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Malloy Seeks Changes To State Employee Pension Fund

by | Jan 23, 2012 5:23pm
() Comments | Commenting has expired
Posted to: Labor, Legal, State Budget

Christine Stuart photo

Gov. Dannel P. Malloy

One of the three Wall Street credit rating agencies downgraded Connecticut’s bond rating last week citing its enormous unfunded pension liability, but Gov. Dannel P. Malloy said the plan he proposed Monday to improve the pension funding ratio had nothing to do with the bond rating.

Malloy released the plan to improve the woefully underfunded pensions fund at a press conference outside his Capitol office.

The plan seeks to achieve 80 percent funding in 2025 and 100 percent in 2032.

In order to get there, it eliminates the provisions agreed to as part of the State Employees Bargaining Agent Coalition agreement in 1995 and 1997 by then-Gov. John G. Rowland, and allows the state to increase its annually required contribution by about $125 million this year. Currently the State Employees Retirement System is funded at about 48 percent, according to the last actuarial valuation.

Malloy is also asking that the spending cap be excluded from pension contributions in excess of the annually required contribution. He needs a super majority of General Assembly to approve the removal of the spending cap to these types of expenditures.

In its report Friday, Moody’s Investor Services said it downgraded the state because it believed “funded ratios are not likely to improve significantly until closer to the end of the remaining amortization periods,” which is 21 years in the case of the state employees pension fund. Malloy said he actually briefed Moody’s on the pension proposal he unveiled Monday. He said he’s been working on this with his Budget Director Ben Barnes, since Barnes joined his administration last year.

Malloy said he will find the additional $125 million to put toward the pension fund as part of the budget he releases on Feb. 8, but didn’t give any hints as to where the money would come from.

“We are realigning our budget objects to get to this goal, which is to get to 80 percent funding by 2025,” Malloy said. “The significance of 80 percent is the standard by which states are normally rated.”

He said what he’s doing is “strong and sound fiscal management that will inure to the benefit of the taxpayers to the extent of almost $6 billion.”

“It is no honor to have the worst funded pension program in the country,” Malloy said. “That’s not something governor’s should aspire to; certainly not something I aspire to.”

He brushed aside questions that the plan was reactionary and said he always told the media, even on the campaign trail that he was going to do this. He said he was waiting until he was able to “restack” his relationship with state employees.

SEBAC leadership would have to agree to the provision, but Sal Luciano of AFSCME Council 4 and Robert Rinker of CSEA/SEIU Local 2001, who watched the press conference, said they don’t see any reason why state employees wouldn’t want the state to improve the funding ratio.

“It’s the responsible thing to do,” Luciano said.

Rinker agreed. He said making sure the pension fund is solvent is good for state employees.

The SEBAC provisions allowed the state’s contribution to shrink so eliminating them will increase the solvency of the fund. Rinker said first provision was added to the contract when the stock market was doing well, but any gain the fund saw from a healthy stock market disappeared in 2008.

Hugh McQuaid Photo House Minority Leader Lawrence Cafero said he applauded the effort but said the proposal contradicts the state’s fiscal position right now.

“The governor’s plan calls for a payment $125 million. Now this is coming on the heels of his letter to us on Friday, wherein he says if you take the [Generally Accepted Accounting Principles] money out of the equation, we’re about $75 million in the hole,” he said.

Without GAAP accounting, the state has a surplus of only about a million, he said. Cafero questioned where the money would come from.

“He said he’s not going to raise revenues but we also learned last week, by consensus revenues, that our revenues are plummeting,” he said. “The principle is fantastic, we have to pay our obligations, but how this statement from the governor jibes with the fiscal news we learned this week, plus other things he’s stated, is still a question to be answered.”

The governor’s proposal raises some other questions, he said. Malloy’s plan aims to eliminate provisions of SEBAC agreements, which were negotiated settlements, Cafero said. He questioned how Malloy could just eliminate two provisions he didn’t like.

Cafero said the fact that the SEBAC agreement can be re-opened, it might be a good thing if economic conditions get worse and the state needs more savings. Former Gov. M. Jodi Rell’s agreement with the unions contained an emergency clause for such a scenario Malloy’s does not, he said.

“It seems like the SEBAC agreement is still up for negotiation. If that’s the case and we do have an economic downturn that we all hope we don’t have, but if we do have it, would that mean the unions would come back to the negotiations table?” he asked.

Sen. Minority Leader John McKinney, R-Fairfield, said he agrees with Malloy that “paying off our pension debts is a good thing.” However, “doing so outside of the spending cap shows that Governor Malloy is still not serious about reducing unnecessary state spending and, further, that he is not serious about pension reform.”

He questioned why Malloy didn’t handle the situation when he negotiated health and pension benefits with SEBAC this summer.

