Rell Readies Transition Budget, Pension Report
by Christine Stuart | Aug 19, 2010 9:48pm
(14) Comments | Commenting has expired
Posted to: State Budget, State Capitol
In addition to a $3.4 billion budget deficit, the next governor will have to contend with an unfunded pension liability and an even more daunting unfunded retirement benefit liability, but Gov. M. Jodi Rell said that she’s preparing a road map for her successor.
Rell’s transition budget, which is actually required to be presented to the governor-elect under Connecticut law, will include ideas she’s raised in the past such as agency consolidations, eliminations of boards and commissions, and other recommendations.
“There are some things we’ve recommended this year that we’d like to continue to focus on and that is just those ideas I put in the budget last year like consolidation of agencies, elimination of some boards, commissions, things that could actually save money,” Rell said Tuesday. “These are simply recommendations.”
Back in February Rell created a Post Employment Benefits Commission to make recommendations about how to fund the state’s unfunded pension liability and the unfunded post retirement benefit liability.
The commission, which was supposed to have finished its report in July, is expected to finish its work in mid-September.
At its meeting Thursday the group talked about a series of draft recommendations many of which will have be approved by the State Employee Bargaining Agent Coalition. However, the SEBAC agreement doesn’t expire until 2017, so the next governor will have to convince the labor coalition to open up it up in order for most of the recommendations the commission has been talking about for the past few months to make an impact.
Commission members had a lively discussion Thursday about whether the state should continue to provide health care coverage for spouses and dependents into retirement and if they should be covered at the same rate as the state employee. They also discussed whether employees with 10 years of service, who leave the state for the private sector, should still be awarded those benefits.
Michael Cicchetti, deputy secretary of the Office of Policy and Management and chairman of the Post Employment Benefits Commission, also suggested that if all state employees on average contributed 3 percent more to their benefits the liability could be reduced by $95 million.
Sal Luciano, a veteran labor leader and commission member, took exception to Cicchietti’s suggestions.
Under the 2009 SEBAC agreement all new employees contribute 3 percent of their salary to health insurance and all employees with the five years of state service contribute 3 percent until they reach 10 years of service.
He said the problem isn’t with the new employees, it’s with employees who came into service with the state before 1984 under the Tier I plan.
He said the Tier I employees account for about $14 billion of the $19 billion liability.
“The problem is Tier I,” Luciano said.
If the employee contribution for everyone was increased 3 percent, the retirement age was pushed up, and the state’s required contribution to the fund was based on level funding instead of as a percentage of payroll the state could shave a total of $298.9 million off next year’s pension liability, Cicchietti said.
Luciano said he’s not there to speak for SEBAC, which represents 45,000 unionized state employees, 42,000 retirees and their roughly 100,000 dependents, but believes the unions would object.
While it’s likely the unions will object to some of the commission’s recommendations, it may have also been vindicated by the one, which recommends avoiding early retirement incentive programs.
In April of this year as state budget negotiations were winding down, SEBAC rejected Rell’s call for another early retirement program in the wake of the 2009 early retirement program. The 2010 program would have saved $65 million in the short-term, but it would have added to the unfunded pension liability. When union leaders asked how much the 2009 retirement program would impact the pension fund, Rell’s budget director walked away from the negotiating table.
According to an actuarial report completed for the commission in June the pension plan holds just under $10 billion in assets, and about $19.2 billion in obligations, which is about 52 percent of its liability.
(14) Comments
posted by: GoatBoyPHD | August 20, 2010 5:35am
Why isn’t it an issue here?
CT hasn’t tried to balance the budget. The Unions haven’t sued the state to fund the pensions. THey have in New Jersey and NJ Pensions are overfunded compared to CT. In 2010 NJ decided to change the pension plan of current and future retirees and break their promsie so to speak. There was plenty of warning. It reads just like CTs story:
posted by: GoatBoyPHD | August 20, 2010 5:37am
There were plenty of law suits from Jersey unions
and the Federal Government:
posted by: GoatBoyPHD | August 20, 2010 5:38am
In CT, our Attorney General’s response was to sue Moody’s for telling the truth and lowering CTs bond and credit ratings:
Why would anyone vote for the same people that put us into this mess? Because it’s become a Ponzi scheme and its life and death for CT pension benefits. Under Malloy we will continue under funding until sued for finanical chicanery.
If Foley gets elected he’ll cut past benefits and future benefits and CT will get sued for breaking its promises.
Either way expect litigation.
And someday, people will look at a position like the Comptroller’s and say “wouldn’t it be nice to have some qualifications written into law for elected offices llike Treasurer amd Comptroller?”
Ned Lamont knew the issue: He sat on the Pension Investment Advisory Board from 1991 to 1995 when the disaster started.
posted by: GoatBoyPHD | August 20, 2010 5:39am
Hemmm…The filter rejects more than two hyperlinks in a message. So I broke it up.
posted by: GoatBoyPHD | August 20, 2010 6:56am
Bloomberg on CT’s Pension sleight of hand: “Dumbest Idea Ever’ .
Even New Jersey’s loose spending Democratic Governor Corazine poohed poohed CT’s pension bonds as Jersey got burnt using the same technique over the last decade.
