State Pensions: Too Much, Too Little, Too Late?
Taking another look at data released this summer by the U.S. Census Bureau, you might think that Connecticut’s debt for public employee pensions is a case of too much, too little, too late.
That is, … are pension benefits too generous; do state employees contribute too little to their own pensions; and is it too late to fix the problem?
The Census Bureau’s statistics show that Connecticut offers the highest average per-retiree state employee pension benefit in the U.S., at $37,953.
And of the top five states for pension payouts, Connecticut’s state employees contribute the least amount into their pensions, as a percentage of benefits.
(It must be noted that Connecticut’s contribution percentage is not the lowest in the U.S.—it’s eighth-lowest.)
Exploring the issue from a regional perspective, the Connecticut Office of Legislative Research compared nine Northeast states.
OLR found that Connecticut state employees contribute from 0% to 2% of their salaries to the pension fund, compared with a range of from 5% to 12% for state employees in Massachusetts; 7% in New Hampshire; and 6.25% in Pennsylvania.
Add the fact that there’s a declining ratio of active Connecticut state employees who are contributing to the retiree funds (1.1 active pension members per state employee retiree or beneficiary in 2012, versus 1.4 active per retiree in 2008), the problem worsens.
Connecticut’s $23 billion pension debt is a huge problem. Standard and Poor’s says our per capita debt for public employee pensions is tied for sixth worst in the U.S., and represents 18.6% of personal income—yours, mine and everyone else’s in the state.
The State Employees’ Retirement System is only 42% funded, way below the recommended 80% level.
Recognizing the crisis, the Malloy administration has made inroads with reforms that include raising the retirement age for certain employees, increasing penalties for early retirement, reducing the cost of living adjustment, and revising final average salary calculations for new hires (part of the “too much”).
The state also increased its payments into the fund.
This should remind us that dealing with the massive cost of state employee retiree benefits is not about eliminating benefits or pensions, but doing something to make them more solvent.
What more can be done? Could Connecticut state employees contribute more to their retirement accounts?
That would help tackle the debt, bring Connecticut more in line with other states (and with the private sector), and help preserve good retirement benefits for state employee retirees.
More needs to be done, and it’s really not too late to make additional constructive changes. Policymakers just have to keep at it. We’ll have some other ideas for them in later posts.
For more information, contact CBIA’s Pete Gioia at 860.244.1945 or email@example.com.
Sources: U.S. Census Bureau data, CBIA calculations; Standard & Poor’s; Fitch Ratings, Center for Retirement Research, Public Fund Survey
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