Connecticut’s pension problems come from over-promising, not underfunding
Based on a new study by Wirepoints released in June, Connecticut once again makes the rogue’s gallery of pensions for state employees.
Most analyses of pensions focus on the unfunded liability – amounts due for which no funds have been provided. This type of analysis leads to the logical conclusion that more funding – more taxpayer dollars – is required to close the funding gap.
Connecticut’s current governor and legislature have indeed been very good at raising taxes – the largest increases in our history over the last few years – but still unfunded pension obligations continue to grow.
Instead of focusing on unfunded liabilities, the Wirepoints’ study looks at total accrued liabilities – the sum of all pension promises made — and compares this amount to the growth in a state’s gross domestic product (GDP) over time.
The Wirepoints’ study shows that the problem of excessive debt stems from overpromising rather than underfunding. Underfunding is a symptom, not the source of the excessive debt.
Connecticut is one of just five states that the WirePoints study describes as having growth in promised pension benefits which are “out of control.”
For the period 2003- 2016, the growth in benefits promised to state employees grew at more than twice the rate of Connecticut’s economy. Because state employees make strictly limited contributions to their pensions, and because investment returns have been far less than the pension commission’s overly optimistic projections, ordinary taxpayers are expected to pay more and more taxes to make good on these lavish promises.
The mechanism for creating this excessive debt is clear: promises state residents absolutely cannot afford to pay.
The question is who is making promises that are so unrealistic and why?
In Connecticut’s case, the answer is painfully clear. Pensions for state employees are negotiated solely by union members for union members. There is no restraining hand from any non-union member, and no participation by ordinary taxpayers who are expected to pay the bill.
Connecticut’s system is fraught with self-dealing and conflicts of interest. It has become a parody of an honest government process.
For instance, actuarial assumptions related to the funding of the state employees’ pensions –a key component of their financial structure and performance — is determined by the State Employees Retirement Commission – unless the General Assembly overrides the Commission.
The Commission is made up of 12 members. Six members are state employees. The remaining six members of the Commission are appointed by the governor and are supposed to represent “management.” However, these six members of the Commission too must be state employees and employees who will receive a pension (members of the SERS). Accordingly, all members of the Commission must be state employees with an interest in receiving a pension. These individuals are charged with setting essential financial terms of the pensions they will receive – and for which ordinary taxpayers must pay.
Theoretically, the General Assembly can override a vote on pension terms made by the State Employee’s Retirement Commission — but this is difficult for a large, divided body like the General Assembly, especially when presented with a fait accompli from the Commission.
A system fraught with self-interest has turned Connecticut’s economy into one of the worst performers in the country. According to the American Legislative Exchange Council, Connecticut’s economy was the worst in the country for the years 2006 – 2016.
The way to stop this pension drain too is clear.
We must fundamentally restructure our pension system by structuring fair, responsible lump-sum buyouts of all current employees and retirees. We must simultaneously convert strictly and exclusively to a defined contribution retirement savings plan with a strict cap on compensation and reasonable matches from state employees. Employees get real cash –not empty promises — and portability. At the same time, we must fully implement the constitutional spending cap, passed in 1991, but never implemented.
With these changes we can eliminate pension debt for all time, restore Connecticut’s credibility in the financial markets, restore growth and opportunity to everyone in Connecticut, and attract new residents to this wonderful state.
Marisa Manly is an independent candidate for governor.
Sign up for CT Mirror's free daily news summary.
Free to Read. Not Free to Produce.
The Connecticut Mirror is a nonprofit newsroom. 90% of our revenue comes from people like you. If you value our reporting please consider making a donation. You'll enjoy reading CT Mirror even more knowing you helped make it happen.YES, I'LL DONATE TODAY