Senate Democrats Lead Passage of Plan to Stabilize State Pension
Business Community, Financial Rating Agencies Agree—Plan is a Positive Step for Connecticut
The State Senate voted Wednesday to approve a plan to manage the State’s unfunded pension liability over the next thirty years and fully fund Connecticut’s pension system.
The agreement with the State Employees Bargaining Coalition (SEBAC) was previously approved by the State Employee Retirement System (SERS), before gaining bipartisan approval of the budget writing Appropriations Committee at the end of January.
The plan includes extending the amortization period for the balance of the unfunded liability in a new 30-year period, reduces the assumed rate of return from 8 percent to 6.9 percent and provides a path to fully funding the state’s pension obligations.
“The business community and rating agencies agree, today’s vote will result in important long term structural changes that will positively impact our budget outlook,” said Senate President Pro Tempore Martin M. Looney (D-New Haven). “Without these changes in this agreement payments will skyrocket, potentially hitting $6 billion which will choke-off funding for education and other critical programs.”
Senator Looney continued, “Republicans need to answer why today, at the 11th hour, did the attempt to derail the agreement with a vague notion that somehow benefit redesign should be included now after voting in large numbers for the agreement just one week ago in the Appropriations Committee. Republicans have now failed the first test of governance.
“This agreement will bring stability to our pension system and build confidence in the private sector that we are responsibly addressing our long term obligations—obligations that were racked-up over decades,” said Senate Majority Leader Bob Duff (D-Norwalk). “However, today’s attempts by the Republicans to sink this deal were reckless. At best, their proposal was something that looked like it was thrown together on the back of cocktail napkin.”
“This agreement makes sense, and will provide stability for the State of Connecticut’s finances,” said Senator Cathy Osten (D-Sprague). “If we had not voted to approve this agreement, the state would need to make an additional $570 million in cuts to the budget next year above what is already planned, and would face a $6 billion spike in pension payments in the next four years. I am disturbed that Republicans who serve on the Appropriations Committee who voted in favor of this agreement just last month have chosen politics over conscience by voting against it on the floor of the Senate, essentially kicking this down the road. Politics will not provide the solution. The solution will only be found through negotiation, action and having the moral fortitude to do what is right for the taxpayers of Connecticut.”
“With this agreement we are seizing control of the unfunded pension liability problem that has threatened Connecticut’s finances for years,” said Senator Terry Gerratana (D-New Britain). “This agreement will prevents ballooning payments, allowing us to meet our liabilities in a way that best serves Connecticut’s taxpayers as well as the current and former employees who worked many years to earn their benefits.”
“I appreciate that Governor Malloy has taken bold steps to make the payments over the last several years to meet our pension obligations, and I congratulate the state employees who worked on this negotiation and were willing to come to the table,” said Senator Tim Larson (D-East Hartford). “These are difficult times, there’s no way around it, but this solution is certainly a step in the right direction and I believe our best days are ahead of us. There are opportunities ahead of us, but for today this is a very good plan which will help us balance our state budget.”
“I voted to support the SEBAC agreement because this is the right thing to do. It moves the state towards pension stability and I appreciate the state employees for stepping up to this agreement,” Senator Marilyn Moore (D-Bridgeport) said.
Under the agreement:
- The assumed rate of return will change from 8 percent to 6.9 percent puts us under the national average of 7.62 percent.
- Changing the assumed rate to 6.9 percent significantly increases our calculated unfunded liability and our normal cost calculations but it better insulates us from volatility in our unfunded liability in the future.
- In FY 16, State paid $300 million for costs associated with current employees and $1.2billion in costs associated with the unfunded liability.
- Without the changes in this agreement payments will skyrocket, potentially hitting $6 billion by 2032.
- With the changes in this agreement payments will level off at $2.6 billion in 2021.
- FY 18 costs for current employees will be $365 million and costs associated with the unfunded liability will be $1.282 billion.
- If we change the assumed rate of return without adopting the agreement, contributions to the pension fund will have to increase in FY 18 by $570 million.