return increases.

So there was no incentive other than retire when they could.

smithcreek's picture

Not that I don't agree with the sentiment of your post, but I just think you are wrong.  In the end, most of the money my wife and I have saved for retirement will be confiscated.  "Means testing" will be the strategy.  For a large part of the population, government will act more and more as the sole provider of everything from health care and housing to food.  For the few that saved, they will be "means tested" and have to pay their own way.  Unless they are very wealthy, they won't get any more than those who live off government, they will just have to pay for it themselves until they run out of money.  Means testing, get used to it, it's coming soon to your town/city/state/nation.

The Iconoclast's picture

They are already doing stealth means testing, where if your income is over a certain amount then your benefits are taxed.  You are right of course, but it's not coming, it's already here.

Buck Johnson's picture

Yep, I agree.  This is going to have these retiree's going ape shit and screaming why are you doing this.  They have no choice, there is no money to send out.


Blankone's picture

A little different take on it.
The retirees did see it coming. For years they spoke up that the state was not making the full contributions but using the money elsewhere. But the retirees had no control.

The benefits were written into law, written into documents signed when hired, used as the enticement to hire people instead of them taking better paying jobs in the private sector.

What happened is that a group of people believed in the rule of law, that the govt would be honest/ethical and have principals. They did not foresee the changes in society. Or the corruption to come. The lesson is do not trust anyone or in anything. Do not take payment later for services today. Today's moto - if I can screw you it's your fault for letting me do it.

It started with legal means in private practice. Companies going "bankrupt" to remove pensions and then coming out of bankruptcy. They have moved beyond "legal" games. Think your assets and "safe" now? Why, because of the law or principal?

But there is much more to the story I believe. How can a major fund managed by professionals fail to bounce back when the financial markets come back to hit new highs, real estate bounces back to hit new highs, it's all never been higher. The funds have been used in some way to enrich others. There was a pool of money and so it was attacked and taken, just like social security was secure and well funded - but then the money was taken and put into the general fund and spent - later the real problem is that they do not want to live up to the iou's they left for the real cash they took.

It's all just a shit show under the surface now. Illegals are not illegal, cops stand down so a group can be attacked, elections corrupted (not by russians) to a greater extent, ... Those who are laughing now simply do not realize the swamp is getting deeper and darker and they are stuck too.

Agstacker's picture

Just waiting for slackjack to post in here that this is all due to global warming.

NoDebt's picture

"It's terrifying"

No less terrifying for taxpayers in those states.  Who do you think is going to be asked to make up that shortfall?  Please remember that state/local governments don't have the Federal Reserve to print up free Monopoly Money to fill the gap like the Federal Government does.


FUBO's picture

Also remember that the State Employees are taxpayers too.

ejmoosa's picture

That did not force them to use higher rates of return on their projected returns did it?

They kicked the can down the road.

And now we are at the end of the road.

NoDebt's picture

No, there are more tricks left to be employed.  None of which equate to reality, but they will be employed nonetheless.


newdoobie's picture

nope! they would have failed in time

The Wizard's picture

The governor, Matt Bevin, one of the best in the country, is who exposed the failures of previous administrations that literally destroyed the pension system. He is a fiscal conservative and said this out of control system has to stop. Someone who is a realist. He is doing what he can to soften the blow, but it is so screwed up from previous governors and legislators who were completely mismanaging the system.This is problem in most states but the problems remain hidden.

It is much like the federal govt. that continually degrades the whole system. It really isn't Trump's economy as they say, the fiat derivative ridden system is in chaos and Trump is eventually going to have to expose it.



glenlloyd's picture

Also, no one at the table during the negotiations for pension benefits cared enough to actually stick up for the tax payer. Since the money to pay these ass clowns wasn't coming out of their wallet (literally) they didn't give a shit that overpaid public employees asked for even more for their retirement.

Fleecing the tax payer was the modus operandi

To Hell In A Handbasket's picture

Pension funds and the insurance industry need interest rates to be at normal levels to survive(especially the insurance industry) The fact the Federal Reserve central bank, along with its British and European arms, rigs interest rates, it is the central bank more than any other entity, that has helped destroy the pension scheme. 

I am well aware as I repeatedly stated, that the pension fund/scheme is a ponzi scheme, but I'm also all too aware that it has been low/zirp/nirp interest rates that has hastened the collapse of our pension schemes. The fact that our political class has allowed this to happen without a word in objection to our banking overlords, should tell anybody looking, that they are a bunch of bought off/paid-off/coward cucks. 

