What Connecticut Does Not Need To Know

Apparently the Connecticut retirement system for public employees is in trouble and a couple of think-tanks have some suggestions.  They should both be ignored.

The Center for Retirement Research at Boston College released a report this month on Connecticut’s State Employees Retirement System (SERS) and Teachers’ Retirement System (TRS) that suggested giving the state more time by:

  1. separately financing – over a long time horizon – the liabilities associated with members hired prior to pre-funding,
  2. shifting to level dollar amortization of unfunded liabilities,
  3. replacing the 2032 full funding date with a reasonable rolling amortization period, and
  4. lowering the long-term assumed investment return.
Leaving implementation to politicians could result in:
  1. separately financing the liabilities associated with members hired prior to pre-funding over ALL future generations (ie. infinity),
  2. shifting to level dollar amortization of unfunded liabilities but phased in over 30 years,
  3. replacing the 2032 full funding date with a reasonable rolling amortization period (with politicians defining the level of reasonableness in an inverse proportion to level of contributions required immediately, and
  4. lowering the long-term assumed investment return from 8% to 7.95%.
Which would have the overall effect of lowering even further the woefully inadequate contributions that ‘generally accepted’ actuarial methodology (with arbitrarily reducing or eliminating contributions falling within the ‘generally accepted’ definition)  has allowed states to get away with.
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Alternatively, the Connecticut Policy Institute released a report in 2012 suggesting:
  1. The state Treasurer must adopt accounting practices that accurately represent the magnitude of Connecticut’s public pension liabilities. Specifically, the Treasurer should reduce its discount rate on future pension liabilities from the current rates of over 8% to 4-5%, a rate range typically used in the private sector.
  2. Temporarily freeze and permanently reduce Cost of Living Adjustments (COLAs).
  3. Increase employee contributions.
  4. Eliminate loopholes in the state’s pension benefit formula that allow public employees to artificially boost their benefits in the last years of employment and lower the pension benefits multiplier for as yet unvested benefits.
These pension experts are offering Connecticut options on how to fix their problem whereas what they should be doing is quantifying that problem honestly and then leaving it  to the state to work out solutions, if they so choose, or alerting them to the timing of the ineluctable collapse, if they do not so choose.
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The numbers are there and in the next blog: What Connecticut Needs To Know – TRS.

21 responses to this post.

  1. Posted by Tough Love on November 15, 2015 at 3:39 pm

    The proposals from the Center for Retirement Research at Boston College are of course absurd ….. simply an INCREASE in the “kicking-the-can-down-the-road”. Not surprising, coming from this source ….. which should change it’s name to ….. “Public-Sector-Union-Controlled Center for Retirement Research at Boston College”.

    The proposals of the Connecticut Policy Institute aren’t bad, but w/o a freeze or VERY material reduction in the pension accrual rate for the future service of all CURRENT workers, there is only a slim chance this will work without your #3 (Increase employee contributions) being an additional 20% of pay (more for Safety workers) …… noting that shifting from an 8% discount rate to (the MUCH more appropriate/reasonable) 4-5% rate will roughly double annual contribution requirements (assuming all other elements are left unchanged).

    Reply

  2. Posted by Anonymous on November 15, 2015 at 9:45 pm

    Anonymous on November 15, 2015 at 7:20 pm
    Clearly the conflicting sources are as infinite as this topic’s opinions. We need to agree to disagree and move onto a solution, now.

    I’d propose to NJ’s political decision makers the following (applicable for TPAF & PERS);

    – effective immediately reduce future pension accrual to 1.175%, an approximate 35% reduction, with the revised age and penalty restrictions possibly an approximate 40% reduction (?).
    – effective immediately implement the Feds age and penalty restrictions, unless the 2011 reforms are more restrictive (sorry I forget the legislshare details).
    – I believe the 2011 reforms addressed this but if not, effective immediately cap pensionable wages at SS max.
    – effective immediately cap max pension allowance at, for argument sake, SMD’s $100k or some other amount.
    – change current health coverage to the Feds “standard coverage” with their corresponding premium share unless current premium share is higher. If NJ maintains the income based premium share then it would need to be adjusted to realize the total amount under the Feds flat rate premium share. The above changes would apply to all retirees. All changes would become effective next open enrollment unless a special open enrollment is held.
    – float a constitutional amendment outlining all of the above changes and a dedicated funding source for the unfunded liability as well as the revised normal cost going forward.
    -allow a small (6 month) grace period for individuals to retire or the new changes apply to them. This would probably result in a significant number of individuals retiring which might pose staffing concerns.

    Implement, on a percentage basis relative to current P&B, similar changes for other pension funds.

    There’s no perfect solution but hopefully we can agree the status quo is unacceptable.

