In addition to a $3.4 billion budget deficit, the next governor will have to contend with an unfunded pension liability and an even more daunting unfunded retirement benefit liability, but Gov. M. Jodi Rell said that she’s preparing a road map for her successor.
Rell’s transition budget, which is actually required to be presented to the governor-elect under Connecticut law, will include ideas she’s raised in the past such as agency consolidations, eliminations of boards and commissions, and other recommendations.
“There are some things we’ve recommended this year that we’d like to continue to focus on and that is just those ideas I put in the budget last year like consolidation of agencies, elimination of some boards, commissions, things that could actually save money,” Rell said Tuesday. “These are simply recommendations.”
Back in February Rell created a Post Employment Benefits Commission to make recommendations about how to fund the state’s unfunded pension liability and the unfunded post retirement benefit liability.
The commission, which was supposed to have finished its report in July, is expected to finish its work in mid-September.
At its meeting Thursday the group talked about a series of draft recommendations many of which will have be approved by the State Employee Bargaining Agent Coalition. However, the SEBAC agreement doesn’t expire until 2017, so the next governor will have to convince the labor coalition to open up it up in order for most of the recommendations the commission has been talking about for the past few months to make an impact.
Commission members had a lively discussion Thursday about whether the state should continue to provide health care coverage for spouses and dependents into retirement and if they should be covered at the same rate as the state employee. They also discussed whether employees with 10 years of service, who leave the state for the private sector, should still be awarded those benefits.
Michael Cicchetti, deputy secretary of the Office of Policy and Management and chairman of the Post Employment Benefits Commission, also suggested that if all state employees on average contributed 3 percent more to their benefits the liability could be reduced by $95 million.
Sal Luciano, a veteran labor leader and commission member, took exception to Cicchietti’s suggestions.
Under the 2009 SEBAC agreement all new employees contribute 3 percent of their salary to health insurance and all employees with the five years of state service contribute 3 percent until they reach 10 years of service.
He said the problem isn’t with the new employees, it’s with employees who came into service with the state before 1984 under the Tier I plan.
He said the Tier I employees account for about $14 billion of the $19 billion liability.
“The problem is Tier I,” Luciano said.
If the employee contribution for everyone was increased 3 percent, the retirement age was pushed up, and the state’s required contribution to the fund was based on level funding instead of as a percentage of payroll the state could shave a total of $298.9 million off next year’s pension liability, Cicchietti said.
Luciano said he’s not there to speak for SEBAC, which represents 45,000 unionized state employees, 42,000 retirees and their roughly 100,000 dependents, but believes the unions would object.
While it’s likely the unions will object to some of the commission’s recommendations, it may have also been vindicated by the one, which recommends avoiding early retirement incentive programs.
In April of this year as state budget negotiations were winding down, SEBAC rejected Rell’s call for another early retirement program in the wake of the 2009 early retirement program. The 2010 program would have saved $65 million in the short-term, but it would have added to the unfunded pension liability. When union leaders asked how much the 2009 retirement program would impact the pension fund, Rell’s budget director walked away from the negotiating table.
According to an actuarial report completed for the commission in June the pension plan holds just under $10 billion in assets, and about $19.2 billion in obligations, which is about 52 percent of its liability.