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How Does Connecticut Get People To Care About Pension Reform?

by Hugh McQuaid | Nov 22, 2013 2:47pm
(14) Comments | Commenting has expired
Posted to: State Budget

Hugh McQuaid Photo

State Comptroller Kevin Lembo

Panelists at a forum Friday grappled with the challenge of engaging the public on critical but dry fiscal problems facing the state like unfunded pension liabilities.

The discussion was part of a “Make Government Work” forum at the Hartford Club sponsored by No Labels, the Connecticut Business and Industry Association, and Connecticut Voices for Children.

The conversation spanned a wide range of topics but a member of the audience asked panelists for ideas on getting the general public, particularly young people, engaged on dense fiscal issues like pension liabilities.

Connecticut holds the distinction of having one of the highest unfunded pension liabilities in the nation. That means the pool of money Connecticut has set aside to pay for the retirement benefits of state workers has been underfunded to a higher degree here than in most other states.

Those underfunded pension obligations represent a big problem for Connecticut. Over the years, state government has put off payments to the funds. But it will eventually be on the hook for the payments with interest tacked on.

State Comptroller Kevin Lembo said the state paid more than $1.25 billion last year into the fund and about $1 billion of that payment was made to pay off lingering costs deferred from past years.

Lembo said state’s pension liability problem is a result of “decades of irresponsible decisions that are on the heads of governors, legislatures, and in some cases my friends in labor.”

But how can officials get the public engaged in fixing the problem? David M. Walker, former U.S. Comptroller General who moderated the discussion, said it was important to condense complicated issues into compelling messages.

Hugh McQuaid Photo “So that in 10 minutes, people know you’re on a burning platform. You’ve got make major changes, but then you’ve got to give them hope and show them a way forward,” he said. “It can be done, but it has to be done primarily by the chief executive officer.”

Last year, Gov. Dannel P. Malloy implemented a plan to get the state funding 80 percent of its obligations by 2025 and 100 percent in 2032. In order to get there, he increased required contributions to the fund by around $125 million.

While some economists have called the plan too modest, Lembo said last year was the first time since 1996 that the payment the state made on the fund matched what was recommended. He said it was a good start.

Lembo said it is up to the electorate to decide whether to be engaged on issues and to decide whether to support solutions when they are proposed.

“If we want to be treated as children, if we want to have happy thoughts and sound bytes thrown our way, then you’re going to get more of what you’ve got right now. But when someone stands up and tells you the truth, after you get over the initial hit, you’ve got to be willing to listen to the plan to move forward and decide if you want to get behind that plan,” he said.

Lembo said it can be politically advantageous for politicians to sugar-coat issues for the public.

“It’s dicey. The incentives to lie to you are high,” he said.

Hugh McQuaid Photo Former Lt. Gov. Michael Fedele said it will take courage on the part of elected officials to address the unfunded pension problem. He said it will not only take strategies to pay down the unfunded liability, but also negotiating different retirement plans for new state employees and determining whether the state is properly investing its money.

“Let me tell you, being someone who’s run for public office on the state level, those could be career-ending decisions because you’re talking about union state employees and if not done properly or explained properly that’s a big course,” he said.

Fedele said it is difficult to engage young people who have not been directly impacted by state fiscal policies and do not necessarily feel they have a “horse in the race.” He said social media and forums like Friday’s are important tools to reach out to the public.

“You’re connected. The question becomes when you get that message, what do you do with it?” he said.

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(14) Comments

posted by: Noteworthy | November 22, 2013  8:02pm

How to get the public engaged? Try telling them the truth that unless politicians quit spending money on other things without paying what they’ve promised for fat blaoted union contracts, they’re taxes are going to go through the roof. If that happens worse than it already has under Malloy, people will starve, they’ll lose their homes and more businesses will flee the state than have already done so without being bribed to stay by our governor.

posted by: Salmo | November 24, 2013  1:38pm

I’m a bit confused by this. It is my understanding that there are all ready at least three different tiers of retirement vehicles for State Service. The old plan of yesteryear finds many of those recipients dying off at a slow , steady pace which will only increase in the near future. The other tiers are no way near as generous and the proposed changes are even less so. It strikes me that it seems very convenient to lay all the problems in Connecticut at the feet of State employees. At some point that charge loses at least some credibility. It seems to me that we need to keep a close eye on what is going on up at UCONN and some of the other agencies. And, yes, we all have a horse in this race.

posted by: Stan Muzyk | November 24, 2013  9:30pm

Along with one of the highest bonding debts the country, we are also a leader in unfunded pension liabilities. Why can’t strive to be the leader of fiscal responsibility—which our elected leadership does not ever attempt to pursue? Gov. Dannel Malloy and his Democratic legislators—just keep spending us into oblivion—because no one can stop them—and our liberal voters will vote them back into office.

