Connecticut continues to pay millions of dollars annually in pension benefits in excess of federal and contractual limits, a problem that’s gone unresolved for nearly a decade, state auditors reported Monday.
Auditors John Geragosian and Robert Kane also urged Comptroller Kevin P. Lembo, who oversees pension benefits for state retirees, to seek a clarifying opinion from state Attorney General William Tong.
In their analysis of the 2015 and 2016 fiscal years, auditors estimate Connecticut paid 95 retirees about $1.1 million annually in cumulative pension benefits above the annual cap set by the Internal Revenue Service, which was $210,000 per recipient, Geragosian said.
“Benefit payments made in excess of the limits … jeopardize the plan’s qualified status” with the IRS, the auditors wrote in their report, echoing a concern raised several times by the auditors’ office in recent years.
According to the legislature’s nopartisan Office of Fiscal Analysis, the average pension for all state retirees is $38,284.
But Connecticut has one of the worst-funded state employee pension systems, having failed to save properly for more than seven decades through 2010. It also refinanced the contribution schedule in 2017 and 2019, pushing more expenses, plus interest, into the future. With more than $22 billion in unfunded liabilities, it has enough assets to cover less than 39% of its long-term obligations.
And despite union concessions packages in 2009, 2011 and 2017 – which either trimmed pension costs, made pensions less generous for new hires, or both – some retirees under earlier tiers of the program enjoy some of the most lucrative public-sector benefits in the U.S.
For example, the state paid a $349,443 pension in 2019 to retired University of Connecticut business professor John Veiga, according to the comptroller’s pension transparency website. And former UConn President Harry Hartley’s pension last year was $251,588.
In 2014, then-state Treasurer Denise L. Nappier threatened last year to warn Connecticut bond investors that the state’s pension system was at risk of losing its federally qualified ranking because of similar over-payments. The treausrer oversees investment of state pension funds.
“Until this issue is fully assessed and addressed, eliminating any threat to the tax-exempt status of the pension funds,” Nappier wrote in a letter to the State Employees Retirement Commission, “I will not rest easily.”
Labor unions assert the IRS cap does not apply as broadly as the auditors assert.
Lembo, who took office in January 2011, has gotten all parties to agree on cap limits for workers retiring after that date. But those who retired prior to January 2011 with pensions in excess of the cap continue to receive the full amount. Lembo also has been urging union leaders and state labor relations officials for years to resolve the problem.
But matters have progressed very slowly over the years.
An Indianapolis-based law firm specializing in government pension plans, Ice Miller LLP, recommended Connecticut acknowledge it was paying benefits excessively, and file a voluntary correction with the IRS.
The retirement commission, which is comprised of state and union representatives, opted not to do so, and Ice Miller terminated its relationship with the state in 2013.
Connecticut and the IRS have continued to negotiate since but the matter remains unresolved.
Monday’s audit also raised a second charge of excessive pension benefit payments, in this case involving retirees who were disabled on the job.
Geragosian and Kane charged disabled retirees’ benefits aren’t being reduced properly by the comptroller’s office to reflect outside earnings, despite a 1989 arbitration award that allows the state to do so.
“By treating retirees’ outside earnings this way, the [office] has essentially eliminated the statutory offset, which has resulted in millions of dollars in unnecessary disability retirement benefit payments,” the auditors wrote, urging Lembo to seek clarification from the attorney general.
The over-payments were about $800,000 in each of the 2015 and 2016 fiscal years, the period covered in the latest audit, Geragosian said. But like the maximum benefit issue, the disability pension matter also remains unresolved and extra payments have continued each year since.
Lembo and the unions interpret the 1989 arbitration award differently, saying it only permits the state to reduce disability pensions to reflect Social Security and workers’ compensation-related income, and not other outside wages.
“We have great respect for the state auditors,” added Ed Leavy, vice president for AFT-CT, one of SEBAC’s largest member unions. “They are not, however, experts in collective bargaining, and their comments about the 1989 arbitration award are dead wrong. This is a collective bargaining agreement. The parties know exactly what it means and the comptroller’s office has enforced that provision in accordance with that.”
The disability pension issue sparked a 2013 whistleblower complaint and a 2015 lawsuit by Avon lawyer Virginia Brown, who worked in the comptroller’s office from 2012 through 2014.
Brown, who named Lembo, the State Employees Retirement Commission and other state officials as defendants, claims officials “knowingly and purposefully applied the wrong legal standard and awarded” excessive retirement disability benefits – sometimes to ineligible individuals –“for purely political reasons.”
U.S. District Court Judge Stefan R. Underhill dismissed Brown’s complaint on technical grounds in December 2015. But he also allowed her at that time to file an amended complaint which she did. The matter still is pending.
Lembo, who denies Brown’s claims, said when it was filed that his office has worked with labor and management to resolve disagreements involving disability benefits. But these are complex issues and can take years to resolve.
“Not one drop of ink would have been written about these issues if I had not discovered them, brought them to light and taken steps to end them” Lembo told the CT Mirror in 2015.