The panel tasked with crafting a specific strategy to stabilize under-funded state retiree benefit programs reached a strange conclusion this week, issuing a laundry list of suggestions, no priorities, and a warning that its seven members – who haven’t met in the past month – aren’t unanimous in their endorsement.
The report of Gov. M. Jodi Rell’s Post Employment Benefits Commission also drew immediate criticism from its one state employee union representative, who argued its release during the final week before Election Day was designed to place two Democrats on the state ticket in a political quandary.
The report also jettisoned specific proposals from the governor to tighten benefits and boost employee costs to save an estimated $300 million – including a new 401 (k)-style plan for state workers – though the concepts behind some of those proposals were listed in the 58-page document.
“We were supposed to weigh the advantages and disadvantages and prioritize” specific solutions, “not just throw a bunch of ideas up against a wall, commission member Salvatore Luciano, a veteran state employee union leader, said Friday, citing the executive order creating the group.
State government owes $19.2 billion in pension obligations and has $10 billion in the fund, or about 52 percent of its liability. Actuaries typically cite 80 percent as a healthy funded ratio.
The report does recommend an end to fiscal short-cuts that have harmed the pension fund in the past. These include: incentive programs that allow workers to retire earlier than planned, but rob the fund of extra dollars and investment earnings; and so-called “pension holidays” in which the state, with employee union approval, makes less than the recommended annual pension fund contribution called for by pension fund actuaries.
It also suggests adopting a “more rigorous funding strategy” than the system that’s been in place since the mid-1990s. To achieve immediate savings back then, state officials and public employee unions agreed to put the state employee pension program on what amounts to a balloon payment schedule.
As a result, the state’s annual pension contribution, which currently stands at $844 million, is on pace to leap by 50 percent by 2017, double by 2026 and triple by 2038, based on actuarial consultants’ estimates prepared for the commission.
But the panel didn’t recommend any specific budget increases or changes in state employee contributions to achieve this.
The panel also recommended increasing employee contribution levels to make them more competitive with other states. No amount is recommended and the panel added another study might be needed.
Similarly, it mentioned that raising the retirement age and modifying benefits could be considered, but no specific recommendations were made.
One of Rell’s specific proposals, creating a new defined contribution plan to replace pensions for new workers, was acknowledged in the report, but the group remained neutral, noting only that there are “pros and cons.”
The group did not recommend additional borrowing to help bolster the pension fund.
Connecticut’s retiree health care program is in even worse shape than its pension fund, with $26.6 billion in long-term liabilities and almost no savings to offset it. State government paid out $547 million to cover that cost. But according to the report, the contribution would rise next year to as much as $1.94 billion to cover both current costs and begin saving for long-term expenses.
The report recommends creating a trust fund and beginning to save for long-term costs, but doesn’t propose specific additional contributions either for state government or for workers.
Similarly, it acknowledges that eligibility rules and benefit levels could be changed, but endorses few specific.
One recommendation that appears to lean toward a more specific proposal was to “consider” limiting retiree health care only to employees who retire from directly from state service. Currently, workers with 10 years of state service can leave for the private sector and still claim state health care when they retire years later.
Rell’s deputy budget director, Michael Cicchetti, who headed the panel, defended the more neutral tone of the report. “We really wanted to achieve some consensus about the options available,” he said. “This really is a menu of choices for the next governor and legislature to choose from.
Cicchetti also said there was no political motivation behind the release late Thursday, adding that the administration didn’t want the plan to get lost amid the post-election focus on the transition to the next governor. “The report should be released when the report is done,” he said, adding that “given the factual nature of the report, I don’t see how it is political.”
But Luciano noted that after seven months’ worth of contentious public meetings, members hadn’t gathered since Sept. 30, and the administration has been communicating with them since then primarily by e-mail.
“The timing of the release is disturbing,” Luciano said, adding that since the July deadline has long since been missed, there was no reason to rush now. “It does seem to be politically motivated.”
Though there are no priorities cited in the report, it does speak in broad terms about reconsidering benefit levels, eligibility guidelines and employee cost-sharing – ideas opposed by state employee unions. Two of the commission’s seven seats were assigned to representatives of state Comptroller Nancy Wyman, the Democratic nominee for lieutenant governor, and state Treasurer Denise L. Nappier, another Democrat, who is seeking re-election. Both enjoy strong labor support.
Nappier’s director of government relations and her representative on the panel, Christine Shaw, could not be reached for comment Friday.
“I’m not agreeing or disagreeing with this report,” Wyman said Friday, adding that it offers nothing new for her and her running mate, former Stamford Mayor Dan Malloy. “We’ve said everything is going to be on the table,” she added. “We’ll go through everything we have to go through” to improve state government’s finances.
Wyman said she was disappointed that the report didn’t place more emphasis on attacking health care inflation. A private consultant employed by the panel estimated a 1 percent reduction in medical cost trends could save $3.75 billion over the next three decades. “This is where we could have a big impact on reducing the fund’s (long-term) liability,” she said.
“It is important to note that there are commission members who did not agree with some of the strategies presented,” the report states.
The report did include two proposals Wyman has long insisted on: beginning to save funds annually for retiree health benefits so investment earnings can be gained to defray costs; and dedicating a portion of future budget surpluses to help cover benefit expenses.
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