As we stumble our way through the deadliest pandemic in 100 years, face a deep recession, and confront a profound crisis of leadership in Washington, it almost seems trivial to write about anything else.
But our current situation won’t last forever. The COVID-19 plague will eventually recede, the economy will recover (it always does) and, with any luck, our latter-day George Wallace will become a full-time Florida resident in January – that is, if he doesn’t move to the Cayman Islands to escape prosecution.
I turned 63 in June, which means I’m eligible to collect Social Security and get senior citizen discounts on everything from eyeglasses to Amtrak tickets. I haven’t yet become a regular for the early-bird specials at Red Lobster, but aging has pushed me to think long and hard about how to best finance retirement, and to ponder the fate of those who have no plan, along with the sustainability of the plans of workers who do.
At the moment, my greatest concern is for teachers and state employees – and, ultimately taxpayers. The Day newspaper of New London recently published an editorial taking note of an excellent but depressing report that the paper had published six years earlier. No, The Day wasn’t patting itself on the back, but rather lamenting that so little has changed since 2014 when the newspaper called the pension and healthcare crisis for state workers and retirees “a financial time bomb.”
“Six years later it would be great to report that the situation has vastly improved,” The Day‘s editorial board opined. “It hasn’t. There has been some progress, but Connecticut still faces choosing from among a set of bad options.”
Connecticut has one of the highest unfunded pension liabilities in the nation. A 2015 study by the Center for Retirement Research at Boston College found that by the early 2030s, annual state contributions to fund state worker and teacher retirement systems will be $12 billion annually. I have no way of knowing what the total state budget will be at that time, but right now it’s about $21 billion per year. Even if Boston College is off, does anyone think close to $10 billion a year is sustainable for a very small state such as ours?
The 2017 deal with the labor unions resolved some of the balloon payment, but it also pushed off the problem into the future. The plan moved about $10 billion owed before 2032 into the future on a separate, 30-year amortization schedule. Gov. Ned Lamont also refinanced the payments to the pension fund to save about $272 million over the course of two fiscal years.
In a nutshell, the problem is simple. The state not only has overpromised and underfunded its pension systems for state workers and teachers, but also has failed to fund other post-employment benefits (OPEB) as well.
The reason for this political malpractice is actually pretty simple. When faced with tough spending choices, lawmakers will look for the easy way out. When the choice is between funding the pensions and cutting spending to school districts and municipalities, or raising taxes to cover both, it’s an easy decision to put off setting hundreds of millions aside for retirees. After all, when was the last time a member of the General Assembly held a town hall meeting and faced an angry constituent bellowing about underfunded pension programs?
It’s similar to the choice irresponsible consumers make when confronted with the decision of whether to live within their means, or put a lot of luxury purchases on the Visa card and make the minimum payment each month. That’s essentially what the state has done all too often with the pensions and OPEB. Instead of paying off the balance, the state makes the minimum payments to keep the pension checks and benefits coming to retirees.
There is some good news. As The Day noted, “Connecticut is no longer digging the hole deeper.” Each successive generation has agreed, to one degree or another, to settle for less. To his credit, the oft-vilified former Gov. Dannel Malloy took steps to bolster the pension fund and negotiated a deal with the unions whereby new hires will be compelled to put more money aside for their retirements and be enrolled in a so-called hybrid plan that combines a defined-benefit approach with a 401(k)-style plan. That is surely a good start. But it hardly addresses the much larger question of how to fund the retirements of those who’ve been in the system much longer.
Perhaps the pension crisis is so much worse in Connecticut than in most other states is because of a quirk of history. Connecticut is one of the few states – if not the only state – in the nation that has sole responsibility, aside from the 7% that teachers themselves contribute, for funding the pensions of its public school teachers.
Connecticut’s teachers’ retirement fund is underfunded to the tune of $16.8 billion, though a recent study by the Yankee Institute found that it could be three times that. Compounding the situation is the fact that the state’s teachers do not contribute to Social Security or collect benefits upon retirement. The reason for this dates back to the 1950s and it’s long and complicated. The Office of Legislative Research attempted to explain it three years ago, but it is too byzantine to elaborate on here.
Common sense tells us that the burden on state taxpayers to fund the pensions would be less if teachers were paying into Social Security like the rest of us and were eligible to receive those same benefits upon retirement instead of relying on pension income alone.
So the funding structure for teachers’ pensions is broken. Both Malloy and Gov. Ned Lamont have floated the idea of pushing some of those costs onto municipalities and regional school districts. But that is tantamount to cutting aid to education and would therefore be a heavy lift in the legislature.
State employee and teachers’ unions typically resist reducing their benefits to solve this crisis, arguing instead that taxes should be raised on the wealthiest among us. As rich as Connecticut is, I’m not sure the state even has enough high-income residents to bail us out of this one. This is a problem that will require sacrifice from both workers and taxpayers. And, of course, this is to say nothing of the looming U.S. retirement crisis. To wit, one in five Americans has failed to set anything aside to support themselves after they stop working.
The question remains: Are we up to dealing with it? Judging by our performance during this pandemic, I cannot be optimistic.
Contributing op-ed columnist Terry Cowgill lives in Lakeville, blogs at CTDevilsAdvocate.com and is managing editor of The Berkshire Edge in Great Barrington, Mass. Follow him on Twitter @terrycowgill or email him at firstname.lastname@example.org.
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