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A Look At CT’s Pension Obligations

by | Aug 12, 2013 11:52am
() Comments | Commenting has expired
Posted to: The Economy, Election 2014, State Budget, State Capitol

Click to enlarge A recent report determined that just 17 states have funded more than 80 percent of their projected pension liability, but Connecticut still holds the distinction of having one of the highest unfunded pension liabilities in the nation.

The most recent actuarial valuation of the pension funds showed that as of June 30, 2012, the State Employees’ Retirement System was funded at 42.3 percent and the Teachers’ Retirement Fund was funded at 55.24 percent.

That means the State Employees’ Retirement System had $9.7 billion worth of assets, which is enough to cover 42.3 percent of the $23 billion in liabilities. The Teachers’ Retirement Fund did slightly better because in 2008 the General Assembly agreed to put $2 billion on the state credit card to help make payments to the fund. That means the teachers’ fund had $13.7 billion in assets, which is enough to cover 55.24 percent of its $24.9 billion in liabilities. Experts say an 80 percent funding level is considered healthy.

The next actuarial valuation of Connecticut’s funds isn’t expected to be completed until after the November 2014 election, which isn’t unusual because the valuation of the pension funds is conducted every other year.

The good news for the state is in the rebounding investment market.

The anticipated annual rate of return for the State Employees’ Retirement System was recently lowered to 8 percent and the rate of return for the Teachers’ Retirement Fund is 8.5 percent, but the two funds, which are combined with four other small funds, returned 11.49 percent.

Connecticut Treasurer Denise Nappier attributed the high rate of return to the strong equity gains with domestic and international developed markets returning a preliminary 21.2 and 22.6 percent. Those investments helped add $2.8 billion of market value to the pension assets. The fund finished the year ending June 30, 2013, at $25.9 billion, up from $24 billion the previous year — an increase of $1.9 billion.

Last year, the pension plans took a dive ending with a negative 0.9 percent rate of return. During fiscal year 2010, Connecticut Retirement Plans and Trust Fund assets declined from $25.5 billion to $24 billion. So the fund has grown grown past where it was before it lost value 2010.

But investments aside, Gov. Dannel P. Malloy’s administration has been making an effort to shore up the pension funds after decades of neglect by two Republican administrations, contributing money beyond the actuarially required contribution to fully fund it by 2032.

As recently as 2010, former Gov. M. Jodi Rell’s administration got the labor unions to agree to delay a $100 million pension payment. In the late 1990s, former Gov. John G. Rowland’s administration made smaller annual payments to the pension fund. Those shortfalls led to what could be described as a balloon mortgage payment that’s come due under the Malloy administration.

Going forward, this means the state will have to contribute more and more money to its pension fund, which means there’s less funding for state programs. It’s a reality that Rell’s administration acknowledged when it handed off the baton to the Malloy administration in 2010.

Earlier this year, Malloy tried to exempt the pension payments from the spending cap. The General Assembly didn’t go along with the idea of exempting any spending from the cap, but it decided to “net appropriate” the extra Medicaid money it receives from the federal government to implement the Affordable Care Act.

The 2014-15 budget approved two months ago by the General Assembly effectively removes about $2.9 billion in 2014 and $3.5 billion in 2015 out from under the cap.

But the Malloy administration isn’t worried the new accounting method will impact its ability to continue to make the necessary pension contributions, while continuing to fund necessary government programs.

“Our current budget is balanced and under the spending cap,” Andrew Doba, Malloy’s spokesman, said Monday.

Later this week Connecticut lawmakers in attendance at the National Conference of State Legislatures in Atlanta will be treated to several panel discussions on the topic.

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(16) Archived Comments

posted by: ASTANVET | August 12, 2013  12:32pm

YIKES - just Yikes… I wonder what the faithful followers of our economic and political philosophy will do when the State can’t pay their pension.  Honestly, I feel bad for the employees who have worked with the expectation of their retirement plans and will have them ripped out from underneath their feet for pennies on the dollar.  This was a perfectly avoidable catastrophy.

posted by: Joebigjoe | August 12, 2013  3:05pm

If you want to vote in any election held within the borders of the State of Connecticut, this article should be required reading.

“Connecticut Treasurer Denise Nappier attributed the high rate of return to the strong equity gains with domestic and international developed markets returning a preliminary 21.2 and 22.6 percent”

Ok, and where is the part Ms. Nappier about QE driving the equity markets up and the risk that these accounts face when Bernanke starts to taper QE. The potential to lose all or most of those gains is very real.

if I were the State employee unions I would start cutting deals to keep the workforce employed in some way because the day of reckoning is coming and last I looked, working for the state doesnt translate well to the limited number of open private sector jobs.

posted by: Chien DeBerger | August 12, 2013  6:38pm

“The good news for the state is in the rebounding investment market.”

Yep, wait til the Fed stops pumping in the ol cash and see how those investment markets behave.

posted by: JAM | August 12, 2013  6:56pm

How much has been budgeted for contributions to the state employe and teachers’s fund for F/Y 2014?

posted by: ALD | August 12, 2013  8:08pm

“But investments aside, Gov. Dannel P. Malloy’s administration has been making an effort to shore up the pension funds after decades of neglect by two Republican administrations”

How about we complete that comment? 

And many Democratically controlled General Assemblies that made sure the state workers got their pay increases while keeping the voters as usual in the dark as to the full cost of each state worker. 

Not excusing the two less than Republican administrations mentioned here.  Just making sure the rest of the guilty parties gets full credit.

Ever since Malloy took office I’ve come to wonder if we even really need a General Assembly.  It seems all that every went wrong in this state was the sole responsibility of the two last incompetent governors before him.

