Connecticut was among the four worst states in 2010 for funding its employees”™ retirement benefits, according to a recent study by the Pew Center on the States.
The gap between what states promised to pay and what they had actually set aside was at least $1.38 trillion in 2010. In Connecticut, the state government was short $48 billion.
“It”™s been a fiscal challenge for states for a number of years,” said David Draine, a Pew senior researcher. “It”™s been a decade in the making as policymakers kicked the can down the road.”
Since 2010, however, many changes have been made to Connecticut”™s funding plans. A few years from now, things may look different.
In May, Gov. Dannel P. Malloy announced that the state had reduced its total liability for retiree health care benefits by roughly 40 percent, and in February the state enacted several significant changes to its pension plans, both ways to help close the funding gap. Under his plan, pensions will be fully funded by 2032.
“It”™s a solvable problem,” Draine said. “There are solutions (states) can pursue. But if they wait, it will become an unmanageable crisis. The sooner they do something, the easier it will be.”
Malloy says his plan will save taxpayers roughly $19 billion over the next two decades. For retiree health care plans, employees now have higher copays, increased service requirements and must pay into an insurance trust fund, among other things. For employees”™ pensions, there are new caps on salaries and cost of living adjustments and new hybrid pension plans for employees to pay into to receive accrued earnings.
“For more than 20 years, the state relied on a series of gimmicks to hide the fact that our finances were a mess,” said Malloy in a statement proposing the pension changes in January. “These tricks set us on a path that will require the state to contribute more than $4 billion in one fiscal year ”“ four times our current payment ”“ to fully fund the system if we stayed with the current plan. It was a pie-in-the-sky approach to future planning that has a real effect on the way we do business today.”
In the last three years 44 states have made substantial changes to their policies, said Ron Snell, a pension policy specialist for the National Conference of State Legislatures. Many of the states have made changes similar to Connecticut”™s. As for the other six states, they have either made changes or are making them now.
But will it all work? Snell says it”™s hard to tell.
“A lot of the problems plans currently face is due to the economy,” Snell said. Investments haven”™t held up and finances have been undermined because of it. “Whether or not what [states] are doing is adequate, is going to depend on what happens in the future with the economy ”¦ it”™s impossible to say.”
