Let’s get serious about pension reform

Ned Lamont, the new governor, has continued the patronage or political welfare system practiced by his Democratic predecessor, Dannel Malloy. In his first month in office Lamont has taken at least five members of the state legislature into high paying jobs in his administration. He is still a piker compared to Malloy who elevated about a dozen Democratic legislators to such jobs.

Francis DeStefano

Serving in the Connecticut legislature is still a part-time job with a salary of about $35,000 per year. It makes you wonder why anyone would want such a position, but there is a pot of gold at the end of the rainbow. A position in the governor’s administration is a full time job usually with a six-figure salary. Moreover, legislators also get generous benefits including participation in the Connecticut State Employee pension system.

What impact will their new position have on their pension benefits?

One of the new appointees is Terry Gerratana, a former State Senator from New Britain. She has served 17 years in the legislature during which she has contributed six or seven percent of her $35,000 salary to the pension plan. If she had served three more years in the legislature, she would have been eligible for a pension of $14,000 per year (2 percent of pay for each year of service). It would require the state to come up with about $350,000 to fund her pension.

However, if she makes $135,000 in her new position, and works in the Lamont administration for only three years, her average pay for pension purposes will jump to $135,000 per year. Instead of a pension of $14,000 per year, she will be able to retire on $54,000 per year, a $40,000 increase. Instead of the state needing $350,000 to fund her pension, it will need to come up with $1,350,000. With this one appointment alone, state actuaries will have to add about a million dollars to the state’s pension liability.

I am not saying that Gerratana is unqualified for her new position, and I am not saying that she is the only Democrat politician to profit from such patronage. I am just using her as an example. She and the other Democratic legislators raised to high paying administrative jobs and judgeships by Malloy and Lamont have added multi-million liabilities to the state’s pension system.

A relatively small but significant first step in reforming the pension system and reducing future liabilities would be to remove State legislators from participation in the pension plan. Their existing vested benefits could be frozen and all future retirement contributions could be put into a defined contribution or 401k type plan. There is no sacrosanct union contract that would prevent Governor Lamont and his fellow Democrats who control the legislature from implementing this change.

Just consider that instead of having to come up with a million dollars over the next three years to fund Ms. Gerratana’s pension, the state would at the most only have to match her contribution to the new 401k type plan. Alternatively, state legislators could just be put into the Social Security system like the rest of us. How could newly elected “progressive” legislators possibly object to being in Social Security?

Removing legislators from future participation in the state employee defined benefit pension plan could be followed by a freeze on pension benefits for all existing state employees not covered by union contractual obligations. These employees would include non-union members and employees of the state’s executive, and judicial branches. It should also include all administrators in the University of Connecticut system.

In the future these employees could also participate in a defined contribution or 401k-type plan. This reform would still provide them with a retirement income, consisting of the vested value of the current plan as well as the accumulated value of the new defined contribution plan. This combination would still be superior to what is available to ordinary citizens in the private sector.

People often fail to realize that the millions going to fund the increased pension benefits for legislators like  Gerratana are dollars that could be used elsewhere. These dollars could be used to fund better salaries for teachers and police officers. They could be used to prevent layoffs of newly hired state employees. They could be used to provide much needed programs and supplies in schools. They could also be used to shore up the social safety net so dear to the hearts of Democrats.

The enormous unfunded pension liability of the State of Connecticut was not even an issue in last November’s gubernatorial election. Unless Gov. Lamont and the legislature get serious about pension reform, the state will face further huge tax increases, cuts in services, and possibly an eventual bankruptcy.

Francis P. DeStefano, Ph.D., of Fairfield, is a writer, lecturer, historian and retired financial planner.

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