States making employees work longer for retirement benefits

When it comes to pushing back the retirement age for state employees, Connecticut is testing waters that many states have plunged into over the past year.

A new report from the National Conference of State Legislatures found 10 states have passed laws this year to keep public-sector employees working longer.

“I think it’s clear other states are doing this because they recognize the benefits are becoming unaffordable,” Michael J. Cicchetti, Gov. M. Jodi Rell’s deputy budget secretary and chairman of her Post Employment Benefits Commission, said Monday.

The administration, which created the commission in February to propose solutions to the huge funding gaps facing state retirement benefit programs, has suggested raising the normal retirement age for new state employees from 62 to 65 for workers with at least 10 years of experience.

According to its last, full actuarial valuation, the pension fund had $19.2 billion worth of obligations, or liabilities, and held just under $10 billion, an amount equal to 52 percent of its liability. Actuaries typically cite a funded ratio of about 80 percent as healthy.

“It’s something you just can’t ignore,” Cicchetti added.

According to the NCSL, it’s a problem shared by many other states.

Missouri Gov. Jay Nixon called his state’s legislature into special session in late June to reform the pension system, securing bipartisan support for a law that – among other actions – raises the retirement age for workers hired after Jan. 1 from 62 to 67.

“We believe that these changes bring Missouri’s retirement system more in line with the private sector,” Nixon spokesman Scott Holste said Monday.

Illinois Gov. Pat Quinn also made pension reform a priority this year, signing legislation to raise the retirement age for new workers starting next year from 60 to 67, according to spokeswoman Annie Thompson. That change was part of a larger package of retirement reforms Quinn projected would stabilize the pension system and save over $200 billion over 35 years.

Other states that increased their retirement age for state workers this year, according to the NCSL report, are Iowa, Michigan and Vermont.

Some states base eligibility for retirement benefits on a combination of age and years of service. The 2009 concession agreement negotiated by Gov. M. Jodi Rell and Connecticut’s state employee unions codified the so-called “rule of 75,” which requires worker’s age and years of service to total 75 before retirement health benefits can be accessed.

The minimum combination for all retirement benefits in Arizona was raised from 80 to 85, and in Colorado from 85 to 88, according to the NCSL report. Virginia increased the minimum combination for new state and municipal employees from 80 to 90.

Changes such as those enacted in Virginia effectively require eligible retirees not only to spend several decades in government service, but in most cases to retire at a later age.

Utah allows anyone with 30 years of state service, regardless of age to retire. But according to the NCSL report, the limit for new workers was raised this year to 35.

In Minnesota, lawmakers tried a different approach to keep workers on the job longer, doubling the pension reduction for state police and correction officers who seek to take advantage of early retirement rules.

Connecticut’s pension fund has been plagued by two problems: decades of legislatures and governors authorizing annual contributions less than the level needed both to cover current costs and save for future payments; and periodic retirement incentive programs that trim salary expenses in the short-term while prematurely stripping the pension fund of assets that would have earned more in interest.

According to June report from an actuary and health care consultant on the effects of the 2009 incentive program on the Connecticut pension fund, the state’s annual contribution to the pension fund would have to rise next year by $217 million, from $844 million to $1.06 billion.

But that report didn’t assess the fund’s overall investment earnings over the past two years, or the impact of $314.5 million in pension fund payments that Rell and the legislature have deferred – with union approval – since 2009.

Matt O’Connor, spokesman for the State Employees Bargaining Agent Coalition, said state government doesn’t have to be at odds with its unions as it tries to strengthen its pension fund.

SEBAC, which negotiates benefits for about 45,000 unionized state employees, 42,000 retirees and roughly 100,000 dependents, offered a plan last spring to undo damage caused by early retirement programs.

Union leaders suggested reversing the process, offering incentives to workers willing to defer retirement – and thereby spend more years contributing to the pension fund rather than drawing benefits from it.

That idea was rejected by the Rell administration this year as it asked the unions to consider a second round of wage and benefit concessions. SEBAC rejected that request.

“We might be able to find some common ground if they would take a closer look at this,” O’Connor said, adding the coalition believes it would interest enough workers to provide savings both the state government and employees.

“We really do believe it would be popular,” he said. “We may be in a so-called recovery, but we are still facing unemployment close to 10 percent. We think a lot of people would see the advantage of staying on for another few years.”