“Clearly, his deal with SEBAC failed to adequately deal with our long term indebtedness. Real leadership requires real reforms and that is what is needed in these difficult times,” McKinney said.

As part of those negotiations Malloy asked all state employees to contribute 3 percent of their salaries for 10 years to the “other post retirement benefits,” which includes mostly retiree health care benefits. That portion of the pension fund is underfunded to the tune of $26 billion and accounts for a greater portion of the state’s unfunded liabilities. Malloy said he believes the 3 percent contribution from all state employees adequately addressed the deficiency in that account.

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(17) Archived Comments

posted by: Disgruntled | January 23, 2012  6:24pm

Starting in 2014,80% funding by 2025.
Gee. How do the numbers look for next year?
BigJohn-the-Felon was dissing the gov. on his radio show.Do they allow broadcast equipment in jail or is that pig on the loose?
Dan would have been more specific but he had a plane to catch with Dan-landswap-Etsy.
Keep the fondue hot for them over in Davos!

posted by: perturbed | January 23, 2012  8:38pm

perturbed

Okay, so the timing of this move may be somewhat reactionary, but we all have to give credit to Malloy for this: His primary focus throughout the 2011 backroom (or “airtight,” as Roy Occhiogrosso called them on a Colin McEnroe show) negotiations with the elite SEBAC union bosses was slashing the state’s long term pension liability. That he accomplished. In one fell swoop, with the backroom deal he worked out with SEBAC, he vaporized an estimated $8 billion of the pensions over the next two decades that were promised to state employees over 25 years ago. (Did I ever mention that I lost 20% of the pension I was expecting for decades? Think that, together with tens of thousands more slashed pensions like mine, won’t amount to real savings for the state?)

In fact, so focused on the long-term saving was Malloy that he was willing to forgo much true savings from the SEBAC 2011 agreement over the immediate 2-year budget period. (The SEBAC elite was willing to go along with the charade because they thought—quite correctly—that state employees would be too stupid to preserve their long term benefits at the cost of instant gratification. And they got a health care pooling bill passed in payment.)

So it’s unfortunate that this fact is lost in the debate. Yes, it’s true, the 2-year pension savings were relatively trivial, all smoke-and-mirrors. But as living proof, let me assure you that the long term slashing of the state’s pension liability Malloy and SEBAC accomplished together is very, very real.

So when Malloy says this was his objective from long ago, I believe him.

(Good luck, though, Governor, “restacking” your relationship with us state employees. We’re committed to voting you out the very next chance we get. We’ll do far better with an administration that’s not so closely aligned with SEBAC that they can cut backroom deals with our two-faced SEBAC union bosses at our expense.)

—perturbed

posted by: perturbed | January 23, 2012  8:41pm

perturbed

SEBAC leadership would have to agree to the provision, but Sal Luciano of AFSCME Council 4 and Bob Rinker of CSEA/SEIU Local 2001, who watched the press conference, said they don’t see any reason why state employees wouldn’t want the state to improve the funding ratio.

“It’s the responsible thing to do,” Luciano said.

Rinker agreed. He said making sure the pension fund is solvent is good for state employees.

The SEBAC provisions allowed the state’s contribution to shrink so eliminating them will increase the solvency of the fund.

Is this the closest we’ll ever get to SEBAC admitting we had to lose big chunks of our pensions now—retroactively—because they screwed up in allowing the SERS to be underfunded in the first place?

Is SEBAC finally admitting that Malloy’s proposal, the “good” and “responsible” thing to do, is the opposite of what they agreed to before?

—perturbed

posted by: perturbed | January 23, 2012  8:42pm

perturbed

Fellow State Employees—this is very, very important. Please read carefully:

“The governor’s proposal raises some other questions, he said. Malloy’s plan aims to eliminate provisions of SEBAC agreements, which were negotiated settlements, Cafero said. He questioned how Malloy could just eliminate two provisions he didn’t like.

Cafero said the fact that the SEBAC agreement can be re-opened, it might be a good thing if economic conditions get worse and the state needs more savings. Former Gov. M. Jodi Rell’s agreement with the unions contained an emergency clause for such a scenario Malloy’s does not, he said.

“It seems like the SEBAC agreement is still up for negotiation. If that’s the case and we do have an economic downturn that we all hope we don’t have, but if we do have it, would that mean the unions would come back to the negotiations table?” he asked.

And THAT, people, is EXACTLY why we need to get out of our existing unions and into new ones! The ones we’re in now can absolutely NOT be trusted NOT to betray us again. They locked us out of our own negotiations and learned they could get away with it. Our only hope is to create new seats at SEBAC so that we might have the slightest bit of influence over our own fate. Joining new unions is the ONLY WAY that can be accomplished. Each new union representing state employees is a new seat at the SEBAC table.

