A new agreement with the State Employees Bargaining Agent Coalition (SEBAC) will provide Connecticut with hundreds of millions of dollars in budgetary relief over the next decade, according to Gov. Ned Lamont.
The agreement means that the administration has achieved the pension savings reflected in the fiscal year 2020-21 biennial budget that Lamont signed into law last month. According to the governor, it will result in a budgetary savings in the general fund for each fiscal year through 2032 of between $115 million and $121 million. It will also create a savings in the special transportation fund of $15.7 million in FY2020 and $19.7 million in FY2021.
Additionally, current statute requires that once the budget reserve fund equals 15% of the general fund budget, which is anticipated by the end of FY2021, any additional surplus funds would be directed to paying down the unfunded liability of the State Employees Retirement Fund or the Teachers’ Retirement Fund – in addition to required contributions – or to pay down outstanding debt.
“This is a good day for Connecticut as we continue making significant strides that are stabilizing our state’s finances and addressing our fixed costs,” Lamont said. “The pension liability we face is decades in the making and will take decades to resolve. I remain committed to funding this commitment in a financially reasonable manner.”
“This executed agreement honors the spirit of the original agreement transitioning to a level-dollar amortization while flattening the trajectory of the state’s annual employer share of our pension costs without affecting benefits for any current or future employees,” Office of Policy and Management Secretary Melissa McCaw said. “This will allow the state significantly more sustainability in budgeting, honoring our commitment while in alignment with revenue growth, which is helpful in the near term and for the decades ahead.
“Connecticut has faced pension problems for generations,” McCaw continued, “and the agreement announced today is in furtherance of the state’s commitment to a sustainable financial path while working towards a healthier and well-funded retirement system for our employees. I thank SEBAC for their leadership and coming to the table so we can could reach this win-win agreement to honor the State Employees Retirement System and help stabilize our state’s finances consistent with the enacted budget.”
Under the agreement, the transition to a “level dollar” actuarially determined employer contribution (ADEC) is maintained and the entire pension liability is fully funded by 2047, consistent with the original agreement. The only change is that the pension liability attributable to those pensions earned as of 1984 will be fully funded by 2047 instead of by 2032 under the current plan.
That provides the state with a flat ADEC for the majority of the years leading up to 2047, which the governor’s administration said was critically important in maintaining the state’s commitment to funding such pension liability and balancing fiscal resources.
The administration will submit the agreement to the General Assembly for its approval, as state statutes contemplate such submission if an amendment to a prior agreement has additional costs, even though in this case the near-term cost impact is to achieve savings. However, the governor’s office said, there is an opportunity cost to the lower annual ADEC.
“I refuse to take a passive approach and sit on the sidelines when faced with the need to make reasonable adjustments to address the state’s structural deficits,” Lamont said.
In another remark presumably aimed at Republican Senate Minority Leader Len Fasano – who had derided the $43.4 billion budget as out of balance, partly as it counted on labor concessions “yet to be agreed upon in concept, let alone achieved” – Lamont said, “Some may have doubted our ability to achieve the budgeted pension savings, but here we are, and I am sure even they will enthusiastically agree that today’s news positions our state on firmer financial ground well into the next decade.”
Fasano and fellow Republican leaders had no immediate comment on the announcement.