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State Plans To Sell Investments To Make Payments To Retirees

by | May 3, 2013 11:51am
() Comments | Commenting has expired
Posted to: The Economy, Labor, State Capitol

Republican House Minority Leader Lawrence Cafero is sounding the alarm bells over State Treasurer Denise Nappier’s planned sale of $427.8 million in pension investments to meet this year’s obligations to retired state employees and teachers.

New Haven Independent file photo In a statement Friday, Nappier countered that the sale of these pension assets to pay benefits is not news.

The sale of “pension assets in order to pay benefits has become a normal course of business — this is not news,” Nappier said in a statement. “And, these sales are strategically managed to maintain sufficient levels of liquidity while preserving the corpus of the plans. This practice has nothing whatsoever to do with the state’s cash resources to pay operating expenses.”

The Teachers’ Retirement Fund and the State Employees Retirement Fund are “projected to continue to have insufficient contributions and dividend and interest income receipts to offset cash commitments during FY13,” Nappier wrote in a March 6 letter to members of the Investment Advisory Council. “To maintain target cash levels, core long-term public market investments must be sold: $266.3 million of such sales is projected for TERF; $161.5 million is projected for SERF.”

Having to sell what have been described as “long-term public investments” is just another sign of how bad things are, Cafero said Wednesday.

“This is more troubling proof that Connecticut’s finances are in crisis and that our spending exceeds our revenues in every corner of the state bureaucracy,’’ Cafero said. “We are continually told that our budgets will balance and that we have enough revenue coming in the door. Neither is true.’’

Cafero has been vocal in the past about Nappier’s need to transfer bond funds to cover operating expenses. The situation was heightened this winter when Gov. Dannel P. Malloy gave Nappier permission to seek a line of credit of up to a $550 million in order to pay the state’s bills.

When Cafero and his caucus bring up the issue of the state’s cash flow, they are often “scoffed at” and “pooh-poohed” by Nappier’s office. But Cafero said he doesn’t care. 

“Seven out of 12 months we had to do these temporary transfers to the tune of $1.6 billion,” he has said in reference to the 2012 budget year.

In 2013, there were transfers of bond fund proceeds to the common cash pool every month, according to cash reports submitted to legislative leadership.

Nappier’s office insisted in December that the amount of money it needed to transfer in 2012 was much lower than $1.6 billion because even though they reported temporary transfers from the capital projects account to operating funds, some of the funds were returned.

The state has a common cash pool that includes money for operating expenses, pension funds, and capital projects. Temporary transfers are made between the funds when necessary. Republican lawmakers have monitored the transfers closely for indications of trouble.

So, what do cash flow and state pensions have to do with the state budget?

“The proposed Democratic budget for the next two years borrows hundreds of millions of dollars more to pay for operating expenses,” Cafero said. “On the pension side, we cannot meet obligations through June 30 for retirees so we are forced to sell off assets. We have holes in our budget and pension plans because we have not addressed spending cuts and structural changes that must be made.”

Nappier disagrees that there’s any correlation between the pension funds and the state budget.

“Simply put, pensions and the General Fund are two separate pots of money,” she said.

In a statement, Nappier said Cafero shouldn’t forget that “his colleagues at the Connecticut General Assembly historically have voted to contribute less than what the fund actuary said was required. Today, we are feeling the impact of that ill-advised practice as represented by a significant unfunded liability which, in turn, has increased the need to liquidate pension fund assets to meet pension benefit payroll and other expenses.”

The good news is that since the Great Recession, the pension funds have rebounded, Nappier said.

For the calendar year ending Dec. 31, 2012, the Connecticut Retirement Plans and Trust Funds realized an investment return of 13.47 percent. As of March for the current fiscal year, the pension trust funds stand at $26.3 billion, up $2.3 billion since the beginning of the fiscal year, while paying out $600 million in pension benefits.

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(15) Archived Comments

posted by: ocoandasoc | May 3, 2013  2:58pm

Whether you like Cafero or not, he’s right. Selling pension assets to fund current pension liabilities just reduces the potential funding for fuuture payments toward the growing pension liabilities that will begin to overwhelm the State budget within a decade. Denise can make excuses and point the finger elsewhere, but the math is irrefutable. At this point, the road back to pension solvency will be very difficult, and there are no politically feasible solutions.

posted by: DrHunterSThompson | May 3, 2013  10:56pm

it is exactly what the pension investments are for.  i don’t get where Cafero is coming from or why this article was even written.

now, we may not have enough pension investments, but that’s another story.  go interview past governors and legislators to find out why.


posted by: dano860 | May 4, 2013  5:45am

OCDC is correct.
Also removing the SERF & TERF liability from the budget, in order to stay under the spending cap, is just another Houdini moment.

posted by: JAM | May 4, 2013  5:56am

When assets are only 42 cents per dollar of liabilities the fund is basically insolvent. Liquidation will have to continue to meet obligations until the assets are gone and the fund goes dry, and the pace of liquidation will accelerate. It’s just a matter of time, but the result is inevitable.

posted by: perturbed | May 4, 2013  10:01am


Cafero is quoted saying:

“We have holes in our budget and pension plans because we have not addressed spending cuts and structural changes that must be made.”

BUZZZZ! Wrong answer!

First and foremost, we have a hole in our pension plan because it went un-funded and under-funded far, far too often. This was done under various governors, but always with the agreement of our lousy union bosses. (Hey—it was no skin off their noses!) And yes, state employees would stupidly and shortsightedly ratify the agreements that included the ill-fated pension plan funding holidays.

Secondly, structural changes were indeed made. Did Cafero ever hear of the SEBAC 2011 agreement?

