State Study: State Employee Benefits Better Than Most

Facing ongoing budget struggles, Connecticut policymakers should leave no stone unturned when it comes to reining in state spending. A new state study suggests an area where they could take a closer look.

This week, the Office of Legislative Research (OLR) released a study showing that several state employee benefits in Connecticut are easily more generous than those in most of our neighboring states.

OLR compared Connecticut with the five other New England states and New York, New Jersey, and Pennsylvania, in employee pension contribution rates, number of years used to determine pension benefits, whether overtime pay is included in pension benefit calculations, and prescription drug co-pays.

In two of those categories, pension contributions and 90-day drug co-pays, state employees in Connecticut contribute the least.

For the other categories, benefits in some states were roughly equivalent to Connecticut’s, but none were better.

It’s difficult but shouldn’t be out of bounds for policymakers to negotiate to further modify state employee retiree benefits to bring them closer in line with what other states are offering.

Pension contributions

Connecticut state employees contribute from 0% to 2% of their salaries toward their pensions. In New York, certain tiers of employees (those with the most years of service) also contribute 0%, but the percentage bumps up to 3% and as much as 6% for the newest employees.

Elsewhere, state employees contribute much more—for example, a range of 5% to 12% in Massachusetts; 7% in New Hampshire; and 6.25% in Pennsylvania.  

With Connecticut state employees contributing such a modest amount to their pensions, taxpayers have to bear much more of the burden of state employee retirement accounts than do residents in other states.

That’s a strain on our state budget and can impact funding for other critical programs and services.

Pension Salary Calculations

Defining what compensation is included in state employee pensions also has a lot to do with what taxpayers have to fund.

Connecticut has traditionally averaged a retiree’s three highest paid years when determining the retiree’s final average salary, but that recently changed to the more conservative five highest paid years for the most recently hired employees.

Most other states also have moved to the five-year calculation, and Rhode Island has pushed it much farther, to 10 years.

However, Connecticut and five other states also include overtime in the calculations, while three—Massachusetts, Rhode Island, and New Jersey—do not.

Drug Co-Pays

All of the states provide a three-tiered system for prescription drug co-pays. For a 30-day supply, Connecticut state employees pay $5 for generics, $20 for brand-name, and $35 for more expensive brands. In most cases, employees in other states pay more.

That changes with 90-day co-pays, where Connecticut state employees pay a $5/$10/$25 split. Most other states’ employees pay much more for their co-pays. In Rhode Island, for example, the split is $10/$40/$80. In Massachusetts, it’s $20/$50/$110.

Taxpayer Burden

A recent study of state unfunded pension liabilities conducted by Barron’s magazine placed Connecticut last in the Northeast in its unfunded pension liability to GDP ratio. We also rank  fourth from last in the country at large, coming in just ahead of Kentucky, New Mexico, and Illinois.

Combined with the state’s high debt to GDP ratio, however, Barron’s ranked Connecticut’s long-term fiscal situation as the worst in the nation.

Policymakers need to address Connecticut’s fiscal challenges as aggressively as possible in order to keep the budget within our means to support it. That will not only restore fiscal responsibility but also boost business confidence, job creation, and economic strength.

For more information, contact CBIA’s Pete Gioia at 860.244.1945 or pete.gioia@cbia.com.