Napier defended herself:
http://tinyurl.com/25akmkn
The history says the fund won’t perform well enough to cover the borrowing costs. Currently it is doing so despite losses in 2008.
posted by: jonpelto | August 20, 2010 7:54am
OMG that is funny - “Gov. M. Jodi Rell said that she’s preparing a road map for her successor.” Just don’t look at the bridge out sign, the fact that we are going so fast we can’t stop before we go over the bridge, that the doors are locked and we can’t get out and there are no parachutes or safety devices that will soften the blow when we hit the ground… road map? wow!
posted by: CT Jim | August 20, 2010 8:24am
This sounds like the George Bush syndrome here.
Rell runs the car over the cliff then blames the workers for it.
kind of like Glenn Beck blaming unemployement on the unemployed.
Workers everywhere will unite this fall and let these republicans know what they think of their plan.
It’s like they think they have won and oh what a suprise they are gonna get!
posted by: Christine Stuart | August 20, 2010 9:41am
NYTimes checks in with a story on New Jersey’s pension fund and the SEC lawsuit. Apparently NJ was “claiming it had been properly funding public workers’ pensions when it was not.” Whoops!
posted by: mpalmer | August 20, 2010 10:06am
If the state has been glossing over pension fund assets then the question probably should be, as should be the question regarding new Jersey, where has the S.E.C. been for the last 9 years?
Probably the answer is a bit more complicated than even the S.E.C. is willing to discuss. When a fund is growing because the investment market is expanding, a certain amount of underfunding is not that big a gamble. If the markets fall, and the value of the pension fund assets fall, then there’s a problem.
If the S.E.C. was willing to allow a certain amount of under funding, then who is responsible?
Who was responsible for federal regulatory oversight in 2001? Perhaps the same people who wanted to privatize Social Security?
posted by: GoatBoyPHD | August 20, 2010 10:15am
The best part of the New Jersey story: No one will be held personally accountable and NJ is still ranked ahead of CT in pension and debt fiscal health.
In fact the SEC and New Jersey Attorney General should be filing charges against past NJ Treasurers.
Yes Napier issues her press releases but what good are they if the Assembly and Governor ignore all the warnings?
I find the situation ludicrous. There isn’t an expert in the nation saying that CT’s pension situation is OK. The word crisis keeps coming up.
Comparisons to 1992 aren’t really valid. The Nasdaq is 500% higher and the Dow 300% higher than in the downturn of 1992. There’s no reason to believe we will see those returns over the next decades. The Dow and Nasdaq are essentially flat for 11.5 years with all those gains accruing from late 1992 to Spring 1999. Yes there are other investments but the 7.5% estimates on returns aren’t realistic.
posted by: JAM | August 20, 2010 11:42am
The Retirement Health Care liability is north of $20 Billion and pensions are at $9 Billion. $95 Million gets lost in the rounding.
posted by: GoatBoyPHD | August 21, 2010 11:14am
More fun and games with Pensions from NY State:
NY uses 8% as their assumed rate of return. Realistic?
The last 10 years they returned 3.66%.
Now the Comptrollers is debating lowering the assumed rate. Problem: if the lower the rate to 6% local contributions from Municipal plans will rise from $3.9 Billion to $10.9 Billion. That’s at a 6% rate that they’ve never achieved for a meaningful period of time.
Next year employee contributions are expected to rise to 11.9%. That’s at a lowered 7.5% rate of return. No one dares to touch the calculation for a 6% rate of return.
Here’s the best part: in NY the movement afoot is to force the pension plan to assume all the expenses. Not the taxpayers. Meaning if the older Tier I employees are going to get their full benefits then the current work force is going to get the bill not the taxpayers.
This of course is as it should be.
The CT state tax payers shouldn’t be held responsible for the underperformance of the CT Pension Fund.
The pressure from SEBAC is for the rosiest scenarios possible to maximize employment, minimize member contributions, assume the highest benefits possible, and then hand taxpayers a mammoth bill at the end.
posted by: GoatBoyPHD | August 21, 2010 3:22pm
And my favorite article from earlier this year:
The Connecticut piece:
.....Connecticut stands as another prime example of the damage caused by the unholy combination of optimistic investment assumptions and liberal retirement provisions.
The Connecticut Teachers Retirement Fund uses an 8.5 percent projected rate of return. But in fiscal year 2008, the fund’s investment portfolio lost 4.77 percent; in 2009 it dropped 17.14 percent.
Over ten years, the state teachers pension fund’s annualized return is just 3.12 percent, far below the assumed rate or 8.5%......
Looking at the 20 year returns minus expenses 6% might be a decent expected rate of return. Anything higher assumes a return to the roaring 80s and 90s rather than the stagnant 60s and 70s and 00s markets. Those 3 decades together averaged 4.25% annual returns on the S&P.
posted by: GoatBoyPHD | August 20, 2010 5:33am
Forbes looked at the Debt Issue in January and came away with the same conclusions as Pew Research and other studies. CT is one of the bottom 3 states in terms of financial health (call it bad government. Government that makes concessions to underfund pension fundings to avoid layoffs).
http://tinyurl.com/27s6zsd
It’s not new. Weicker was doing it in 1992.
http://tinyurl.com/29poc4q