Agreement with Union Leadership Makes Budget Inroads
The agreement Governor Malloy reached with union officials on state employee wages and benefits makes inroads into the kinds of structural changes that could make state government more affordable for Connecticut taxpayers in the long term.
Savings could total $21 billion over the next 20 years, according to the governor’s administration.
Among the most significant cost savings in the agreement are a two-year wage freeze, changes to retirement benefits and the introduction of a wellness-based healthcare plan.
In exchange, state employees receive job security until at least 2015, no furlough days, and regular wage increases after the two-year freeze. The state employee healthcare and retirement benefits agreement that was set to expire in 2017 will be extended to 2022.
More to come
Lawmakers earlier this month passed a $40.1 billion state budget that includes upwards of $2 billion in tax increases, some spending cuts, and a $2 billion gap to be filled by savings achieved through state employee concessions.
Changes to the union agreement are expected to save the state of $1.6 billion over two years, leaving roughly $400 million more in savings yet to be identified.
Without the concessions, Governor Malloy was prepared to lay off more than 4,700 state employees. He suspended layoff notices when the agreement was reached.
“Costs of failure to reach agreement could [have been] disastrous for state employees, the administration, and all Connecticut residents,” said a union memo to its members.
All of the state employee unions are reviewing the agreement and must vote to accept them. According to the union memo, the most important principle of the agreement was “maximizing the gain while minimizing the pain.”
Under the agreement, there will be no state employee layoffs for the next four years, at least until June 30, 2015; nor will there be any furlough days.
State employee wages will be frozen for two years, after which there will be a three-year period of 3% increases. Current employees will continue to receive longevity payments, with the one exception of a dropped payment in October 2011. Employees hired after July 1, 2011, will not receive longevity payments (unless they served in the military).
A significant change is the move to a “value-based healthcare” model emphasizes wellness and preventive care. Participating employees will commit to getting yearly physicals and other preventive care. Those who choose not to will pay higher insurance premiums and deductibles.
Pharmacy co-pays will increase to a $5/$10/$35 structure for most employees and new retirees, and the use of mail-order prescription drugs and greater use of generics will become mandatory. There also will be a new $35 emergency-room co-pay for visits that don’t result in hospital admissions—but only if a reasonable alternative to the ER was available.
Over time, the agreement will limit retiree healthcare eligibility to employees with at least 15 years of state service.
Changes in state employee retirement benefits are expected to result in long-term savings. These include:
- Changing the average earning formula (currently the average of the three highest paid years of services to five years for new employees)
- Minimum cost-of-living adjustments will be reduced from 2.5% to 2% (but maximum COLAs are increased from 6% to 7.5%).
After the agreement expires on July 1, 2022, the normal retirement age will be three years later (age 65 with 10 years of experience, and age 63 with 25 years).
Starting Sept. 1, 2011, pensions will be reduced by 6% for each year an eligible employee retires earlier than his or her normal retirement age. Currently, the reduction is 3%.
Starting in 2013, all employees will contribute 3% to the retiree healthcare trust fund.
For employees in the higher education system, the agreement introduces a hybrid defined benefit/defined contribution plan. Many other states are affecting savings by switching to a defined contribution plan similar to the 401(k) type of accounts found in the private sector, or introducing hybrids.
New state employees will have a less generous Tier III pension system.
For more information, contact CBIA’s Pete Gioia at 860.244.1945 or email@example.com.
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