Luciano and Rinker sold us out for their own objectives last year, and they’ll do it again. We have to dilute their power.

So when the Labor Board grants us the right to chose our our union, we must make the only rational choice available to us.

—perturbed

posted by: Noteworthy | January 23, 2012  8:44pm

There Malloy goes again - announcing another $125 million in spending but not the way to pay for it. He has said this so many times - and every time it costs me more money. I just can’t wait until he does the big unveil. It will be like watching an episode of the Biggest Loser

posted by: Disgruntled | January 23, 2012  10:01pm

Do us all a favor and vote him OUT and not on.
My guess is that if you voted for him originally,you are not bright enough to do the right thing and send him back into the private sector.
Like ChrisShays he would suck on the government teat and flail about but finally go back to Abate&Fox; or some other law firm and milk it for whatever it is worth.
Dan is a fraud. That should be your mantra as you contemplate your retirement!

posted by: DrHunterSThompson | January 23, 2012  10:46pm

perturbed ........ right on, brother.

HST

posted by: GoatBoyPHD | January 24, 2012  3:30am

GoatBoyPHD

Check out the Jerry Brown pension reform plans for California.

♣ Eliminate all pension acceleration and spiking and buy ins. No exceptions including political and appointees.

♣ Pension based on highest 36 months of consecutive service.

♣ Normal Retirement at age 67 and 60 for Haz duty with a waiver. No early retirement.

♣ 30 years of service for normal pension. 10 years vesting for partial. No exceptions.

♣ Cap pension contributions at the first $75,000 a year of base pay income. Incomes over that amount qualify for a hybrid 401K matching plan up to $125,000.

♣ Alt plan for the 2012 ballot:  401Ks for all new employees. No pensions.

♣ Medicare as primary retiree health option. Supplemental Medical Insurance buy in option.

posted by: Upset.Citizen | January 24, 2012  7:20am

Upset.Citizen

This just in - Attachment I: The state can reopen this agreement at any time, at which point all stated before this attachment is not worth the paper it is written on!

posted by: William Wallace | January 24, 2012  7:41am

Having been used by Malloy in unprecedented fashion - the Unions in Ct. CANNOT take any other road but to assure this man does not get re elected.
No one can argue the need to properly fund pension obligations - but Malloy and his minions are so arrogant and dishonest in their actions they actually seem to believe it has nothing to do with the down graded rating given 1 day earlier to the State of Connecticut.
Plain and simple : Malloy is an Obama wanna be here in Connecticut - not a fan of either one and the sooner both are out of office the better. The Socialist agenda that is being forced on us is not wanted by the majority of citizens being affected by this agenda.

posted by: Hebee | January 24, 2012  10:47am

Seriously Perturbed, you will “Vote Malloy out”?  You and your union brethren would rather be gut shot than vote for a Republican candidate.  Malloy will be the Democratic Nominee for reelection and the Union Lemmings will line up around the building to vote for him, once again. You all talk the talk but never actually walk the walk. Too bad for Connecticut.

posted by: richsobi | January 24, 2012  11:34am

If you don’t think the unions would agree to this you bloggers are drunk.  The Rowland deal allowed them to slow down funding the pension plan liability, Malloy proposes to accelerate the funding.  As a 25 + year employee who hopes to work another 15 years with the State, I am all for it.

posted by: eastrivertype | January 24, 2012  12:06pm

Here we go again.  Another $125 million to start. This is even before the Governor proposes his education initiative which he says “will cost more money.” Where will all of the new money come from? 
  GoatBoy was right on target with looking at what Jerry Brown is pushing in California.  The way to reduce the unfunded liability must have two parts: increase the contribution AND reduce the expenditure.  If union members are smart they will accept the changes in return for the additional changes.  If they won’t can you say Waterbury.  When Waterbury went bankrupt and the stqate had to bail them out, legislation passed to reopen their pension agreements.  We are not far from being Waterbury as a state.  Why do you think our bond ratings have declined?
As for our Governor’s solution to tax and spend our way our of the bipartisan mess that both parties created, time will tell if he is right or whether NJ and NY are right.

posted by: rankandfile | January 24, 2012  12:33pm

Hebee, you obviously know nothing about state employees. Tons of them voted for Foley, especially the long-time employees who preferred lay-offs to concessions. You shouldn’t confuse the rank and file with the socialist leaders of the unions, or the new employees who don’t know any better and jump when the union tells them too.

posted by: NOW What? | January 24, 2012  1:54pm

GoatBoyPHD - In fact, Connecticut has already implemented some of those Californian “Jerry Brown ‘initiatives’ “. There effectively is no more pension “acceleration.” “Buy-in” opportunities have already been brought down to almost none (for all practical purposes), and even among those few employees who qualify for what “buy-in” options are still available VERY few of them actually make use of those opportunities (because they simply don’t have the extra money required for the buy-in). The minimum age and employment length for full (“normal”) pension benefits have already been increased. Pension payment levels are already based on the highest 36 consecutive months. And Medicare has already been set as the primary health insurance for Medicare-eligible retirees. Beyond that stuff -

In CT, at least, capping pension fund contributions to the first $75,000 of base pay would save taxpayers only a truly negligible amount, as the OVERWHELMING number of State employees wind up making nowhere near $75,000.

