Pew Notes CT’s Effort To Shore Up ‘Worst In the Nation’ Pension Fund
by Christine Stuart | Jun 19, 2012 5:30am
(11) Comments | Commenting has expired
Posted to: Labor, Pension
Many states like Connecticut have begun to take action to reduce their unfunded pension liabilities, but those changes have yet to be reflected in an annual report released Monday by the Pew Center for the States.
The report found that 34 states failed to maintain safe levels of funding, which most experts agree is about 80 percent. Using 2010 data the report found that Connecticut, Illinois, Kentucky and Rhode Island had the worst levels of funding. All were under 55 percent funded in 2010.
“While it is currently difficult for states to make contributions toward their retirement systems, given the drop in revenues and fiscal stress from the recession, many of these states also failed to make the recommended contributions when times were good,” the report concluded.
Connecticut paid its full annual pension contribution just three times from 2005 to 2010, according to the report. In 2010 the system was 53 percent funded and faced a $12 billion gap.
But the bad news doesn’t end there. The state also had a nearly $27 billion tab for retiree health care costs, none of which was funded when Gov. Dannel P. Malloy took office 18 months ago.
None of this is news to Malloy, state employee unions, or lawmakers who have been chipping away at the issue over the past two years.
In order to avoid layoffs in 2011 the State Employees Bargaining Agent Coalition agreed to reductions in wages, retirement, and health benefits. Then in 2012 Malloy and the unions reached an agreement to increase funding to their pensions.
“Under Governor Malloy’s leadership, we put the pension fund on stable ground, a move that will save the state $6 billion over the next twenty years,” Andrew Doba, Malloy’s spokesman said. “He’s also managed to reduce our state’s healthcare liabilities by more than $13 billion.”
Doba said all the Pew report does is confirm what Malloy already knew when he took office – “that the policies of previous administrations left our state with unfunded liabilities that would have drastically affected government operations had they been left to fester.”
The plan approved by the legislature’s Appropriations Committee a few months ago increases by $125 million the state’s annually required contribution to the pension fund and seeks to achieve 80 percent funding by 2025 and 100 percent funding by 2032.
“Keeping up with the annual required contribution is perhaps the most effective way that states can responsibly manage their long-term liabilities for public sector retirement benefits,” the report found. “Pew’s research shows that states that consistently make their full payments have better-funded retirement systems and smaller gaps. States that paid the full annual contribution for their pensions were 84 percent funded in 2010, while states that did not were only 72 percent funded.”
Larry Dorman, spokesman for AFSCME Council 4, one of the largest state employee unions, said what the governor and legislature did this year to shore up the pension fund was a major accomplishment that helps future retirees, as well as taxpayers.
“The people at Pew are good reputable people, but all this report does is stir up envy and animosity of defined benefit pension plans, which are not just good for workers, but good for the economy,” Dorman said.
He said instead of limiting defined benefit plans to state employees the state should look at opening up the retirement plan to everyone in the state.
Legislation , which would have created a commission to look at setting up a retirement plan for everyone in the state, passed the House 75-61, but never made it out of the Senate before the General Assembly adjourned May 9.
Tags: unfunded pension liability, retirement, state employee, Gov. Dannel P. Malloy, Pew Center for the States
(11) Comments
posted by: GoatBoyPHD | June 19, 2012 7:05am
The pension fund assumptions are for 8.25% returns and this Fiscal Year the returns are expected to be a loss. Yes. A loss! It’s got 9 market days to add 3% to pull even for the year.
The double dip recession will kill this golden goose.
posted by: GoatBoyPHD | June 19, 2012 7:09am
Moody’s and company will see the 66% combined funding shortfall and unchanged 8.25% assumptions and downgrade CT bonds once again increasing borrowing costs.
posted by: Scott2014 | June 19, 2012 7:12am
Why would they use 2 year old data? they have done this before so why couldn’t they just plug in the new numbers from the most recent pension reports?
posted by: JAM | June 19, 2012 9:01am
All these reports and comments take for granted the 8.25% expected rate of return baked into the numbers, and ignore the fact that over the long term the State hasn’t come close to acheiving it.
posted by: Matt W. | June 19, 2012 10:10am
So the plan is to start meeting our commitments by 2032? And in what year do we begin to payback the shortfalls we’ve accumulated? It seems to me that the current employee (whose pension has only been 53% funded) and who will retire in 2032 might have a problem with that.
posted by: oliviahuxtable | June 19, 2012 2:05pm
What, no rabid anti-state worker has suggested public execution of maybe a third of the state workforce as a solution to the pension crisis? That would free up lots of pension obligations. Just make sure the pension funds don’t go to the spouses or children, of course. That will teach everyone to avoid the public sector. I’m certain by the end of today there will be some haters suggesting similar solutions.
posted by: joemanc | June 19, 2012 3:59pm
Did Mr. Dorman really suggest opening up the pension plan to everyone in the state? No thanks, I’ll keep my company 401K, which I manage myself. And even if the state opens it up to everyone, I would never, ever opt for it. Just look at how many companies have gone under over the years, taking workers pensions with them. And look at Washington, where Turbotax Timmy Geithner had to raid the Fed. Government pension fund when the budget limit was breached.
posted by: Lawrence | June 19, 2012 9:28pm
Maybe state government should operate more like the “private sector” and just screw all their pension requirements and let the federal government/US taxpayers pick up the tab—ANOTHER PRIVATE SECTOR PROBLEM SOLVED AT NO COST TO SHAREHOLDERS!
“Publicly traded companies face a combined pension shortfall of $458 billion, according to a recent report by the bank Credit Suisse.”
Read more: http://www.politico.com/news/stories/0212/73135.html#ixzz1yICYJBdQ
posted by: GoatBoyPHD | June 20, 2012 8:11am
The math says CT’s 1.35 million households owe over $35,000 each to the pension plan and health benefits shortfall.
Good luck collecting that.
What was the headline this last week? US household wealth declined 35% from 2005-2010? That the median household is no wealthier than they were in 1984.
No wealther than in 1984? Has public sector pension obligations changed during that time while the unholy alliance of union cronyism and political campaign funding took its toll.
Good luck getting that funded on the backs of the CT taxpayer.
And businesses? Try raising the corporate tax to pay for it.
Where it has to come from is other public sector workers. Future ones, past ones, no one really cares which ones.
If their study included all CT’s unfunded liabilities and bonding this state would be the worst run in the nation with one single purpose: to shift all private sector wealth to public sector workers without an inheritance tax.
posted by: rankandfile | June 20, 2012 10:16am
Though at 8.25%, that $35,000 per household would have been $120 per year over the last 40 years. But your elected representatives chose to spend the money on other things, rather than on funding their obligations. And remember, even if state employees got no benefits or pay, our taxes wouldn’t go down one dime. How much were they reduced by the concession agreement? By the Rell concessions? By the Rowland concessions? By the Weicker concessions? You know as well as I do that the legislature would just find something else to spend the money on (magic buses, UCONN expansions, high speed rail lines, “first fives” etc etc)
posted by: brutus2011 | June 20, 2012 12:03pm
This is a great article—in terms of information about our state’s finances.
All I can say is, “Wow!”
I know that my teacher pension was funded from my salary. I therefore believe my public sector union is not one of the culprits here.
I also know that many public school administrators will retire with near 6 figure pensions.
How many people understand that this is a factor in the war on teachers by those who manage them?