On one level, the pension deal announced last week by Gov. Dannel P. Malloy and the state employees unions is welcome. It averts the catastrophe of having the state’s annual obligation skyrocket from its current $1.5 billion to an outrageous $6 billion by 2032.
And Malloy is to be commended for trying to fund the state employee pensions at a more realistic level after decades of neglect by his predecessors. The new deal also assumes a more realistic rate of return on the fund investments, lowering it to 6.9 percent from 8 percent.
That having been said, this is essentially a Band-Aid applied to an unsustainable system. It amounts to little more than refinancing your home and spreading the payments over the out years to avoid a looming spike in your mortgage payments.
The deal is better than doing nothing which, given the obstinacy of the state employee labor unions, was probably the immediate alternative. But it’s clear that the system needs to be reformed in the long run, even as the state works to fully fund the program in the near term. But unfortunately, this deal isn’t reform. It’s accounting.
The fact that the State Employees Bargaining Agent Coalition’s governing board embraced the governor’s proposal made me skeptical immediately. It’s fair to assume that SEBAC likes the plan because it does nothing to change the benefits of retirees or require workers to pay more into the system.
The pension plans of Connecticut’s state workers are some of the most generous in the nation. As recently as 2013, the U.S. Census found that Connecticut’s retired state workers enjoyed the highest annual benefit payment at $39,172. Meanwhile, roughly 25 percent of state employees are required to contribute nothing toward their pension benefit. Most others pay 2 percent. That’s way below the national average of 7 percent.
Clearly, state workers need to contribute more to their own retirement plans. And the state needs to clamp down on so-called pension spiking. It’s an abuse of the system whereby some state workers — often with the encouragement of their supervisors — pile on the overtime during their last three years before retirement to artificially boost the size of their annual retirement payouts. Clearly, pension benefits should be based on a worker’s three highest earning years in base pay, excluding overtime.
Moreover, it’s time to look at transitioning from a defined benefit pension to the kind of retirement plan those of us in the private sector have — namely a system whose benefits depend on the markets from which the fund derives its revenues. I realize that state retirees like the security of knowing that their benefits will never change. Who wouldn’t?
But it’s a bad deal for taxpayers, especially those in the private sector whose own incomes shrink along with the market but who must foot the bill so that public sector retirees can continue to collect what they were getting in better days.
For real pension reform, look next door to — of all places, Rhode Island — where Gov. Gina Raimondo has taken meaningful steps to reform the public employee pension system, which when she assumed office two years ago was only 48 percent funded and assumed ridiculously high rates of return. The unions challenged her initiative in court but a subsequent settlement gave her most of what she wanted without raising taxes or issuing risky pension-obligation bonds.
The Providence Journal bragged about it in a snarky editorial entitled “Failing In Connecticut.” Noting that more than a third of Connecticut’s budget is used to pay public employees, and “about 80 percent of (that) money has nothing to do with the existing employees,” The Journal hailed Raimondo’s actions as “landmark pension reforms” and added that without significant changes, “Connecticut faces a grim future” in which spending on education and roads is crowded out in order “to pay state workers who in many cases retired decades ago.”
An interesting side note in the current imbroglio over the new pension funding agreement between Malloy and the unions is that members of the General Assembly are quarreling over whether they should vote on it. Senate Minority Leader Len Fasano, R-North Haven, has called it a “bailout,” while both Fasano and House Minority Leader Themis Klarides, R-Derby, want legislators to weigh in the deal because of its far-reaching nature. Democratic House Majority Leader Joe Aresimowicz, D-Berlin, is noncommittal. Aresimowicz’ day job is as an education coordinator with AFSCME, the American Federation of State, County and Municipal Employees.
Under existing rules, crafted no doubt by brave lawmakers in the middle of the night, the General Assembly does not have to vote on worker contract amendments in order for them to prevail. The amendments automatically become law 30 days after their filing if neither chamber rejects them.
So labor amendments can be passed and no one has to have their fingerprints on them? That pretty much tells you all you need to know about the lack of political will needed to deal with this crisis at the Capitol.
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