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CT pension debate looms large in 2025 legislative session

Harry October 30, 2024

Connecticut will spend more than a tenth of its budget this year on retirement benefits for past and present state employees.

While candidates say it doesn’t come up often in forums or door-to-door conversations with voters, there’s a good chance the next General Assembly will vote on these benefits next term for the first time since 2017.

But while debate has once intensified over whether Connecticut is too generous with the pensions and health care offered to retirees, concerns are growing that those benefits are being severely reduced by repeated union concession agreements as some institutions deal with staffing crises.

“I don’t think there’s any question that many of the positions we’re hiring for are well below the private market in salary,” said Sen. Julie Kushner, D-Danbury, co-chair of the legislature’s Labor and Public Employees Committee. “We’ve always assumed that people stay in the public sector because of the good benefits, and I think we’re seeing that deeply eroded.”

But House Minority Leader Vincent J. Candelora, R-North Branford, said the quality of pensions and health insurance aren’t the only things that have weakened over the past two decades.

Connecticut taxpayers faced large increases in 2009, 2011 and 2015; There was a small series of increases in 2019. For much of the past 20 years, funding for essential programs has struggled to keep up with inflation.

“We are not at a sustainable point,” Candelora said, adding that Connecticut remains a high-tax, high-utility state, making it difficult for many residents and small businesses to survive economically.

Largest share of retirement costs is inheritance debt

Connecticut has offered pensions to state employees since 1939 and retirement health care since 1978. And by the 1990s, legislatures were having trouble covering the costs.

Gov. John G. Rowland would negotiate a 20-year benefits agreement with unions in 1997, and within a few years lawmakers and others began questioning whether the state was locking itself into unaffordable programs.

But the biggest cost was never the benefits themselves. They were the financial penalties that legislatures and governors would face for irresponsible budgeting.

The state failed to collect billions of dollars in pension contributions between 1939 and 2010, losing billions of dollars in potential investment gains in the process; It’s a legacy of debt that Connecticut is still grappling with.

For example, the state will spend more than $2.4 billion this fiscal year, or nearly 11% of the General Fund, on retirement contributions and health care for state employees.

September analysis Research by the Pew Charitable Trusts, which examined pension spending not only for state employees but also for municipal teachers, found Connecticut’s spending ranked fourth highest among all states in terms of share of overall public sector payroll.

But only $206.5 million or so 13% of this year’s $1.6 billion contribution The amount transferred to state employee pensions represents normal savings to cover the benefits of today’s workers.

A large part of the cost involves servicing the debt left by past generations.

The state cut retirement benefits four times between 1988 and 2017 to offset the failure of governors and legislatures to save money.

Gov. M. Jodi Rell sought welfare concessions in 2009, and her successor, Gov. Dannel P. Malloy, sought help from unions in 2011 and 2017. In exchange for each of the last two rounds of repayment, the government granted a five-year extension of the benefit agreement, which now expires on June 30, 2027.

New workers who once paid nothing into their pensions now contribute 5 percent of their wages to a much smaller benefit based on a lower average peak salary. This newest retirement plan available to workers is a hybrid, complete with a 401(k)-style program that encourages workers to set aside more of their own funds for retirement.

The Connecticut Mirror looked at a hypothetical pension.

The first examined the pension of a 65-year-old retiree, based on the $98,179 average salary of unionized Executive Branch employees in non-hazardous jobs with 30 years of experience.

At the oldest tier before 1988, the annual pension would have been $55,783.

Under the rules for people hired in 2017, the pension would be 30% less, or $39,156.

Governors and legislatures have also made similar changes to retirement health care through union franchise agreements.

Workers once contributed nothing, but now they all contribute at least 3% of their wages over 10 years. Employees hired after 2017 contribute 3% for 15 years.

In addition, to be eligible for this advantage, 15 years of experience is required, whereas previously 10 years of experience was required.

Benefit changes hurt state’s hiring efforts

For almost fifteen years, all staff have been asked to do more, while new workers have been offered lower pensions.

The Executive Branch workforce shrank more than 10% (more than 3,200 positions) from 2011 to 2018 as Malloy and the legislature frequently used attrition to reduce budget deficits.

