Across the country, teachers are walking out of their classrooms to fight for higher pay.
But in Kentucky, where teachers鈥� pension benefits take the place of Social Security, educators are more anxious about the future of the state鈥檚 underfunded pension system鈥攁nd furious at elected officials for letting it get to this point.
鈥淲hat concerns me is not being able to eat when I鈥檓 80,鈥� said Lisa Proulx, a 4th grade teacher in Jefferson County, Ky. 鈥淚鈥檓 not eligible for my husband鈥檚 Social Security. ... If I retire and there鈥檚 a problem with the pension system鈥攖hat鈥檚 scary.鈥�
The political meltdown this year over efforts to address Kentucky鈥檚 pension crisis鈥攚hich has sparked teacher walkouts, lawsuits, and raucous protests鈥攃ould serve as a warning light for other states facing the politically volatile issue of what to do about teacher retirement costs.
Across the nation, states鈥� pension obligations for public employees are accelerating, spurred on by investment losses during the Great Recession, a wave of Baby Boomers鈥� retirements, and years of fiscal mismanagement. That has huge implications for K-12 spending.
Teachers鈥� pension debt today tops out nationally at more than $516 billion, and states such as Connecticut, Illinois, and Michigan project they won鈥檛 have enough money within the next decade to pay teachers what they鈥檙e owed at retirement.
At the same time, hefty increases to school spending in some states end up being used to pay down grossly underfunded pension obligations, putting pressure on the money available for instructional spending, staff salaries, and other needs.
鈥淭he way these pensions are set up allows mischievous politicians and different groups to play games and kick the can down the road,鈥� said Michael Podgursky, a school finance expert at the University of Missouri, in Columbia. 鈥淏ut guess who鈥檚 paying for this? The kids currently in school because there鈥檚 less money for books and school supplies, and the current teachers who will get less in their paycheck and less generous pensions.鈥�
Close to 10 cents of every dollar spent on education today goes toward retirement costs, according to an analysis by Robert Costrell, a finance expert at University of Arkansas. That鈥檚 double the amount spent on retirement costs in 2004.
But for governors and state lawmakers, addressing that can be financially complex and politically fraught.
Just this week, for example, more than 200 teachers protested at the state capitol in Denver after a state senator proposed a bill to, in part, cut public employee retirement benefits. The state is more than $32 billion short of the necessary money to pay its retirement costs.
In New Jersey, the tenure of former Gov. Chris Christie was bedeviled by his failed efforts starting in 2010 to overhaul that state鈥檚 pension system by, among other things, kicking out part-timers and switching new teachers over to 401(k)-type plans.
Kentucky Battleground
Kentucky is perhaps the highest-profile battleground for pensions in a year when teacher activism is on the rise nationally.
Kentucky鈥檚 public employee retirement system, which includes its teachers, was cited by Standard & Poor鈥檚 last year as the nation鈥檚 worst-funded in the nation. The state is $14.5 billion short of what it will need to cover the retirement costs for its 71,000 current teachers and 51,000 retirees over the next 30 years.
The state last year paid $1.5 billion toward pension costs, up from $624 million in 2008, according to the state鈥檚 budget director.
And Kentucky teachers are among the 40 percent of teachers nationally who are not eligible for Social Security鈥攈eightening the sense of urgency among educators.
Kentucky鈥檚 pension spending in the last decade has grown nearly five times as fast as revenues, according to an analysis conducted by a state-appointed firm.
鈥淜entucky has been operating with a structurally imbalanced budget for years now,鈥� said Brigitte Blom Ramsey, the executive director of the Prichard Committee for Academic Excellence, an advocacy group that has long pushed for more school funding.
When in 2016 Republicans took control of the statehouse, Gov. Matt Bevin, a Republican, promised to make dramatic changes to the state鈥檚 pension system鈥攁nd did so in a way that took aim at teachers.
The battle came to a head earlier this year over a bill that would have reduced yearly cost-of-living increases for retired teachers to 0.75 percent for the next 12 years, down from 1.5 percent. After protests, legislators revised the proposal to cut the cost-of-living increases to 1 percent until the pension system is 90 percent funded.
Both versions were widely panned by educators. The final bill made no significant changes to current teachers or retirees鈥� benefit plans鈥攂ut it made some other changes that have drawn fire from both teachers and district leaders.
For one thing, teachers who are hired after the start of 2019 will now be put into what鈥檚 known as a 鈥渃ash-balance鈥� plan, which is a hybrid of a traditional defined-benefit pension and the kind of 401(K) retirement savings plan common in the private sector.
