HARTFORD, CT — The Pension Stability Commission won’t finish its work before the start of a new legislative session, but its members intend to ask Speaker of the House Joe Aresimowicz for permission to continue.
The commission is looking to finalize its recommendations for how to shore up the Teachers Retirement System and the State Employees Retirement System by the end of January.
The two avenues they’ve explored are transferring Connecticut Lottery assets over to the pension funds or looking at the “Legacy Obligation Trust” model where they would seek to transfer state-owned assets to a trust to help boost the underfunded state pensions.
The commission, which is chaired by Rep. Jonathan Steinberg, D-Westport, agreed to extend their work into January, but they were unable to decide Wednesday whether there are enough real assets in the state to transfer to the pensions.
“I’m not comfortable with eliminating all these assets yet,” Steinberg said.
Some members of the commission were skeptical of the idea of real asset transfers because most of the property the state owns would be off limits. Property owned by the Department of Transportation and the Department of Energy and Environmental Protection could not be transferred under criteria they’ve previously discussed.
And even if they were able to transfer real property to the pension funds, would it make a difference?
State Treasurer Denise Nappier said a bond covenant forced the state to make 100 percent of its contribution to the Teachers Retirement System, but that measure hasn’t made a significant difference because the assumed rate of investment return was still too high.
Nappier pointed out that the “unrealistic return assumption” did nothing to help reduce the unfunded pension liability. The assumed rate of return was 8 percent when the two-year average was around 7 percent, according to the last valuation.
In 2008, Connecticut borrowed $2 billion to shore up the Teachers Retirement Fund. The bond is expected to be paid off by 2033. When that borrowing was approved, Connecticut pledged in a bond covenant to contribute the annual payment to the fund for 25 years.
Only in extreme circumstances would Connecticut be allowed to skip the payment.
The annual contribution to the Teachers’ Retirement System is about $1.3 billion, but could top $3.25 billion to $6.2 billion by 2032, depending on different experts, because of years of underfunding. Connecticut didn’t start setting aside money to pay for teachers’ retirements until around 1982.
The pension fund, according to the last valuation, has enough assets to cover 57.7 percent of its long-term obligations.
“It’s a crutch to say we need a covenant to enforce discipline,” said Michael Imber, a member of the commission and managing director of EisnerAmper LLC.
Nappier has opined that the only way to shore up the Teachers Retirement System is with assets from the Connecticut Lottery.
The commission hasn’t discussed reforms to change how the pensions are calculated, or how the state makes its payment to the fund, but the commission has focused exclusively on figuring out how to reduce the unfunded liability.
Steinberg said they never went into this believing they would solve the problem completely. But they were tasked with coming up with a path toward sustainability.
The two options at the moment are the transfer of the Connecticut Lottery or real estate assets.
“There’s a whole slew of unknowns as it related to the real estate assets,” Steinberg said. “Do we know enough to make a determination?”
It was still unclear Wednesday if the commission would recommend continued pursuit of transferring real assets to the pension fund, even though Imber believes it’s a viable option.
Imber’s firm helped settle the city of Detroit’s Chapter 9 bankruptcy, according to an editorial he wrote earlier this year. During that bankruptcy case, he advised several European banks that financed $1.4 billion of Detroit’s underfunded pension. The creditors accepted the transfer of real estate assets along Detroit’s waterfront and downtown area.
Nappier said Connecticut’s pension funds already include real assets and she wouldn’t recommend all the assets come from the state of Connecticut. She also said real assets have to be paced and diversified.
The commission plans to meet again on January 10 to continue its conversation and finalize recommendations for the General Assembly.
Steinberg said they could have information for the General Assembly by the end of January.
The General Assembly had created other commissions to look at various aspects of the state’s pensions, but it failed to appoint anyone to those commissions.
The Pension Stability Commission started meeting in July.