Malloy, in close teamwork with our trusty union bosses, forced state employees into a concessions package the likes of which Cafero could have only dreamed about. That’s right: our very own union bosses helped to slash state workers’ future pension in ways the state Republicans could have never done on their own. (When our trusty union bosses want something from Malloy, they don’t hesitate to pay him back with state employees’ benefits.)

Don’t believe it? Check out this wish list from January 2011:

Common Sense Commitment to Connecticut

On Page 2, how many of the proposed concessions were actually beaten out of us? Here’s a hint—it would be quicker to count up the number of concession that weren’t beaten out of us.

Aside from Cafero’s faulty memory on recent state employee pension give-backs, he really does seem off-base with his current criticisms. He has raised several legitimate fiscal concerns over the past couple of years that I’ve been paying attention, but he weakens his credibility with confused, off-base complaints like this.


posted by: Commuter | May 4, 2013  11:47am

“Connecticut Retirement Plans and Trust Funds realized an investment return of 13.47 percent.”

That’s a headline. More stories should be written about the reality of what is going on in state government. Bad and good.

This is much more news than Rep. Cafero’s latest partisan sniping and misrepresentation of the facts.

It is true that we would rather not sell assets to fund payments, but Nappier isn’t suggesting otherwise. It’s another straw man that misleads taxpayers and voters. HST hits the nail right on the head.

dano860 - just not true. The pension funds, as Nappier said, is a separate pot of money. Payments to retirees are not part of general fund spending and so have nothing to do with the spending cap.

JAM, as long as fund performance and payments into the fund stay ahead of disbursements to beneficiaries, the fund will stay solvent. But nobody can argue that 42% is an acceptable number. And nobody is.

posted by: Historian | May 4, 2013  6:36pm

First let us know What investments are being “sold” - short term notes with interest rates in basis points. Bonds with interest rates at the bottom. Stock that has tanked. “selling investments” has many outcomes - some good some bad.  What did she sell and what was she doing three years ago to pay the state’s bills - using only income??

posted by: BrianO | May 6, 2013  6:28am

This is one of the reasons why pension assets exist.  There is no story here.

With a healthier system, perhaps, the sale of assets would not be required and obligations could be funded with cash, but in the best of times assets are sold to make payments.  Plans are not liquid, pure and simple. 

The fact that the plans are not funded is a different issue and is tied to the fact that they are too rich—as all states are learning —and they were unfunded with the approval of both parties.  Making unions happy in the short term is a central component to any successful politicians power. 

The campaign season has begun and while this issue is not as smarmy as McKinney’s hissy fit about Malloy’s trip to DC, it is equally irrelevant.  Stupid season has begun and we should insist that our politicians raise legitimate issues.

posted by: JAM | May 6, 2013  8:30am

@ Commuter:
Don’t disagree, but the question is the affordabilty of those payments into the fund. All problems can be solved and eliminated with unlimited amounts of money.

posted by: Historian | May 6, 2013  10:11am

Agreed but I still would like to know exactly what kind of “investments” were sold.  There is a big difference in selling various types of “investments” and the State should be explicit in it’s financial dealing - some of us actually know the differences and their long and short term implications.

posted by: perturbed | May 6, 2013  7:27pm


JAM wrote:

”@ Commuter:
Don’t disagree, but the question is the affordabilty of those payments into the fund. All problems can be solved and eliminated with unlimited amounts of money.”

Hmmmm, I see where you’re going here, JAM. Wonder if I can apply the same thought process in my own personal finances:

Lately I’ve determined that the recession has reduced the “affordability” of my mortgage payments. In fact, paying my mortgage is staring to look downright unsustainable!

How should the fact that I’ve entered into a legal contract with my mortgage holder factor into my decision about the size of my mortgage payments? Does the lack of affordability grant me the right to break my promise and start paying less? Will the courts agree with my determination of what’s affordable?


posted by: JAM | May 7, 2013  8:16am

@ perturbed:
Understand your position, but wonder how a court would view the complicity of the unions ( and vicariously that of members)in creating the situation.
Interesting question, but a moot point for those us who will get out of here rather than have our retirement savings gobbled up to pay for it.

posted by: ASTANVET | May 7, 2013  8:18am

Lets not forget that many retirement investements are mortgage backed securities - so those have taken big hits over the last 5 years.  Bottom line is that we are insolvent - you can blame past or present legislatures for that insolvency, but it doesn’t change the facts.  The bluest of blue legislators have contributed to the fiscal disaster.  This is a math problem - politicians SUCK at math!

posted by: perturbed | May 7, 2013  8:45pm



I guess the point is, the promises were made, and I don’t know of an objective measure of what’s affordable.


“Lets not forget that many retirement investements are mortgage backed securities - so those have taken big hits over the last 5 years.”

The first problem with that statement is that the state pension funds do not appear to hold a significant percentage of mortgage backed securities.


Maybe some percentage of the “Core Fixed Income” and “Liquidity Fund” positions hold them, but that can’t amount to a whole lot.

The second problem is that mortgage backed securities only weathered a relatively small, short-lived decline. You’d never know they took “big hits,” for example, from the PIMCO Mortgage Backed Securities Fund or the Vanguard GNMA fund. Here’s a Morningstar chart of those two funds, with the S&P 500 thrown in for comparison.

5-year growth chart of PTRIX and VFIIX

It doesn’t seem like holding mortgage backed securities would have been a bad thing for any pension fund over the last 5 years. What am I missing?


posted by: JAM | May 8, 2013  10:10am

@ perturbed:
To paraphrase Potter Stewart, “you’ll know it when you see it.”
Chronic underfunding, borrowing ( $2 Billion for the teachers and only a 52% funding level), and
budget straining contibution requirements.
I think I’m seeing it.