There’s very little these days that Gov. Dannel P. Malloy’s budget director, Ben Barnes, and Daniel Livingston, the lead negotiator for the State Employees Bargaining Agent Coalition, can agree upon. But shoring up the state’s pension fund is one of them.
State officials plan to put forward recommendations to tackle a spike in pension payments this summer, but those won’t include an option to bifurcate the state employees pension fund and separate the older, mostly retired, employees.
The recommendation to bifurcate the pension plan came from the Center for Retirement Research at Boston College. Malloy hired the consultants last year to study Connecticut’s pension funds and offer solutions.
“I think that it creates a lot of concern in the rating agency community and creates some real thorny legal issues,” Barnes said Monday.
He said if they can accomplish fixing the problems with more traditional actuarial tools then he will be satisfied.
His comments came at the end of a meeting where the actuaries went over several different funding scenarios, including plans to lower the interest rate on investment returns and modify the amortization schedule.
The amount the state will need to contribute to its state employee pension fund will continue to climb, reaching more than $2.5 billion per year in 2030. That scenario has prompted Malloy, state Comptroller Kevin Lembo, and state Treasurer Denise Nappier to sound the alarm bells in search of a solution.
The state will have to pay more than $1.5 billion into the pension fund this year to meet the annually required contribution, of which $1.2 billion represents unfunded liability or an amortization payment toward past unfunded liability. An estimated 82 percent of that payment represents the payment for unfunded liabilities. The normal annual cost of pension benefits is less than $300 million.
Labor is on board with making changes to pension funding.
“We’re anxious to get this resolved as quickly as we can,” Livingston said. “We’ve been working on this without a lot of positive response for at least 20 years.”
None of what was discussed Monday or what will be discussed later this summer will have an impact on the more than $900 million budget deficit. And while changes to pension funding mechanisms can’t be done without the help of labor, none of the changes will impact the benefits current employees are receiving.
Labor has refused to reopen negotiations on the health and pension benefit contract it negotiated with Malloy back in 2011, despite requests from the governor and lawmakers for concessions. That contract doesn’t expire until 2022.
“We’re very clear — this is about pension funding. It’s about nothing but pension funding,” Livingston said.
And when it comes to finding ways to make sure the pension program is well-funded, there’s “a lot of common ground,” he added.
Livingston said they agree with some of the funding proposals put forward Monday, but they have their own experts whom they want to review the information. However, this is one area where the SEBAC and the administration and two constitutional officers agree.
The various proposals put forward Monday ranged from 30-year projections with 7 percent rates of investment return and a closed 17-year amortization schedule to methods that use hypothetical investment return assumptions to calculate the contribution. Almost all of the scenarios show the state increasing its contribution to the fund in 2018.
Barnes said they plan to iron out the details with state actuaries this summer and come up with a recommendation.
Nappier said she would like to see the state promise to contribute the actuarially required amount. But Barnes said he’s hard pressed to figure out how to do that beyond a constitutional amendment because one legislature cannot bind future legislatures. He dismissed doing pension obligation bonds just to get a bond covenant, like the one the state has for the Teachers’ Retirement System.
“To ignore the need to fortify the plan is pennywise and pound foolish,” Nappier said.
Barnes said there’s greater external pressure today than in the past to properly fund pensions.
“We can’t ignore those demands,” Barnes said.
The last actuarial analysis of the state employees retirement plan was completed back in 2014. An analysis is done every two years and the next one will be released in November 2016.
The 2014 analysis found the plan was funded at 41.5 percent.
Most of the unfunded liability is attributed to employees hired before 1984.
The approximately 2,000 active and nearly 30,000 retired state employees in that group account for about $11 billion in unfunded liabilities.