In addition, school districts are now expected to contribute 2 percent of teachers鈥� salaries to their pension plans, on top of the contribution from the commonwealth. Previously, local districts did not pay into the pension fund for teachers鈥攁ccording to the Teachers鈥� Retirement System of Kentucky, their contributions under the new cash-balance plan will help pay down unfunded liabilities.
District Leaders Worried
That last shift concerns district leaders, who will now have an extra expense to their budget that will continue to grow over time.
鈥淚t鈥檚 a slow bleed, really,鈥� said Robb Smith, the superintendent of Bellevue schools, a 770-student district in the northern tip of the state. 鈥淔or a small district like ours, that will be especially troublesome. ... It will definitely cause us to be more conservative with distributions [of funding] for students.鈥�
District leaders are also worried about how the changes will affect new-teacher recruitment. New teachers have been removed from the state鈥檚 鈥渋nviolable contract,鈥� which means policymakers could make changes to their retirement benefits down the road.
鈥淭hat just guarantees them a big, fat nothing,鈥� said Stephanie Winkler, the president of the Kentucky Education Association. 鈥淚 wouldn鈥檛 want to go into a job that has a guarantee of a big, fat nothing when I dedicated my life to public service. ... It鈥檚 kind of a slap in the face.鈥�
Chad Aldeman, a principal at Bellwether Education Partners, said his analysis shows the cash-balance plan for new teachers could be better for educators during the first two decades of their careers, allowing them to build wealth more quickly than the existing plan. By contrast, the existing plan is estimated to be more beneficial for a teacher who stays in the profession for more than 21 years, because it is backloaded so veteran teachers earn more in retirement wealth in the latter part of their careers.
Still, Aldeman said Kentucky teacher-turnover data suggest less than half of new teachers will reach 21 years in the profession. And he said the cash-balance plan will ensure that Kentucky does not accrue additional unfunded liabilities.
鈥淗opefully over time, this plan will get established, and people will enroll in it, and the fervor will die down,鈥� he said. 鈥淎nd hopefully, over time people will see the benefits of [this plan].鈥�
鈥榃e鈥檝e Had Enough鈥�
The specifics aside, the way Kentucky policymakers handled the pension changes only inflamed tensions around the issue. The final bill was tacked onto a measure about sewer system regulations and passed in a matter of hours, spurring outrage from educators.
KEA鈥檚 Winkler said 鈥渢here was no time in the 11th hour to talk about the final proposal or even see it.鈥�
The day after the pension bill passed the legislature, droves of teachers called in sick to protest at the capitol, forcing more than 20 school districts to close. The following Monday, schools in all of Kentucky鈥檚 120 counties were closed (though many for spring break) as teachers again gathered at the capitol, holding a giant sign proclaiming, 鈥淲e鈥檝e had enough.鈥�
鈥淭hey鈥檙e not hearing us, they鈥檙e not making us a part of the conversation,鈥� said Caroline Wilkerson, a 2nd grade teacher in Nicholasville. 鈥淲e didn鈥檛 have time to process it.鈥�
The union later joined the state鈥檚 attorney general in a lawsuit against the governor that seeks to overturn the pension reform law.
Dozens of educators have now filed to run for state legislative seats, and Winkler said the teachers鈥� union will leverage the momentum among educators to elect pro-education candidates in November.
Meanwhile, the governor鈥檚 rhetoric has added fuel to the fire. Bevin called teachers 鈥渟elfish and short-sighted鈥� for protesting the pension changes. After he signed the pension bill into law, he called KEA leaders 鈥渁bsolute frauds鈥� on a local radio show. He also said teachers were 鈥淸punishing] students鈥� by walking out of the classrooms and later 鈥済uarantee[d]鈥� that children were sexually abused because they were left home alone during school closures, remarks he later apologized for.
鈥淚t鈥檚 really disheartening and disappointing that we are seen as the enemy,鈥� Wilkerson said. 鈥淲e are not seen as an important part of the community, which I feel like we are.鈥�
Added Aldeman: 鈥淗opefully, a political lesson states can learn [from watching Kentucky] is that this is probably not the best way to make pension changes.鈥�
Experts warn, however, that the underlying problem for states isn鈥檛 going away.
鈥淚 think that in some places that have these really huge problems from pensions, the policymakers will need to get creative on how to deal with this,鈥� said Martin F. Lueken, a finance scholar who helped author a paper on teacher pensions for the National Council on Teacher Quality. 鈥淭o solve these problems, you need wholesale reform. You have to stop the bleeding.鈥�
