Connecticut Cuts Deal (and Pension Payments)

Connecticut Governor Dannel P. Malloy and state employee unions announced an agreement Friday to restructure (i.e. reduce) pension payments:

The deal was reached after months of behind-the-scenes talks regarding the funding calculations as the state was facing potentially huge future pension payments and tried to “help avoid the fiscal cliff the state would otherwise face in the coming years,” the administration said.

The agreement, which still requires approval by the state legislature, was not designed to change any benefits for current or retired state employees. Instead, it was crafted to make sure that the state could have more predictability in funding the pension system in the coming years — by restructuring the system and extending some payments over an additional 14 years.

“It was incumbent upon us to reform this system before facing the fiscal crisis that could have resulted from $4 [billion] to $6 billion annual payments,” Malloy said. “This agreement does not alter employee benefits or employee contributions in any way. It simply allows the state to fully fund its obligations at realistic amounts that will end with Connecticut resolving the unfunded liability and emerging with a system that is fully funded. We are holding true to the ideal of improving the financial landscape for future generations.”

Where would they get the idea that reducing contributions while making no changes in underlying benefits leads to long-term solvency?

The Center for Retirement Research at Boston College released a report last year 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.

At 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 exactly what Connecticut officials were looking for.

9 responses to this post.

  1. Posted by dentss dunnigan on December 13, 2016 at 8:17 am

    This about spells it out for NJ pensions ,some of the comments are the best ! …http://www.zerohedge.com/news/2016-12-12/pension-ponzi-squared-new-jersey-wants-sell-debt-its-own-insolvent-pension-funds

    Reply

  2. Posted by bpaterson on December 13, 2016 at 9:35 am

    just more kicking the can, buying time and sucking in the gullible. Is there any link to someone up there who blogs on CT’s pension fiasco? How is there pensions structured?

    Reply

  3. Posted by Anonymous on December 13, 2016 at 3:03 pm

    https://www.google.com/amp/s/amp.businessinsider.com/us-government-7-trillion-pension-shortfall-2016-4?client=ms-android-huawei

    Time for Trump’s charlatan cronies to drain the swamp and cut this Federal pension deficit! Yeah baby bring it on, time to put those seniors on Obamacare!!

    Reply

    • It’s a shame that more New Jerseyans don’t know what’s going on in Connecticut because Connecticut is more similar to New Jersey than any other state and yet its governor has governed in opposite ways from Christie.

      Under Dannel Malloy, CT has passed two big tax increases to keep up with its pension crisis and increase “investment,” whereas Christie has lowered taxes somewhat, and yet like New Jersey, Connecticut has one of the country’s most stagnant economies and debt:GDP ratios.

      Connecticut, if anything, is worse off than NJ. It still hasn’t recovered all of its Recessionary job losses and it is actually losing population in some years.

      Phil Murphy constantly uses CA and MA as examples of states that can have high taxes and thrive (even though MA doesn’t have high taxes), and yet CT’s experience is more relevant to NJ and any other and there is nothing hopeful about it.

      Reply

      • Posted by Anonymous on December 13, 2016 at 9:52 pm

        Is CT more like NJ in how it’s handles its’ pension obligation? You’ve pointed out their similar economic conditions. Yet CT raised taxes, presumably to sustain programs and fund pensions. NJ refuses to raise taxes to sustain programs and fund pensions. I’d say about as similar as the DNC and the GOP!

        Reply

        • Posted by PS Drone on December 13, 2016 at 10:43 pm

          Just what the highest taxed state in the country needs: more taxes. High income individuals are already fleeing the state. More taxes, more fleeing then we are in a death spiral. No tax increases. What we need are spending reductions starting with public sector pension outlays.

          Reply

        • Malloy is being more responsible with pensions than Christie is, however, since he just raised the discount rate from 5.5% to 8%, he’s no paragon of pension virtue either. Also, CT’s economic growth is noticeably worse than NJ’s.

          My point is really more about economics and against progressives, the NJPP, and Phil Murphy than it is against Dannel Malloy.

          You can’t blame all, or most, of NJ’s budgetary-economic problems on Christie when those problems have existed for decades and when our twin state, CT, has even deeper problems despite a progressive governor.

          My point is that even if taxes aren’t the end-all-be-all of state economic growth, neither are they nothing and businesses do not want to expand in CT or NJ anymore. It’s the lack of economic growth since 2001, as much as historical pension underfunding since the 1990s, that is the cause of NJ’s debt crisis.

          If NJ’s economy had grown post-2001 at the same pace it grew from the 1970s to 2000, we would have 800,000 more jobs and our debts would be A LOT more manageable.

          Reply

  4. Posted by Anonymous on December 14, 2016 at 7:42 am

    Flee baby flee, I guess billionaire investor and Trump cabinet pick from Weehawken didn’t get your memo. Or he’s not so smart b/c he remains in (your words) this country’s highest taxed State.

    Reply

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