PS: Not all government workers milked the system. Some just earned an average wage and wanted to put food on the dinner table of their family.

rockstone's picture

"I'm gonna get paid the same amount I get for working, plus increases, for not working longer than I worked! I got that in writing. Ain't I the shit!"

looseal's picture

I tried but it fell on many deaf ears.  

HRH Feant2's picture

Dang it now I can't get that song outta my head!

In other news, I went out into the world from the bunker. At my car I had to wait for this big nigger bitch in an even bigger black quad-cab truck to load up her cart (with stolen merchandise to return) before I could unload my cart into the rear of my modest SUV. I didn't make eye contact and I was very polite about not wanting to hit her door with the rear hatch of my SUV.

What was she unloading? It looked like boxes of shoes. Lots of white girls at customer service in my area. She knows they don't know the return scam like they do where she lives.

Something seriously wrong. I was shopping, and paying money. She was scamming to make money.

Bigly's picture

Maybe you can inform them how they could be duped next time you go in....


We all pay for that shit in increased prices 

J_Peterman's picture

HRH - I remember my sisters first high school job - clerk in a dept store.  She told me people would steal items and then try to return them (with no receipt) for cash.  LOL I remember being shocked these people would have the nerve to show their face again in the store after stealing items...

Stan Smith's picture

+1 and millions more.

You cant have a pension fund promising a 7% return when real returns are half that -- which is exactly what is happening.


Offthebeach's picture

Going to?  Try it does already.  

Gov slugs with bennies make 2-3 times dreaded private sector.  In at 9.  Coffee break 9:30-10:00.  Safety meeting 10:00-11:30.  Lunch, plus personal time, 12:00-1:30.  inhouse management efficiency course 2:00-2:30. Coffee break 2:30-3:00.  Leave.


what happened's picture

It is already happening.  The powers that be, many of them lawyers in government, are using institutions like DCF and the tax structure to redestribute wealth.  DCF is taking children into their adoption program from poor parents and not disclosing medical issues or special needs.  That way they will not have to pay for the child, and the private citizen pays the expenses. They keep the adoptin money awarded from the federal government courtesy of the taxpayer.  Unfortunately for the poor child, they often do not get the services they need to disguise the fraud.  Many state workers remain silent about these deals.  The tax structure is more obvious.  One year I paid extra income tax after the fact, with the state giving us a strange letter stating they instittuted the tax but forgot to record it.

MoreFreedom's picture

When a private company fails to fund its pension the customer's don't suffer the loss, the employees do.  Thus, it's only appropriate the government retiree pension holders suffer the haircut. 

Think of the incentives this creates for current government employees.  It gives them an incentive to ensure government isn't bloated and stiffing taxpayers, so they'll get their pension.  

Putting government employees on defined contribution plans creates an incentive for them to ensure their 401k investments get good returns; thus, incentivizes them to ensure government is such that there's a prosperous economy, rather than one where government workers suck the blood the the productive for all they can get.  Private companies switched to 401k defined contribution plans long ago. 

Cash2Riches's picture

Sadly, they might not even be safe, as we've seen in Ireland, and Greece, the elites have a long term plan that they are enacting, that will cripple the working class and major parts of the Western economy. In their eyes, the West has simply become too expensive to maintain and they want to bring it to 3rd status.

EBT excepted's picture

dats why dey done freed da slaves, cud dey be too 'spensive tah be feedin'...

AC_Doctor's picture

Let the shit show begin.  When the public finally figures out how bad they have been fuked, the fun will start..

oDumbo's picture

Public pensioners didn't get fucked, the private sector did.  You know, all the hard working families without gubermint pensions to fight for as musical chairs music starts.  The private sector has been footing the bill for decades for the public leaches, who suck hard earned tax dollars away from schools and infrastructure so they can get fatter and lazier sooner.  Fuck public pensions.  Fuck politicians who defend public pensions.  Fuck the dumocrat coke party that thinks as long as they keep taking, we'll keep giving.  Fuck dum up!

yellensNIRPles's picture

People are figuring it out. If nothing else, this is another sign that the game is almost over.

seek's picture

No pensions are safe. Like gold, if you don't own it, it's not yours.

NoWayJose's picture

If you get a lump sum it's a good deal - but otherwise it's a promise!