State Treasurer Erick Russell reported a 15.1% increase last fiscal year investing Connecticut’s pension assets, a gain of roughly $11 billion for retirement programs for state employees, teachers and other municipal workers.
The returns, presented this week to the Investment Advisory Council, mark the fourth consecutive year pension investments have eclipsed the 6.9% target the state hopes to average over the long term. More importantly, Connecticut’s results ranked in the top quarter of all major public pension funds nationally.
“These results strengthen the retirement security of Connecticut’s teachers and state employees, while reducing pressure on future state budgets and helping us continue the progress we have made in strengthening the financial foundation of our state,” Russell said.
The treasurer, a New Haven Democrat who oversees $76 billion in pension assets, won his first term in November 2022 and began reforming a system which had lagged other states’ investment results for more than a decade.
Russell has reduced investments in emerging ventures, put more funds into private and domestic markets, and curbed reliance on investment managers who receive fees for their work. His reforms mirror many suggestions Yale researchers made in 2023.
Connecticut’s 15.1% return ranked in the top 23% of returns achieved by major public pension funds over the past fiscal year, and in the top 25% achieved over the past three, Russell said. The treasurer reported a 10.1% return last fiscal year and 11.5% two years ago.
But not that long ago, Connecticut’s pensions were in far worse shape.
A severe recession first focused officials on the problem in the late 2000s, when mandatory pension contributions skyrocketed due to a lack of overall funding. Those increases, coupled with declining revenues, helped trigger three big state tax hikes between 2009 and 2015.
According to the Center for Retirement Research at Boston College, Connecticut governors and legislatures failed to save adequately for pension benefits for more than seven decades prior to 2011. This deprived the state treasurer of huge assets that otherwise could have been invested to generate billions of dollars in revenue over those seven decades.
Connecticut legislators enacted aggressive budget caps in 2017 that forced unprecedented surpluses. Those dollars were used largely to build reserves for the first two years. But since 2020 Connecticut has poured $11 billion in surplus into its pension funds, including $1.3 billion Russell deposited earlier this month from the fiscal year that ended June 30.
That’s in addition to the roughly $3 billion in regular contributions built annually into the state budget, which still consume a hefty 12% of the General Fund.
But Gov. Ned Lamont’s fiscal analysts project the required annual payments would be nearly $1 billion greater, were it not for all the surplus dollars redirected to wipe out pension debt.
Connecticut still carries more than $30 billion in unfunded pension obligations, a burden it’s not projected to pay off entirely until well into the 2040s, according to the Office of Policy and Management.
“Connecticut has made tremendous progress in strengthening our pension system and putting the state on a more sustainable financial path,” Lamont said. “Strong investment performance, combined with the additional contributions we have made in recent years, is helping us reduce pension debt and lower costs for taxpayers over the long term. This progress is the result of disciplined fiscal management, and it gives us greater flexibility to make investments in education, housing, and other priorities that strengthen our economy and improve quality of life for people across our state.”
