Comptroller Sean Scanlon outlines pension reforms with members of a working group and others on May 3, 2023. MARK PAZNIOKAS / CT Mirror

This story has been updated.

With two weeks left in the regular General Assembly session and a new state budget still unresolved, minority Republicans have added another item to state officials’ to-do list.

In light of a recent analysis from Yale researchers who concluded that poor pension fund investments have cost Connecticut tens of billions of dollars over the past decade, GOP lawmakers want immediate reforms. The study first was reported earlier this month in an opinion piece in the Connecticut Post.

Among the proposals circulating include establishing an independent oversight board to approve investments, increased reporting mandates — and having future treasurers appointed by the governor, rather than elected by voters.

“It’s an area that we have ignored for too long,” said House Minority Leader Vincent J. Candelora, R-North Branford. “I am still amazed that despite the fact that we have the financial expertise we have in Fairfield County, we are one of the lowest-performing investing states in the country.”

Candelora is citing the recent Yale study, which found that Connecticut has the second-worst investment performance of any state over the past three and five years and fifth-worst over the past 10.

The treasurer’s office is responsible for investing roughly $40 billion in assets related to retirement programs, with the two main funds involving pension benefits for state employees and for municipal teachers.

Had Connecticut performed even close to the median of all states, it would have generated an additional $5 billion over the past five years.

Yale researchers Jeffrey A. Sonnenfeld and Steven Tian also concluded Connecticut could have gained an extra $27 billion had its investment returns matched those of the best-performing states over the past decade.

Sen. Ryan Fazio, R-Greenwich, a member of the Finance, Revenue and Bonding Committee, called the state’s investment track record “a total disaster for taxpayers and for pensioners.”

With more than $88 billion in bonded debt and unfunded pension and retirement health care obligations, Connecticut is one of the most indebted states, per capita, in the nation — with nearly half of that burden tied to pensions alone.

That problem was created largely across several generations of government. According to a November 2015 report by the Center for Retirement Research at Boston College, it stemmed from systemic underfunding between 1939 and 2010.

Because of that, Connecticut governors and legislatures refinanced the state employees pension system twice and the teachers fund once — all between 2017 and 2019. This involved artificially lowering actuarially required contributions, primarily during the late 2020s and early 2030s when payments were predicted to spike, and pushing billions of dollars in payments — plus interest — off onto future taxpayers in the late 2030s and 2040s.

Gov. Ned Lamont and the legislature have begun to attack that problem. Since 2020, the state has used $5.8 billion in surplus funds to make supplemental payments into the two main pension funds.

And the administration projects state government will close the current fiscal year $2.95 billion in the black, which would be the second-largest surplus in state history. With the rainy day fund already holding $3.3 billion — its legal maximum at 15% of the General Fund — Lamont is pushing lawmakers to put most of this year’s surplus in the pensions as well.

But even with those supplemental payments, pension contributions are expected to place considerable pressure on state finances for another decade or two. The faster those required payments shrink, Republican legislators say, the sooner more funds can be redirected for tax relief or for other vital programs.

An independent board to sign off on investments 

Both Fazio and Candelora say one reform lawmakers should explore immediately involves establishing an independent board that would — along with the treasurer — share responsibility for deciding how pension funds are invested.

This panel, they said, might be appointed by the governor and confirmed by the legislature, though other options are possible.

The objective, Candelora said, would be simple: to maximize the return on the state’s investments.

Both he and Fazio emphasized that their proposals are not a reflection on Connecticut’s current treasurer, New Haven Democrat Erick Russell, who only began his first four-year term in January.

But Candelora said that historically, going back at least 15 years or more, “there is a level of political activism” guiding the investment decisions of the office, rather than securing the best possible return.

Traditionally, Connecticut treasurers have said their efforts, somewhat, have been hindered by historical problems of its pension system. Because it has a large number of retirees currently drawing benefits from a top tier — before subsequent union concessions deals reduced them — the pension funds have to be ready annually to pay out large sums.

