State payments to Connecticut’s State Employees Retirement System would need to escalate dramatically in coming years to keep its unfunded liabilities from spiking. So Gov. Dannel P. Malloy and the legislature seem poised to do what politicians in these cases seem to do best: let the problem snowball and then hand it off to future generations.
If the legislature passes a new plan negotiated by Malloy and state workers’ unions, the state will defer billions of dollars in needed contributions until “after 2032.”
According to The Connecticut Mirror, Malloy’s administration says that
the alternative remains worse – to attempt to pay annual pension contributions that otherwise might quadruple over the next 15 years.
The actuarial analysis prepared by Cavanaugh Macdonald Consulting of Kennesaw, Ga., [the same firm that provides Colorado PERA with its actuarial analyses] attributes the latest decline largely to a new plan to restructure the state employee pension system to limit spiking state contributions over the next 15 years. To do that, Connecticut would shift at least $13.8 billion in costs into future taxpayers, and possibly more.
As part of this same proposed agreement, Connecticut would lower its assumed annual return on investments from 8 percent to “a more realistic 6.9 percent.” You might recall that last November PERA’s board lowered its annual return estimate from 7.5 percent to 7.25 percent. Cavannaugh Macdonald had recommended keeping it at 7.5 percent.
Connecticut has been astoundingly irresponsible about funding its public sector pensions for decades, the Mirror says:
State government saved nothing between 1939 and 1971 — and very little until the early 1980s — to cover pensions promised to state employees. Even after it began saving in earnest, it frequently contributed less than the full amount recommended between the early 1980s and 2011.
If the legislature approves the proposed agreement, Connecticut would have enough assets to cover just 35.5 percent of its long-term liabilities. Given that 80 percent is considered a healthy percentage, that seems problematic on its face.
Colorado PERA’s funded ration stood at 62.1 percent on Dec. 31, 2015, the latest figure available.