posted by: artythesmarty | November 25, 2013  10:19am

This is starting to resonate but I cant think of a family that does not have a family member on the public payroll.  If you bring it up the level of intensity goes way up and many get shunned-it has happened to me with long time acquaintances.  A spouse of a public worker becomes a wildcat in defense(firemen’s wives are ferocious)..even guys married to DMV workers know their ox will get gored launch into a defense.  If you bring this up be prepared to be vilified by public/education workers and get no support by IT, Pharma, Manufacturing people.

posted by: artythesmarty | November 25, 2013  12:10pm

it seems Lembo and Malloy want to set up a 20 year payment plan which they will be long gone from State Govt 1/3 or less of the way through to honor committments of the O’Neill administation. 
And he calls US children, this plan seems less plausable than waiting for Santa to buy your kids presents.

posted by: gompers | November 25, 2013  6:35pm

As usual, why bother with the facts?  Connecticut has four state employee pension plans.  Tier I, Tier II, Tier IIa and a new Tier III for the newest hires.  Tiers II, IIa and III are all fully funded.  Tier I is the underfunded plan.  It is underfunded because Connecticut legislators for decades decided, agains the advice of actuaries and unions, to “pay as you go.” 

In the late 70s legislators created the Tier I plan when it finally sunk in that “pay as you go” is a bad pension funding model.  Tier I was born underfunded.  Then Rowland and Rell refused to pay the “ARC” (annual required contribution as recommended by the fund actuaries.)  It would be hard to imagine how Tier I could have been more sabotaged.  Governor Malloy came up with a plan to have Tier I reach full funding in twenty years.  The legislature voted for it.  This is the smart way to solve the Tier I problem.  It is not a crisis. But Corporate America is intent on blowing up public employee pensions.  Otherwise, corporate employees might realize that pension systems really do work and wake up to the fact that their corporate overlords swindled them out of their pensions.  Read “The Retirement Heist” by Wall Street Journal (hardly a liberal publication) investigative reporter Ellen Schultz.  She details how the corporate ceos massively swindled their workers out of pension and walked away with billions for themselves.

posted by: NOW What? | November 25, 2013  9:05pm

“gompers” - For all practical purposes you are absolutely correct. Members of the general public, their elected officials, and even State union members need to be educated on such details before they can be expected to understand let alone accept the necessary remedy.

posted by: Salmo | November 25, 2013  11:07pm

Hey, gompers: Now that sounds a little more like it. And what about the millions the State workers coughed up to help save Colt industries (?). Did that ever get payed back? And this happened with the help of back to back Democratic administrations AND back to back Republican administrations. I guess nobody is minding the store after all.

posted by: perturbed | November 27, 2013  2:57am

perturbed

@gompers— I emphatically agree with your overarching point: that pension systems really do work. They have enormous advantages over defined contribution plans, which, as we are seeing now, actually don’t work for the vast majority of Americans.

The biggest advantage of pension funds is the ability to spread risks over generations, rather than individual life spans. When folks are forced to fend for themselves individually, their retirement success depends to an inordinant degree on the luck of the draw: whether they are lucky or unlucky in timing their birth and retirement in relation to the booms and busts of the market. The reality is, if you get old and retire at the wrong time with a defined contribution plan (i.e. during a great recession), your chances of a secure retirement plummet. Pension funds benefit from a far longer time horizon over which to recover and prosper from the market’s gyrations. That only a minority of Americans enjoy the benefits of a pension is a shame.

But gompers you lost me on the different funding levels for the various CT state pension plans. Could you please help me understand?

While it’s certainly true that there are four (primary) state employee pension plans, don’t they all share a common pension fund? For example, take the State Employee Retirement System (SERS). Doesn’t that single pension fund serve Tier I, Tier II, Tier IIa, and Tier III alike? In other words, current state retirees draw their pension from that (single) pension fund regardless of what retirement tier they are in, right? And active employees’ pension contributions go into that same (single) pension fund regardless of their retirement tier, right? I have never seen a report on the SERS that is sub-allocated by retirement tiers, have you?

So it’s confusing to me when you say “Tiers II, IIa and III are all fully funded.  Tier I is the underfunded plan.” Tier I is currently taking the vast majority of the pension fund payout. By the time the pension fund is in danger of being depleted, most Tier I retirees will be dead, having recieved their full pensions, and it will be the Tier II, IIa and III folks who will suffer the consequences, right?

If you have any documentation that shows separate pension funds for each of the retirement plans, could you please point me to it? Otherwise, your assertion that a Tier II or IIa pension is “fully funded” while only Tier I is “underfunded” seems blatantly wrong. Aren’t we all in the same boat?

