Jayme Stevenson: The pension buck stops here
Connecticut’s pension problems are over a hundred years old. The Teachers’ Retirement System goes back as far as 1917, and at the time, years before the Great Depression, there was no incentive to pre-fund the program. From that day forward, the state of Connecticut has carried a burden into the future that has been postponed time and again; and it is a bill that someone is going to have to pay.
People familiar with the pension systems know their current funding situation. According to a presentation by Secretary of the Office of Policy and Management, the State Employees’ Retirement System is funded at 36.9 percent, the Teachers’ Retirement System is funded at 56 percent, and the Judges’ Retirement System is funded at 48.4 percent.
To put this into perspective, plans are ideally funded at 80 percent or higher. Only three pension plans have achieved this funding status: The Municipal Employees’ Retirement System, the Probate Judges, and the Employees Retirement System.
Presentations by Jean-Pierre Aubry of Boston College’s Center for Retirement Research and W. Gordon Hamlin of Pro Bono Public Pensions at the Connecticut Conference of Municipalities’ (CCM) June meeting warned about half-solutions and empty promises to get the pensions back up to these funding levels.
Aubry’s presentation said that many reforms presented have focused almost entirely on new hires, but because most costs are associated with decades of inadequate funding, you might never catch up to legacy costs. In addition to this, some reforms wager a municipality’s ability to recruit employees.
Hamlin pushed the point further by suggesting it would not be fair to reduce pensions to current retirees or force current employees and taxpayers to pay exorbitant fees for past mistakes, but admitted that we are rapidly running out of solutions.
There will be many compromises and hard bargains along the way.
The state employee unions and the legislature had to make one such agreement in 2017 to keep annual pension contributions capped at $2.4 billion per year rather than an astronomical $6.6 billion. According to analysis by Keith Phaneuf in the CT Mirror, this will send $14 billion in obligations down to future generations to pick up after 2032.
He further noted that the state pledged to make full pension contributions for 25 years in order to borrow $2 billion in 2008 for the Teachers’ Retirement System, meaning that there is less flexibility in restructuring payments.
In June, the state issued a bond covenant with a $1.9 billion bonding cap until 2023, and a drafting error made that cap air tight.
The Pew Charitable Trust analysts stated in an August 2018 report that these measures put Connecticut in a better spot to weather the next economic downturn, but did not free them from concerns about the next recession, which many analysts peg as increasingly likely.
Add to that the one-time windfall the state received as federal tax loopholes closed, most of which placed into the Rainy Day Fund that Governor-Elect Ned Lamont has pledged not to touch, and Connecticut is in a better place than it was a decade ago, but still not in a place where it can just keep deferring the debt onto future generations.
The precarious nature of this problem can be summed up thusly: the worst thing that Connecticut could do is to do nothing at all.
From Pew Research and expert presentations, there is an understanding that Connecticut is going to have to act on these now to prevent them from becoming a bigger problem later. Municipal Leaders want to work with lawmakers, policy wonks, and Governor-elect Ned Lamont who all have to take on the challenge of solving a problem that is always looming, but never fully dealt with, each generation kicking the can down to the next.
Jayme Stevenson is first selectman of Darien and a board member of the Connecticut Conference of Municipalities.