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When Kentucky senior Senator and Bulk Leader Mitch McConnell stated this week that he would be in favor of permitting states to utilize the bankruptcy route to handle their underfunded public pensions amidst the pandemic emergency, state employees and retirees– currently struggling with the economic and health crisis– were truly alarmed. “Using the bankruptcy path” is code for slashing pension benefits assured to state employees. Under present law, just cities and other local governments can declare bankruptcy and just with approval of the state.
McConnell apparently represents Kentuckians and Kentucky already had t he worst-funded state pension system in the country– just 16% moneyed– prior to the COVID-19 market meltdown. Chris Tobe, a previous trustee of the Kentucky pension and SEC whistleblower, presumes when the pension reports fiscal-year-end efficiency July 1 st, its funding level may fall into single-digits. (Complete disclosure: I served as Independent Counsel to Mr. Tobe in connection with his SEC whistleblower problem.)
Most Likely Kentucky would be the very first state to use McConnell’s bankruptcy plan to get rid of state employee retirement security. Kentucky has over half a million (514,000) present and future pensioners who are unlikely to support his reelection.
A staggering portion (94%) of the state’s 114,000 retirees still live in Kentucky and pump over $1.9 billion a year into all 120 counties. Cutting pension benefits will undoubtedly depress the regional economy.
To be clear, McConnell is not opposed to all federal bailouts of pensions. A couple of months ago, he signed up with a bipartisan group of senators in introducing a bill to secure the pensions for almost 90,000 retired coal miners as a recent wave of coal business insolvencies threatened the solvency of the federal pension fund.
Seemingly McConnell discovers state employees less deserving than coal miners.
This is barely the first time letting states file for personal bankruptcy to get away trillions of dollars in guaranteed retirement benefits has been proposed. In 2011 previous guv of Florida Jeb Bush and previous Home Speaker Newt Gingrich believed in the Los Angeles Times that federal bankruptcy law need to be altered to permit states to “rearrange their finances.”
Said Bush and Gingrich:
” If government employee union managers know that they might have all their agreements annulled under federal insolvency law, either through a strategy of reorganization willingly entered into by state leaders or by the citizens through proposal, they might be much more accommodating with state governments to restructure civil servant union labor forces, pensions and work guidelines.”
McConnell’s insolvency proposal appears a long-shot but as I cautioned readers in Who Takes My Pension? ” Workers in federal government pensions all over the world can rely on political leaders and taxpayers going to legislatures and courts to cut benefits workers have been “assured” when these already struggling federal government pensions start to run out of cash. For example, after Croatia’s parliament just recently approved a federal government proposition to raise the retirement age from 65 to 67 and trim pensions for people who retire early, 3 leading trade unions revolted and the federal government backed down– in the meantime.
Even millions of participants in the Dutch pension system– widely regarded as the “world’s best”– are dealing with advantage cuts and fearing there might be even worse to come.
Not doing anything– relaxing, confident your pension check is “in the mail” is not an alternative. That’s a threat you can’t manage to take.”