Pension Panel Hears More Options for Controlling Costs
A state panel charged with getting control of Connecticut’s burgeoning state retiree pension and benefit costs recently heard options for the potential sale or lease of state properties to fund those expenses.
The Commission on Pension Sustainability held its third meeting Sept. 7, focusing on the in-kind contributions concept, and heard from Michael Bennon of the Stanford Global Projects Center, and Frank Chin and Charles Dufresne of American Public Infrastructure LLP.
Bennon explained how the Australian state of Queensland used what’s known as concession financing to fund its pension system by hiring a private company to operate a 43-mile network of toll roads.
Like Connecticut, Queensland, in northeast Australia, had large pension deficits that downgraded its bond rating, so it advertised for bids from private companies to operate toll roads.
The Queensland Investment Corporation, a government-owned authority that manages the state’s pension system, sold the concession to a private company for $1.8 billion over 40 years.
The deal enabled the Queensland government to draw value from the toll road system by selling the concession while still maintaining ownership.
Valuing State Assets
But determining the value of that concession is difficult as the disparity among the bids for the Queensland project showed. The rate of growth of overall liabilities far exceeds employee and employer contributions and the rate of return on investments.
Commissioners have said they are considering the possible sale of state-owned real estate and other assets, including the Connecticut Lottery Corporation, to shore up underfunded pension funds.
The commission is charged with making recommendations to the state legislature for addressing billions of dollars in unfunded pension liabilities.
Asset or in-kind contributions also may free up funds for infrastructure projects.
The rate of growth of overall liabilities far exceeds employee and employer contributions and the rate of return on investments.
Members also heard from Michael Imber, managing director of Eisner/Amper and a commission member, on the transfer of assets, also known as a legacy obligation trust, described as a "new approach to solving the underfunded municipal pension and retiree healthcare problem" in the U.S.
Under that plan, a government entity makes an in-kind contribution of real assets—such as land, buildings, or infrastructure—to a professionally and independently managed trust for the benefit of one or more underfunded municipal pensions and retiree health plans.
The trust then issues certificates of trust, much like shares of stock, and divides them among the various pension and benefit funds the government entity sponsors.
The government entity's benefits include:
- An immediate credit against its unfunded liability based on the fair market valuation of the assets contributed to the trust
- The funded ratio of pensions and other benefits increase, which may improve how credit rating agencies assess the government entity
- An immediate, positive cash-flow impact on the government's budget as the "catch-up" payment for the underfunding goes down
- The independent, professional manager is motivated to create additional value to further increase the pensions’ funded ratio.
Other Potential Options
The commission previously discussed other options, including:
- Moving retirement benefits and funding for state and municipal employees from collective bargaining to the legislature and local government upon a re-opening of the state employee contract agreement or the expiration of the current agreement in 2027
- Requiring the state comptroller to certify that state officials are making realistic assumptions on investment return rates
- Having a private panel of experts analyze how the 2017 state employee contract agreement compares to other states and private plans, and whether it allows the state to remain competitive
It's bad enough that Connecticut has one of the worst-funded employee pension plans in the nation.
But worse is that the rate of growth of overall liabilities far exceeds employee and employer contributions and the rate of return on investments.
The commission will meet again Sept. 21. The focus will be on economic development implications and opportunities, and will feature a more in-depth presentation by Imber.
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