Thanks,
—perturbed

posted by: perturbed | November 27, 2013  3:18am

perturbed

It’s encouraging to see Michael Fedele talk about negotiating different retirement plans for new employees. (I have no doubt he enjoys his own state pension after his term as Lieutenant Governor.) The travesty is that, by the hands of our own union bosses cutting a backroom deal with Malloy, SEBAC 2011 slashed the pension benefits of existing employees, breaking promises made up to 27 years earlier. 

NOW What?/SteveHC writes:

“Members of the general public, their elected officials, and even State union members need to be educated on such details before they can be expected to understand let alone accept the necessary remedy.”

It’s always interesting to hear what a current Connecticut Tier I state retiree thinks is “the necessary remedy.” For several months over the summer of 2011, we endured the ubiquitous loud rants of NOW What?/SteveHC  demanding that active Tier II and Tier IIa employees willingly vote to cut their own pension benefits, all while pretending to be a disinterested bystander.

The fact that Tier I pensions are breaking the state pension fund, but only Tier II and IIa employees were forced to sacrifice their promised pensions is fundamentally unfair.

That a current Tier I retiree helping to break the pension fund (like NOW What?/SteveHC) would so loudly advocate slashing the far smaller (but long promised) pensions of active Tier II and IIa employees to help shore it up is deplorable.

—perturbed

posted by: gompers | November 27, 2013  4:02pm

The investment funds are from the same pool.
The liability is not, which is how we know which tiers cost which.
So what we know was the pre-funding for tier 2 and 2a and 3 covered those tiers while not pre-funding tier 1 produced the huge liability.
It matters because tier 1 was shut down in ‘84, thirty years ago; when these oldest state employees die, in many ways, the problem is solved.

posted by: gompers | November 27, 2013  4:04pm

Salmo,
The Colt investments have made money, not lost it.  They also preserved Connecticut jobs.  This is a pretty good deal all around and another thing to consider about pensions.  They help churn investment into the economy and create jobs, rather than sitting in offshore banks.

posted by: gompers | November 27, 2013  4:18pm

Perturbed,
Tier II and Tier IIa pensions didn’t get cut.  No one’s pension got cut.  That would be illegal under 100 years of U.S. court decisions -though there are currently several conservative governors trying to overturn this body of law in federal court to screw their public employee retirees.

posted by: perturbed | November 27, 2013  8:01pm

perturbed

@gompers— thanks for your replies, it sounds like you know something about the state pension system.

However, I think we’re not communicating well.

You admit that the pension plans all use the same pool of funds, so on that we have agreement. I also understand completely that a separate accounting of the assets and liabilities could be used for the various pension plans. But here’s what seems logical to me: if a Tier I retiree pension needs to be paid and the “Tier I assets” are all gone, that Tier I pension payment will be made from whatever assets are available in the pension fund, whether they came from Tier II, IIa, or Tier III employees. Is that fair enough?

I’m also unclear on your statement that Tier I pensions were not pre-funded, but all others were. Are you referring to employee contributions or state contributions? Tier II is the only pension plan that does not require an employee contribution—Tier I has always required an employee contribution.

Finally, there is the claim that no Tier II or IIa pensions got cut. You are wrong on that. No, I’m not referring to folks who have already retired from state service, like NOW What?/SteveHC collecting his Tier I pension. Of course retiree pensions did not get cut.

But when you lop off the first three years of the normal retirement age pensions of existing, active state employees (by raising the retirement age by 3 years), that’s a cut in core, protected pension benefits.

Say a typical state employee retirement lasts 20 years. So that 3-year retirement age increase amounts to a 15% cut in benefits, by shortening the retirement by 3 years. (And how do you account for the lost years of personal time?)

Are you familiar at all with the details of SEBAC 2011? Here are the highlights of the pension cuts to existing employees:

a raising of the normal retirement age eligibility—retroactively affecting existing workers—by three (3) years for everyone to 63/65—except Tier I and hazardous duty employees—effective July 1, 2022

a 100% increase (a doubling) of the current penalty for anyone qualified for early retirement—based on the “new normal” age when it takes effect and retroactively affecting existing workers—from 3% per year to 6% per year early (add in the standard 1.33% per year reduction for each year early, and foregone raises, and the resulting reduction is close to 9% per year), effective October 2, 2011 (Does not apply to Tier I, with a normal retirement age of 55.)

a 20% reduction in the typical COLA, effective October 2, 2011

And yes, the pension cut in that first bullet point was most likely illegal. Not that there will ever be a challenge mounted against the state, considering the fact that it was our very own unions that rammed that cut down our throats! (Can you imagine that??)

—perturbed