That means treasurers have to keep a significant portion of investments in areas easily liquidated quickly, which may not yield as great of a return as some longer-term investments.

Sonnenfeld and Tian said that still doesn’t explain Connecticut’s historically poor performance.

“Liquidity is a non-factor,” said Tian, director of research and chief executive of the Leadership Institute at Yale. “If you’re really worried about tie ups, the most liquid asset is an index fund, which you can spend at any time by snapping your fingers.”

Index funds follow a benchmark index such as the S&P 500 and invest their resources in all of the companies that section of the stock market, creating a very diverse portfolio.

Sonnenfeld, a senior associate dean for leadership studies at Yale School of Management, agreed, adding that Connecticut pension investments, traditionally, have focused too heavily on emerging markets and not enough on U.S. equities.

That means, Sonnenfeld said, that the state’s pension investments failed to fully capitalize on the bull market that drove state tax receipts up between 2018 and 2022.

Appointed treasurer?

Another change, proposed by Candelora, involves having the treasurer appointed rather than elected, a switch he says would increase the chances that a qualified investment expert gets the job. This would require amending the state Constitution, though, a process that could take years.

Still, while most states elect their treasurer, Candelora noted that having appointed investment officials is not unheard of. New York abolished its treasurer’s office decades ago, giving responsibility to appointed officials within the comptroller’s office.

But while Lamont and his fellow Democrats in the legislature’s majority are supportive of efforts to improve Connecticut’s return on pension investments, they aren’t interested in taking control of the job away from voters.

“I think the treasurer is held accountable by the people every four years. I think that’s appropriate,” said Senate President Pro Tem Martin M. Looney, D-New Haven.

“My instinct is the leave [the election issue] alone,” said House Speaker Matt Ritter, D-Hartford, who added that while the long-term trend on investment returns has been disappointing, having an appointed treasurer is not necessary to make reforms.

“There is no correlation between states that elect their treasurers and the performance of their investments," Russell said. "I think the people of Connecticut deserve the right to directly hold their treasurer accountable and would not appreciate that responsibility being taken from them.”

Lamont wrote in a statement that “I have faith in Treasurer Russell. In the very short time that he has been in office, he has already begun taking common sense steps to improve the rate of return for Connecticut’s pension funds.”

And with just a few weeks left in the session, Lamont urged lawmakers to focus on adopting a new state budget.

Sonnenfeld and Tian added that their report is no reflection on Russell’s performance during his brief time in office.

“I have complete confidence in Treasurer Erick Russell,” Sonnenfeld said, adding he believes the new treasurer already has begun targeting some of the weaknesses in past investment strategies for improvement. “I think highly of him.”

Russell said, “I appreciate this report and its effect in elevating the critical ways that investment performance relates to the state’s overall fiscal health and the everyday lives of Connecticut taxpayers."

The new treasurer also said his office, working with the state’s Investment Advisory Council, already has begun making some changes that match up with issues identified in the report.

This includes a bill crafted by his office and pending before the legislature to improve recruitment and retention of wealth investment talent.

“State government is united in its commitment to adequately fund the pension system and combat the liabilities that have plagued Connecticut for a generation,” Russell said.

Sonnenfeld and Tian said Connecticut also would benefit from increased transparency around pension investments. And Fazio said that even with just two weeks left in the legislative session, shining more light on pension investments is a crucial step legislators could take right away.

Legislators should mandate regular reports on investments, just as it already requires monthly reports from the treasurer on cash flow and bonding, Republicans said.

Fazio also said the Finance, Revenue and Bonding Committee should immediately begin hearings on historical investment performance and continue them throughout the summer, predicting they would draw considerable interest from lawmakers from both parties.

“Everybody should be jumping to make this system work," he said. “We should be all hands on deck.”


The Yale researchers concluded that had Connecticut's pension fund investments over the past decade matched the returns of those states with the best investment returns, Connecticut would have made an additional $27 billion. An earlier version of this story incorrectly reported that a $27 billion gain would have been possible had Connecticut’s pension investments mirrored the median investment performance of most states.

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.