Teachers’ pension fund begins a recovery

The teachers’ pension fund – which has been one of the state’s fastest growing expenses in recent years – will not cost the state quite as much next year.

Independent financial experts informed the state this week that its required contribution for the upcoming fiscal year will decrease by $8.5 million.

It’s the first time the state’s required contribution will decrease since Connecticut borrowed $2 billion in 2008 to help shore up the troubled fund and promised investors it would contribute annually the full amount recommended by analysts.

State lawmakers in recent years have been forced to make large contributions to compensate for the hit the fund took during the recession. For example, last fiscal year the state was required to contribute $948.5 million, a 20 percent increase over the previous year.

The fund losses mirrored problems experienced by nearly all states in the last recession. The fund uses contributions from government and from teachers, as well as investment earnings, to pay benefits to about 50,000 retirees. When earnings fall, contributions typically rise.

Connecticut also has been playing catch-up, making up for contributions it should have deposited for decades past, but did not.

The return on investments announced this week for the last two fiscal years were 14 percent. But the fund still has a lot of work to do to completely rebound from the recession.

Before the recession, the fund had enough assets to cover 71 percent of its obligations. That fell to 55 percent by June 30, 2012.  Analysts reported this week that ratio rose to 59 percent as of June 30.

Actuaries typically cite 80 percent as a fiscally healthy level, which the analysts projected the state should reach by 2027.

Gov. Dannel P. Malloy welcomed the fund improvements. “While there’s more work to do, we are making progress,” he said in a press release. “Our actions, together with the treasurer’s investment strategy, are putting us on the path to get these obligations under control.”

The state also helps pay for a health plan to supplement Medicare for retired teachers. While that plan is a pay-as-you-go system — not funded by investments — analysts reported the future amount owed to active and retired teachers declined from $3 billion as of June 30, 2012, to $2.4 billion as of June 30 this year.

Comments

comments