Why do we need a General Assembly if all that ever goes wrong in this state is the full responsiblity of the governor’s office?

posted by: art vandelay | August 13, 2013  6:24am

art vandelay

It’s time for the State of Connecticut to abandon the “Defined Benefit Package” and institute a matching 401K.  It’s also time for every state employee and retiree to be transferred into “Obamacare”. Taxpayers can no longer afford a retirement package that allows its employees to retire after 20-30 years of service with a lifetime paycheck equal to their last 3 years of service packed with overtime.  The problem is that the Unions who negotiated these ridiculous packages elected legislators sympathetic to their cause.  The Unions now control state government so the problem is only going to get worse.  At some point the state will go broke just as the city of Detroit did earlier this year.  It’s only a matter of time.  We need to fix this problem NOW!

posted by: Christine Stuart | August 13, 2013  7:38am

Christine Stuart

Just to be clear the governor in CT is the only one who has the legal authority to negotiate with the unions. The General Assembly could vote down a deal if they wanted, but that doesn’t happen very often and it would only send the governor and the unions back to the negotiating table. That’s what make CT a little different than other states and why the governor has a lot of the blame and credit in these situations.

posted by: Christine Stuart | August 13, 2013  7:40am

Christine Stuart

I believe the contribution at least to SERS in 2014 is $946 million. I’m not sure about the teachers. Will check and get back to you

posted by: Joebigjoe | August 13, 2013  8:12am

Like I said this is awesome reporting. I almost had a heart attack this morning when the Courant did a piece as well talking about how much people can get on welfare and how many times it doesnt make sense to work. Someone must have spiked the water cooler at the courant for them to go down that path.

I have said for 25 years of my 52 years (I recall where I was and the reaction when I first made the comment). We provide far too much for people that can and should be working and not nearly enough for those that everyone would agree just cant.

posted by: JAM | August 13, 2013  8:36am

Thanks, Christine.
FYI, as I read the Actuarial Reports the required contributions for the SERS and Teachers’ fund are $1.27B and $948M respectively.
These include both current costs and payments against the accrued liabilty.
I do think that comparing these numbers and the actual contributions is an important part of the story.

posted by: Nutmeg87 | August 13, 2013  8:40am

The problem with States & its Debt, is that if you keep taxing the wealthy, they will MOVE…

States & Municipalities dont have the ability to “print” money, nor capture next generations of taxpayers without an exodus…  Detroit anybody?

CT does NOT have a large enough population NOR diverse industry to sustain such high debt levels…

This article serves as a reminder of the dire future of CT - BUT THE REAL ISSUE BECOMES:  WHAT HAPPENS WHEN INTEREST RATES RISE???  CT GOs are < 2% interest…  What happens if we get to a historical median of 5% rates???  Or 9% in early 1980s…  Debt service will suffocate the budget…  Also, the decline in bond prices will further take the Pension portfolio to the gutter…

posted by: Christine Stuart | August 13, 2013  9:53am

Christine Stuart

To answer the question precisely about how much the state is contributing in the next two years:

SERS: In 2014 it’s $1,268,934,570 and $1,379,188,510 in 2015.

TRS: In 2014 it’s $948,540,000 and $984,110,000 in 2015.

posted by: JAM | August 13, 2013  10:12am

Thanks, Christine

posted by: JamesBronsdon | August 13, 2013  10:36am

Re: the governor being the only politico having the authority to negotiate with unions, the process is broke (leaving us broke) and needs to be fixed. Leaving aside the question of whether unionized state employees should have collective bargaining rights for non-wage aspects of their benefits and work rules, alternatives s/b considered. Perhaps, the negotiated contracts s/b subject to ratification by the voters at the same time as state elections. Perhaps these contracts can only be negotiated in the last two years of a governor’s second term (and if he/she elects to do it in his first term he waives right to run for a second term). Perhaps there is a solution without need for a constitutional amendment. Hey, just spitballing here. But allowing elected officials (governor and/or legislature) to be the sole authority on collectively bargained benefits (without any check but elections) is a recipe for vote-buying at the public’s expense. We have some serious structural problems that inevitably lead to bad policy and bad results for Conn. residents.

posted by: ALD | August 13, 2013  11:38am


I agree with what you say but to me that does not excuse all the other parties in Hartford who were supposed to be looking out for all our best interests.  To me silently looking the other way is not an acceptable excuse.

Over 10 years ago now I brought up this very concern to our then state Comptroller and was told not to worry, it was not a problem. I guess if it wasn’t then it sure has become one now. When I mentioned this issue to the then president of the Senate, I was told the under funding toward the pension payments was agreed upon as part of a master plan with the unions.

Clearly if we couldn’t both afford payments for pay raises etc and pensions we had a growing problem even back then and nobody was concerned enough about it to sound the alarm…......

Yes you are correct when you say the deals were worked out by the Republican governors and the unions. But I would say your comment that this problem is the result of neglect by Republican administrations is just part of where the responsibly belongs…....  As you say these bad deals were negotiated with the unions Not forced upon them.  At the very least the Democratically controlled General Assembly could have tried to stop them. Correct??  Seems to me there is plenty of blame to go around here.

posted by: JAM | August 13, 2013  12:49pm

Although the numbers you presented appear to be fully funding the obligations, I would suggest you check the actual rates of return published @ Nappier’s website.
The ten year annual rates of return (the longest time frame given) were 7.2% for SERS (or 80 basis points below the assumed rate of return) and 7.36% ( 114 basis points below ) for the Teachers’ Fund.
The fact that the funds have not been able to sustain the assumed rates of return over a long term begs the question as to whether these contributions are truly fully funding the obligations.