A new report shows that Gov. Dannel P. Malloy got the budget savings he was hoping for from state employee pension concessions — albeit with an assist from a rebounding Wall Street.

A preliminary analysis from pension fund actuaries released Thursday shows that Connecticut should contribute $926 million to the fund this fiscal year — $13 million less than the level Malloy and legislators built into the current budget.

But the report from Cavanaugh Macdonald Consulting of Kennesaw, Ga., also shows that the pension fund remains in poor fiscal shape, with enough funding to cover just under half of its long-term obligations.

The state Retirement Commission received the report this week but has not accepted it yet, according to state Comptroller Kevin P. Lembo, whose office provides staffing for the commission.

But the preliminary report was received with cautious optimism both by Malloy’s budget director and by a veteran state employee union leader.

“Thank heaven it was with us, but market timing wasn’t really a factor for us” when it came to negotiating the pension changes ratified last summer by unions and the legislature, Office of Policy and Management Secretary Benjamin Barnes said.

The concessions deal raised regular retirement ages for several employee classes, increased penalties for early retirement, modified cost-of-living adjustments to pensions and offered a new hybrid retirement program.

The key to those pension changes, Barnes added, lies in the savings they will produce over decades, not in just one fiscal year. “You have have to live with the market ups and downs.”

According to the latest valuation, the pension fund’s investments had a 21.39 percent return between July 1, 2010, and June 30, 2011, more than two-and-a-half times the 8.25 percent average annual return analysts use when calculating long-term projections.

A spokeswoman for state Treasurer Denise L. Nappier, whose office oversees pension fund investments, said Thursday it is reviewing the report.

Pension changes originally were expected to provide $237 million of the $700 million in overall budget savings attributed to the concessions deal. The deal also featured a two-year wage freeze, a new employee wellness program, cost-cutting work by three labor-management efficiency panels and an increase in worker retirements.

But retirements exceeded expectations by more than 1,000, and Barnes said that as savings in this area increased, expectations for pension savings had to be reduced. That’s because when workers retire, they stop paying into the pension fund and begin drawing from it.

Malloy and legislators eventually reduced the planned pension fund contribution by just $84 million in the adopted budget, lowering it from $1.02 billion to $940 million.

Barnes added that he still expects the overall concessions plan savings target of $700 million to be achieved this year.

The latest pension analysis provides some relief for an administration managing a relatively slim $83 million surplus projection in the current $20.14 billion state budget. Had pension analysts determined that the state’s contribution had been lowered too much, the concessions agreement would have required the administration to increase the payment.

“Certainly the administration will pay less (for pensions) as part of the (concessions) agreement,” said Salvatore Luciano, executive director of Council 4 of the American Federation of State, County and Municipal Employees.

The rebounding market is “a positive thing,” but the best long-term solution for the pension system, Luciano added, is for state government to increase annual contributions, thereby increasing the potential investment earnings each year.

Connecticut’s pension fund began as a pay-as-you-go system. For nearly four decades, state government put nothing away, and therefore gained no investment earnings, to help cover pension costs.

Annual contributions into the pension fund, which began in the early 1980s, are calculated to fulfill two purposes: Meeting the “normal cost,” or saving to cover the benefits earned by workers during the year; and making up — over a 30-year schedule — for the dollars Connecticut should have saved in decades past to meet its obligations.

The pension fund also has been a popular target for raids, and past legislatures and governors routinely have reduced — with union approval — pension payments to help close budget deficits.

The 2009 concessions package negotiated by then-Gov. M. Jodi Rell and ratified by the legislature reduced contributions by more than $314 million across two years.

The pension fund hit its lowest point in more than two decades with its June 30, 2010, valuation. It showed the fund had assets worth $9.35 billion, but long-term obligations of $21.1 billion, for a funded ratio of 44.4 percent. Analysts typically cite 80 percent as a healthy ratio.

According to the latest valuation, the fund was worth $10.1 billion on June 30, 2011, with $21.1 billion in obligations, for a funded ratio of 47.9 percent.

Part I of the report

Part II of the report

Keith has spent most of his 31 years as a reporter specializing in state government finances, analyzing such topics as income tax equity, waste in government and the complex funding systems behind Connecticut’s transportation and social services networks. He has been the state finances reporter at CT Mirror since it launched in 2010. Prior to joining CT Mirror Keith was State Capitol bureau chief for The Journal Inquirer of Manchester, a reporter for the Day of New London, and a former contributing writer to The New York Times. Keith is a graduate of and a former journalism instructor at the University of Connecticut.

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