Employment at government agencies continued to decline modestly in 2019 and 2020, Lamont’s first two years in office, according to data from the Office of Policy and Management. More than 4,400 senior workers retired Between January 1 and June 30, 2022, roughly double the average year’s retirements. Many workers have resigned to avoid new pension caps that will come into force in the second half of 2022.

While the Lamont administration says it is trying to reverse some of those losses, unions and many lawmakers say a growing number of state agencies are in staffing crisis.

Department of Transportation Commissioner Garrett Eucalitto he told CT Mirror last year Private sector competitors are a major obstacle to recruiting and retaining engineers.

The benefits agreement with Connecticut’s unions runs through mid-2027, about six months after the next legislative session ends. However, unions may not want to wait to see who will be the governor at that time. With Democrat Lamont in office until early January 2027, workers could seek to extend the deal in the next two legislative sessions.

Lamont’s budget spokesman, Chris Collibee, said the administration “believes the state government is an employer of choice.” “We have great employees and continue to attract great candidates for open positions.”

And while he added that “retirement benefits are one component of that appeal,” he declined to comment on the possibility of any contract extensions, stating that the administration would be responsible for negotiating such a deal.

Better retirement benefits have traditionally been the state’s primary recruiting tool against higher wages offered by private employers.

A study conducted in 2015 A report from the Boston College Center for Retirement Research warned that Connecticut’s pension spending on today’s workers has already fallen below the national average. And that was before the 2017 concession agreement weakened those benefits again.

“These sacrifices have hindered the effectiveness of the retirement system as a recruitment and retention tool, especially for employees entering the prime of their careers and comparing remaining in public service to higher-paying jobs in the private sector,” he said. Drew Stoner is a spokesman for the State Employees Bargaining Agent Coalition, which includes most bargaining units in state government. “There is no question that improvements must be made, especially given the state’s ongoing staffing shortages in many institutions.”

Staffing challenges are also straining the state’s overtime budget. According to impartial analysts, the state spent 301 million dollars overtime and in the 2023-24 fiscal year ending June 30. 305 million dollars the year before. That’s nearly 50% higher than the $204.4 million overtime bill they paid in 2017.

To date, no lawmakers have proposed increasing retirement benefits, but Rep. Emmanuel Sanchez, D-New Britain, warned that pensions and retiree health care cannot be further eroded without more serious damage to the programs.

“We want government services to reflect the overall value that we say we promote in Connecticut,” he added.

Old pension debt will burden CT finances in coming years

But others say things are more complicated than that.

Connecticut enters 2024 in debt More than $81 billion between debt and unfunded obligations tied to retirement benefit programs for state employees and municipal teachers, making it one of the most indebted states per capita in the country.

And this is despite a budget surplus of nearly $7.7 billion that lawmakers have funneled into retirement programs since 2017 through some very aggressive annual savings programs. Another $800 million from the 2023-24 surplus will go to pensions this fall.

Even if Connecticut gets more aggressive with its savings and its economy has unprecedented chances in the coming years, pension debt will likely weigh on state finances until the late 2030s or early 2040s, according to a recent analysis by the Hartford-based firm. Yankee Public Policy Institutea conservative policy group.

Rising retirement contribution costs were big factors behind massive tax increases and state budget deficits in the 2010s.

Yankee president Carol Platt Liebau said taxpayers and private sector workers in general still face a tougher road ahead than government employees.

“Decades of underfunding of pensions and collusion between union leaders and government officials have left taxpayers in the lurch,” he said, adding that households must contribute 10% to 12% of their earnings for retirement.

Over the past four fiscal years, unionized government workers have begun to shore up retirement debt as government savings programs Annual increases are around 4.5 percent.

Making things even more complicated was that Connecticut had stabilized retirement costs. Retiree health care program still passes hundreds of millions of dollars in today’s costs to future taxpayers.

For example, the state and its employees collectively paid $291 million in fiscal year 2021-22 to cover future retiree health care costs for today’s workers.

But program analysts say that if the goal is to avoid leaving expenses to future generations, the amount that needs to be paid upfront in 2021-22 is $906 million. And because that $615 million difference was left for the future, analysts estimated it would add another $516 million in interest costs.

“The government cannot always be insulated from the economic pressures taxpayers face,” said Liebau, who added that further pension reforms are needed, including removing overtime earnings from pension calculations.

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CT pension debate looms large in 2025 legislative session

Harry

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CT pension debate looms large in 2025 legislative session

Harry

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