Yankee Institute Says Unfunded Pension Liability Larger Than Reported
A new analysis of Connecticut’s unfunded pension liability by the conservative Yankee Institute claims that its unfunded liability is much higher than an actuary for the state has estimated.
The analysis conducted by J. Scott Moody, CEO of State Budget Solutions, and Wendy Warcholik, of the Maine Heritage Policy Center, concluded that Connecticut’s unfunded pension liability is much greater than the $24.5 billion reported by the state. Moody and Warcholik found the “real unfunded pension liability is $76.8 billion, or 213 percent higher than current forecasts.”
The state estimated in 2012 that pension obligations for active and retired state employees, teachers, and judges totaled $48.2 billion.
“Yet, the state has only set aside $23.7 billion in assets to pay for these obligations,” Moody and Warcholik wrote in the report. “The pension system reports an unfunded liability of $24.5 billion. But our study shows that liability is more than three times that amount.”
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.
Moody and Warcholik said the state set aside $144 million in 2013 for other retiree benefits, which are facing a liability of $22.7 billion. In order to meet its obligations they found the state would have to increase its pension and other retiree benefit contributions by $2.8 billion per year.
The Yankee Institute report concluded that in order to find the additional $2.8 billion per year that the state would need to meet its increased obligations, it would need to raise taxes or put new employees into a 401K type pension system.
But a union spokesman doesn’t believe the Yankee Institute’s report.
“This is nothing more than partisan political posturing by an organization to weaken the ability of unions to represent workers and put an end to real pensions,” Larry Dorman, a spokesman for AFSCME Council 4, said last week.
Dorman said Connecticut’s pension system actually benefits the state because retirees contribute to the economy.
He cited a report by the National Institute on Retirement Security, which found that 110,374 Connecticut residents received a total of $3.7 billion in pension benefits from state and local government in 2012.
“Retirees’ expenditures from these benefits supported a total of $6.6 billion in total economic output in the state, and $4.3 billion in value added in the state,” according to the report.
Gov. Dannel P. Malloy, who is running for re-election against Republican Tom Foley, has said he wouldn’t ask state employees for more concessions. The 2011 contract he negotiated with them for health and pension benefits goes through 2022.
“A deal is a deal. We’ve made a deal and we’re going to honor that deal,” Malloy has said of the 2011 State Employees Bargaining Agent Coalition labor agreement.
In 2011, state workers agreed to a two-year salary freeze and other concessions, including an increase in contributions to their pensions, in exchange for four years of protection from layoffs.
Malloy has said the deal, which was criticized for relying heavily upon difficult-to-quantify savings, has been undervalued.
“Quite frankly it’s a tremendously valuable deal. I think what’s misunderstood — perhaps purposefully so by some folks — is how much total savings that has brought about and that it really is the biggest reason we can look at our benefit package as sustainable,” he said.
Foley has said Malloy can’t be trusted when it comes to concessions.
“In 2010 Dan Malloy signed a public union questionnaire saying he wouldn’t seek concessions,” Foley said in June. “After being elected, he promptly broke that promise. Why should the unions believe him this time? As the saying goes, “fool me once, shame on you. Fool me twice, shame on me.”
However, Foley doesn’t necessarily believe the Yankee Institute’s recommendations will help the state fund its pension liabilities.
Foley has already ruled out a tax increase to close a projected budget deficit and he said last week that he’s not sure moving state employees to a 401K type plan would actually be beneficial.
“All it does is shift the risk on investment returns to retirees or the state,” Foley said.
He said structuring the benefit plans differently won’t necessarily make them less expensive, and he doesn’t have a “preference” regarding defined benefit plans or defined contribution plans, such as 401Ks.