    Reply

    Reply

    • Posted by Tough Love on November 15, 2015 at 10:15 pm

      That’s an “start” ………

      Let’s add:

      (1) I don’t care what Federal Employees get in retiree healthcare benefits. Today, very few Private Sector workers are accruing ANY such benefits ….. and neither should our Public Sector workers. They are not “special” and deserving of a better deal on the Taxpayers’ dime.

      (2) In your proposal, you suggest a formula-factor of 1.175% (per year of service) with …”the revised age and penalty restrictions ”

      Not sure what you mean, but what that SHOULD mean is ………… Non-Safety full retirement age is 65 and Safety full retirement age is 62. You CAN retire at a younger age, but if you begin collecting BEFORE that age you will get a permanently reduced pension of 6% for EACH year of age ….. the SAME as the early retirement reductions that SS employs.

      (3) Again, I don’t care if the Federal Plans include Cola increases (or not). Employer-sponsored Private Sector pensions never included automatic annual COLAs, and neither should those of Public Sector workers. Again, Public Sector workers are not “special” and deserving of a better deal on the Taxpayers’ dime.

      ——————-

      EQUAL …… but NOT better.

      Reply

  3. Posted by Anonymous on November 15, 2015 at 9:50 pm

    FYI, NJ’s already done #2 and #3 of the CPI study. The significant majority would agree with #4 because there’s only a minority that benefit from this.

    Reply

    • Try $60K and you might get some agreement from the morons (because they live in NJ) who have to pay for this ridiculous largesse.

      Reply

      • Posted by Anonymous on November 16, 2015 at 9:32 am

        Maybe somewhere in between. Regarding your other post to the preceding topic; Feds pension can begin at 62. I’m not singing the Feds praise but they’ve been less generous on their DBP and health benefits than NJ.

        Whatever action or inaction is taken there will be consequences. For instance, raising the eligible full SS retirement age will save the plan money but will retain workers longer thereby making it harder for those entering the workforce to get a job.

        Reply

        • “Whatever action or inaction is taken there will be consequences. For instance, raising the eligible full SS retirement age will save the plan money but will retain workers longer thereby making it harder for those entering the workforce to get a job.”

          That will cease to be problem, if it hasn’t already. We are facing a labor shortage in which businesses will not raise wages because they cannot raise prices because their customers — poorer younger generations — are broke. They will downsize instead.

          The longer people work, the better off we will be.

          Reply

          • Posted by Anonymous on November 16, 2015 at 2:43 pm

            What you say regarding labor shortage makes no sense as it relates to our un(der)employment?

  4. The CRR talks of deferring costs in terms of generational equity. But the biggest beneficiaries would be those in Generation Greed that underfunded the pension to begin with.

    Pay it off now, while Generation Greed is still around to share the pain. Give the generations to follow a future free of Generation Greed’s debts after they are gone.

    Reply

    • Posted by Tough Love on November 16, 2015 at 1:09 pm

      No Larry, not all in Generation greed, ONLY the retired and very long service Public Sector workers, who were “promised” FAR FAR more than was necessary, just, fair, reasonable, or affordable.

      Sure, no where near the full cost of these absurd”promises” has been funded …. because they never should have been granted in the first place …. and would NOT have been granted if not for our self-interested elected Officials who eagerly traded their favorable votes (on Public Sector pay, pensions, and benefits) for Public Sector Union campaign contribution and election support.

      It’s the promised pensions that should rightfully be VERY materially reduced ….. and not calling on ANYONE to fund this absurdity.

      Reply

  5. Posted by Jim on November 16, 2015 at 7:12 pm

    Lowering the long-term assumed investment return from 8% to 7.95%? Is this a joke?

    Reply

    • Posted by Anonymous on November 16, 2015 at 7:35 pm

      No just off a decimal place, .795%, which is still overly optimistic.

      Reply

    • Posted by Tough Love on November 16, 2015 at 7:46 pm

      No, but a possible way our self-interested/Union-owned elected officials might handle it … just so that they can say that they “addressed the issue”.

      Reply

  6. Posted by MoveToIndy on November 18, 2015 at 11:29 am

    Fortunately there is no Fiscal Crisis here in Indiana. Just a 2.2 Billion Dollar Surplus, AAA Credit rating, 50% lower taxes, the best job growth in the north, unmatched affordable living, better schools, No Common Core, More Freedom, Friendlier Neighbors, No Red Light and Speed Camera’s, and a better life.
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    #BetterLife #AmericanDream

    Reply

  7. […] the time, after reviewing the situation with the SERS and TRS plans, I dismissed the report as a cynical disregard of reality to pander to political expediency. Apparently that’s […]

    Reply

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