Nappier: Find a ‘less radical’ pension fix than Malloy’s plan
State Treasurer Denise L. Nappier raised strong concerns Friday about Gov. Dannel P. Malloy’s plan to defer billions in contributions to the state employees’ pension until 2033.
The governor insists a restructuring is necessary to control spiking costs over the next 17 years that could drive up taxes and drain resources from vital programs.
But Nappier, a Democrat like Malloy, warned that Connecticut got in trouble in the first place by failing to save in timely fashion for promised retirement benefits.
She suggested that officials consider “less radical” changes than Malloy has offered.
And while the governor hasn’t disclosed the specific numbers behind his proposal yet, the treasurer also warned the result of his approach is unmistakable: deferring contributions comes with a cost.
“While the governor is right to be concerned about the projected growth in the state’s annual contributions to the pension plans, the sobering reality is that paying less now will absolutely mean paying more in the future,” Nappier wrote in a statement released Friday morning.
“That is why policy leaders should examine less radical departures from Connecticut’s current funding method,” she added.
For example, Nappier noted that Indiana dedicates a portion of an existing revenue stream to meet its pension obligations.
The treasurer did praise the governor for raising awareness about the funding challenges, calling his proposal “a useful first step” toward discussion of the competing interests of balancing the budget and meeting Connecticut’s obligations to workers.
“I stand ready to work with our partners in state government and all stakeholders to address these issues with thorough, solid actuarial analysis to ensure that we have a plan that can stand the test of time,” Nappier added.
Gian-Carl Casa, spokesman for Malloy’s budget office, released a statement in response:
“The governor is leading on this issue — because he’s focused on Connecticut’s long-term future, and welcomes the Treasurer’s supportive comments today. That’s why he’s taking bold and responsible action to fix our pension system. It’s why the administration asked outside experts to do a study of our retirement funds and make recommendations, which we will release in the coming days. Put simply, we’re committed to fixing our pension systems the right way. Taxpayers — and Connecticut — deserve no less.”
Connecticut is trying to play catchup with a pension fund plagued by decades of under-funding. The fund only has enough assets to cover just over 41 percent of its long-term obligations.
Malloy’s original solution, which he committed the state to in 2012, is to accelerate payments into the pension fund until 2032, much as a family might make extra mortgage payments now to lessen a balloon payment looming in future years.
Now the governor says that hasn’t worked. Over the last 15 years, Connecticut — and most other states — haven’t been able to achieve the pension investment returns on which they’ve counted. The state also didn’t accelerate payments as much as Malloy originally hoped, and other policy changes caused a surge in retirements four years ago — which also weakened the pension fund.
The current $1.5 billion annual contribution to the state employees’ pension is projected by the administration to double by 2025, and more than quadruple by 2032.
“We cannot sustain that,” Benjamin Barnes, the governor’s budget director, said last week. “We cannot survive that.”
But Nappier wrote Friday that, “We should take pause over the apparent departure from a disciplined funding approach to the state’s pension liabilities – for current workers and future retirees alike — an approach that only recently was put in place.”
Though the governor hasn’t released full details of his plan yet, administration officials have said at least $8 billion in payments owed to the state employees pension fund would not be made between 2018 and 2032.
But that also means Connecticut will forfeit all of the potential investment earnings on that $8 billion.
So what’s the total cost — $8 billion plus lost earnings — that it will ask future state budgets to cover?
How long will it take Connecticut to make up those lost funds?
All parties that have commented on the governor’s proposal have reserved final judgment until those questions are answered. Besides Nappier, that includes: state Comptroller Kevin P. Lembo; the Connecticut Business and Industry Association; state employee unions; and the top Republicans in the state House and Senate.
Senate Minority Leader Len Fasano, R-North Haven, said Friday that, “Right now it’s impossible to know the true impact of the governor’s pension proposal without more information. While I appreciate the governor’s attempt to make our pension payments more manageable…Those questions need to be answered. Any financing changes to the state pension system also need to come with an understanding that pension benefits are extraordinarily high in our state and need resizing moving forward. A single-pronged approach is not enough to get costs under control and create a truly manageable and predictable pension system.”
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