Connecticut public pensions are in rough shape. The State Employee Retirement System (SERS) currently faces $21 billion to $25 billion in unfunded pension liabilities, depending on how they’re calculated. To address the problem, the Yankee Institute recently commissioned Securing Our Future: A Menu of Solutions to Connecticut’s Pension Crisis, in cooperation with the Reason Foundation. Backed by a full actuarial model of SERS, the report outlines options for putting people before pensions and getting Connecticut out of a repeated cycle of deficits.
According to the Yankee Institute, “If even a few of the reforms in this paper were enacted, the state could save hundreds of millions of dollars a year in payments to our pension system, and almost $9 billion over the next 30 years. One reform alone – bringing employee contributions up to the national average level of 6 percent – would save $290 million over the next two years.”
The report suggests such measures as lowering the plan's assumed rate of return, increasing employee contributions and offering new hires a defined contribution or cash-balance plan.
Also this week, the Urban Institute issued a report card for the nation’s pension systems. Not surprisingly, Connecticut earned across the board Cs, Ds and Fs, with a D for its police and fire pension, an F for its teachers’ pension and a D for the state’s overall grade.
Earlier this year, the Connecticut General Assembly approved a plan to restructure the state’s funding calculation and amortization schedule, based on an agreement between Connecticut Gov. Dannel Malloy and the State Employees Bargaining Agent Coalition. The plan reduces the assumed rate of return from 8 percent to 6.9 percent, which, according to RSI, is still overly optimistic. At the time, RSI recommended that contributions be based on a more realistic rate of return that is closer to the 5.4 percent rate that was achieved by the state from 2001 to 2014.
“If you proceed based on the 6.9 percent number, either more money should be put into the plan by the state and the employees, or plan redesign and benefit changes should be implemented to reduce costs to close the funding gap that will likely be created by assuming a 6.9 percent rate of return,” RSI board member Chuck Reed wrote in official comments to the Connecticut Office of Policy and Management.
According to RSI, the 6.9 percent assumed rate is unrealistic and could lead to Connecticut taxpayers shouldering the burden for decades to come, especially if meaningful, structural pension reform is not implemented.