There are plenty of differences and a few thousand miles between Frankfort, KY, and Silicon Valley. Despite these differences, San Jose, CA, offers lessons for Kentucky legislators about the mistakes made by the anti-pension activists who tried to gut pensions in Silicon Valley.
We’ve written before about San Jose and the misguided attempt by former Mayor Chuck Reed to gut pensions for police officers, firefighters, and other city employees. Reed forced through Measure B in 2012 to make radical changes to the pension benefits of San Jose’s city employees. While the disaster of Measure B was finally ended last year with passage of Measure F, Reed has now begun traveling around the country as a member of the Retirement Security Initiative (RSI), trying to export his failed pension “reforms” to other cities and states, including Kentucky.
Reed’s anti-pension campaign caused many city employees, who were already eligible to retire, to worry about their futures. Though most city workers had a minimum retirement age of 55, they typically worked to age 60 and beyond. The city had about 3,000 workers covered by the pension plan for non-safety employees and about one-third were eligible to retire, or would be, in the near future. Reed and his allies took a very negative tone in their anti-pension campaign. Many San Jose city employees, feeling devalued in their work, chose to retire rather than endure the ongoing attacks against them and their benefits.
The spike in retirements between 2010 and 2013 added about $72 million to city pension costs for the non-safety pension plan. This phenomenon became significant enough that the city’s actuary explicitly tracked the impact of ‘earlier than expected retirements’ separately in their pension plan reports for a few years, which is a rare step. The workforce impacts were brutal, with tremendous losses among both public safety and all other city services. Even high level managers retired earlier than planned.
Unfortunately, none of the highly paid consultants brought in to discuss pensions ever seem to present the costs of hiring and training new workers when they advocate for taking away pension benefits. Kentucky is already beginning to see public employees retire early out of fear of losing their pension benefits.
The attacks on the Teachers Retirement System in Kentucky is causing real concern about educating future Kentuckians. The Teachers Retirement System covers 71,848 people who are tasked with educating 655,475 kids. Many of these folks are eligible to retire, but choose to continue in their calling. Meanwhile, over only four years, the number of people studying to become teachers in Kentucky has plummeted from 12,919 to only 4,994 during 2014-15. If the state is only graduating about one thousand people per year to become teachers, it simply isn’t enough to fill normal levels of teacher turnover. A mass exodus of teachers retiring earlier than expected would be disastrous.
Other cities and states that have gutted pension benefits or closed pension plans altogether have had trouble recruiting and retaining public employees. Palm Beach, FL, returned to a traditional pension plan for its public safety employees last year after a failed experiment with a hybrid retirement plan caused employees to leave for other municipalities with pensions. Utah has experienced trouble recruiting new public safety officers since pension changes were implemented several years ago. (Coincidentally, the pension changes in Utah were pushed by Chuck Reed’s RSI colleague Dan Liljenquist).
Attacking the pension benefits of public employees causes these workers to worry about their future retirement security. Many public employees in Kentucky may choose to retire early rather than face the potential loss of their pension benefits in the future. Gov. Bevin and other political leaders should learn this lesson from San Jose, which learned it the hard way. Even prominent proponents of Measure B have come to acknowledge it as a disaster, with one including it in their list of ‘Worst Local Decisions of the Last 50 Years’.