Relying exclusively on 401(k)s for State employees isn’t possible, because the federal IRS doesn’t allow the use of such plans for government employees. It only allows for the use of a somewhat similar but MUCH more restrictive deferred compensation plan - which is already available to State employees wishing to supplement their pension but to which the State doesn’t contribute a DIME. And even if the State WAS permitted by the feds to offer a 401(k) instead of a defined-benefit pension, it would ultimately cost taxpayers MORE money than the State’s pension plan will… and because the ROI on 401(k)s is worse than it is on the State’s pension funds, such a change would force almost ALL retirees to relocate out of CT… with CT thus losing an enormous amount of money from its economy in the process. It is for these reasons that even the states that are controlled entirely by conservative Republican governors and legislators (see FL as a very good example) are not calling for wholesale conversion to 401(k)-style pension plans.

The only TRULY effective ways for the State to further reduce its own pension payments going forward are to further reduce the number of active State employees “on the books” at any given point in time, and to slash the amount of mandatory overtime that is ordered by the State and its managers - both of which would initially result in some very real service cuts but *some* of which could hopefully be ultimately restored via IT infrastructure improvements rather than increases in State hiring or contracting out. But there are limits to such RIFs, as the courts - and federal (and sometimes even State) laws and regs effectively *require* certain minimum service levels.

By the way - one may ask “Well if so many private corporations do not offer defined benefit pension plans, why do state governments feel compelled to continue doing so?” Although there are a number of legitimate answers to such a question, by far the most significant answer is that while voters generally do NOT hold private companies accountable for the local quality of life and health of their state’s economy they DO hold their *elected officials* accountable for them (rightly or wrongly)... and those elected officials KNOW that the pensions of their government workers a) are ultimately CHEAPER (to taxpayers) to offer than increased salaries would be, and b) have both direct and indirect effects on each state’s perceived overall quality of life and actual economic effectiveness.

In fact, if workers EVERYWHERE - both public AND private - had any brains at all they’d be agreeing to CUTS in take-home pay *in exchange for* improved retirement and health insurance benefits (the latter of which should be funded at least in part via long-term investments, just as retirement benefits should be)... and if all EMPLOYERS (both public and private) had any brains at all they’d AGREE to such a concept. Economies would stabilize, inflation would be kept in check permanently, and the elderly wouldn’t have to worry about becoming poverty-stricken before dying. But unfortunately, even though our society’s overall standard of living is certainly high enough that we don’t *need* to improve it much beyond what it already is, our GREED and demand for “instant gratification” NOW are such that we all want as much cash to spend on ourselves NOW rather than saving and investing for retirement (or “the future” in general). Most of us are just as dumb regarding this concept now as people were hundreds of years ago.

posted by: RJEastHartford | January 25, 2012  12:00am

Long term employees should vote republican. Most functions within the DOT are ripe for privatization. It will yield savings.  Analyze productive hours for dollars paid here and many positions, especially the higher salaried long-term employees can be eliminated.

posted by: perturbed | January 25, 2012  8:25am

perturbed

NOW What? (who used to go by the name “SteveHC” until he became ashamed of his own rantings) wrote:

”...our GREED and demand for “instant gratification” NOW are such that we all want as much cash to spend on ourselves NOW rather than saving and investing for retirement (or “the future” in general). Most of us are just as dumb regarding this concept now as people were hundreds of years ago.”

SteveHC, I find it ironic that you, of all people, would make such a comment. After all, you were the most vocal, the most insistent, and the most misleading union shill around, yelling at all of us active employees incessantly that we should give up our long term pension benefits for temporary protections. Worse still, it became apparent that a primary motivation for you was shoring up your own Tier I pension.

So you’re a fine one to talk about greed, instant gratification, and discounting the benefits of a defined benefit plan. You promoted that thinking.

Go ahead, SteveHC, give us all a long-winded, twisted, dishonest rebuttal. Try to explain why our predicament was anything but the intentional creation of the SEBAC/Malloy negotiating team.

The simple truth is this: To the extent that your retired Tier I state employee cheer-leading for the abomination that is “SEBAC 2011” had any influence at all over active state employees’ votes, I hold you partially responsible for the slashing of our pensions.

Sincerely,
—perturbed