The State Retirement Commission voted unanimously Thursday to approve the first stage of Gov. Dannel P. Malloy’s two-tiered plan to bolster the state employees’ pension fund.
The second component, which requires action by the General Assembly, is expected to be considered before the 2012 session ends in early May.
The retirement panel endorsed a revised actuarial analysis for the pension system that incorporates Malloy’s proposal to reverse an agreement reached in two stages, in 1995 and 1997, by then-Gov. John G. Rowland and the unions.
The mid-1990s deal had put the pension program on what amounts to a balloon mortgage plan, abandoning a contribution schedule that required largely level payments adjusted for inflation.In its place Rowland and the unions imposed a system that reduced contributions for the first few years, then imposed an ever-escalating series of payments.
Lowering pension contributions reduces the state’s earnings from fund investments, and critics argue this costs the system huge dollars in the long run.
The state’s annual contribution to the pension fund, which stood at $844 million last year and is $926 million this year, was on pace to top $2 billion by 2026, $3 billion by 2031 and approaches $4.5 billion in 2032.
Reversing the actions taken in 1995 and 1997 would boost the state’s required contribution by $123 million starting next fiscal year.
The second stage in Malloy’s plan to undo decades worth of damage to the fund involves making extra payments above the level required by the state’s benefits contract with employee unions starting in 2013-14.
To do so, though, the governor has asked legislators to exempt these bonus payments from the constitutional spending cap system. If legislators approve that exemption, the state’s total payment into the pension fund next fiscal year would rise above $1.3 billion in 2013-14.
Though these changes would cost Connecticut more than the current system does through 2025, after that the payments would drop annually. And by 2032, the administration estimates, Connecticut would be $5.8 billion ahead.