State Pension Plans

The State of Connecticut has a deficit of $300 million this year, followed by $100 million next year, and $1,300 million (or $1.3 billion) for 2012. Connecticut must cap future liabilities by providing the option to all new State employees to join a deferred contribution pension plan.

Currently, the State of Connecticut owes one billion dollars a year to fund its public employee defined benefit pension plan. In addition, the State still owes $9.3 billion to fully fund the pension that was promised to its employees. For teachers, where the State administers their pension as well, the government puts another one billion dollars towards their pension plan, annually. And, just like their public employee counterparts, the State still owes them $6.5 billion to fully fund their plan.

The misery for our State employees and teachers does not end there. Currently, the State would need to contribute another $2.3 billion for teachers’ retiree health and life insurance and an astonishing $21.7 billion for its own employees’ health and life insurance for retirement. All said, the State owes at least $40-50 billion to cover insurance and health benefits that were promised to State employees and teachers, and on top of that, at least another $2 billion per year – and that number continues to grow.

Annual obligations will increase so long as there is growth in the number of State employees. More and more taxpayers’ money will be used to pay for unequaled benefits – the so-called “Cadillac” health insurance plans – as State employees and teachers continue to live longer, thus prolonging the use of these generous plans.

The way to curb the exponential growth in outstanding obligations and unfunded liabilities is to cap it now. By capping the amount the State owes its employees and municipal teachers, the people of Connecticut can feel sure that their tax dollars are being spent on infrastructure upgrades, school construction, and job creation, all revitalization efforts this State needs.

This is possible by coming to the table with State employee and teacher unions when their contracts re-open this year and next year and getting them to agree to having all new employees set aside a portion of their wages to go into a personally-owed and administered retirement account. Deferred contribution plans, such as 401(k)s, 401(a)s, and 457s, are transferable when jobs are changed, have no vesting periods, and allow individuals to decide where they want to invest – instead of having a board or commission decide for them. Also, when employees' jobs are lost, they retain rights to the money they put aside. This is a significant change from the current system, where an employee has to wait years to be fully vested before “owning” the money the State has put aside for his or her retirement.

The pension trend is going towards defined contribution plans and away from pre-promised, taxpayer-funded, “Cadillac” defined benefit plans. Municipalities are going to arbitration and finding that the State Board of Mediation and Arbitration sides with them on this issue, because they recognize that towns do not have the ability to continue to fund these obligations. With municipal budgets becoming consumed by wages and benefits and the State awarding defined contribution plans to cap the liability, the above billions of dollars of outstanding obligations prove that the State too is reaching its threshold. If the unions will not agree to new employees taking responsibility for their futures, then it is time to go to arbitration and make the State decide based on the fiscal viability of Connecticut.

In 2012, we are looking at a billion dollar deficit, likely tax increases, and more job losses. Employers will be asking for concessions, and if these are not given, union jobs will be lost as well. By capping future obligations through adoption of employee contribution retirement plans, the State can begin work on cutting the deficit, cutting outstanding obligations, and funding its liabilities.

There is hope for the State of Connecticut, and working with State employees and teachers can bring a better, more fiscally sound future for them, the taxpayers, and the State.