Connecticut will spend more than a tenth of its budget this year on retirement benefits for past and present state employees.
Candidates say the program doesn’t come up often in forums or door-to-door canvassing with voters, but there’s a good chance next year’s General Assembly will vote on these benefits for the first time since 2017. be.
But while debate once centered on whether the pensions and health benefits Connecticut provides to retirees are too generous, repeated unionization efforts have come as some government agencies face staffing crises. There are growing concerns that these allowances have been significantly reduced through concession agreements.
“I don’t think there’s any question that many of the positions we’re hiring for…are well below the civilian market,” said Sen. Julie Kushner, D-Danbury, co-chair of the Congressional Labor and Civil Service Committee. said. “We’ve always thought that people would stay in the public sector because they had good benefits, and I think we’re seeing that really eroded.”
But House Majority Leader Vincent J. Candelora (R-North Branford) said it’s not just the quality of pensions and health care that has weakened over the past 20 years.
Connecticut taxpayers faced large tax increases in 2009, 2011, and 2015, with a smaller tax increase in 2019. And through most of the past two decades, funding for core programs has struggled to keep up with inflation.
“We are not at a sustainable stage,” Candelora said, adding that Connecticut still has high taxes and utility costs, making it difficult for many residents and small businesses to survive economically. Ta.
Legacy debt accounts for the largest share of pension costs
Connecticut has provided state employees with pensions since 1939 and retirement health insurance since 1978. Then, in the 1990s, Congress began to struggle to meet its costs.
Gov. John G. Rowland ended up negotiating a 20-year benefits contract with the union in 1997, but within a few years, lawmakers questioned whether the state was tied to a program it couldn’t pay for. I started hugging her.
But the biggest cost is never the benefit itself. It was the economic penalty that the Legislature and Governor would incur for irresponsible budgeting.
The state failed to make billions of dollars in pension contributions from 1939 to 2010, losing billions of dollars in potential investment income in the process. Connecticut continues to grapple with its legacy.
For example, the state plans to spend more than $2.4 billion this fiscal year, nearly 11% of its general fund, on pension contributions and health care costs for state employees.
A September analysis by the Pew Charitable Trusts that looked at pension spending for city teachers as well as state employees found that Connecticut spent the fourth-highest amount of all public sector payrolls among all states.
But the typical savings that cover current worker benefits is only $206.5 million, or 13% of this year’s $1.6 billion in state employee pension contributions.
The vast majority of costs are related to covering debts left by past generations.
From 1988 to 2017, the state cut retirement benefits four times to compensate for the governor’s and Legislature’s savings failures.
Gov. M. Jody Rell asked for benefit concessions in 2009, and his successor, Gov. Dannel P. Malloy, asked unions for help in 2011 and 2017. In exchange for each of the previous two benefits, the state gave them five years of benefits. The benefits contract has been extended and will expire on June 30, 2027.
New employees, who previously paid no pension at all, now contribute 5% of their salary in far smaller benefits, based on their lower average peak salary. This modern pension plan for workers is a hybrid, supplemented by a 401(k)-style program that encourages workers to put more of their own money toward retirement.
The Connecticut Mirror looked at hypothetical pensions.
The first examines pensions for 65-year-old retirees based on the median salary of $98,179 for unionized executive branch employees in non-hazardous positions with 30 years of experience. .
In the first phase, before 1988, the pension would be $55,783 per year.
Under the rules for people hired in 2017, their pensions would be reduced by 30%, or $39,156.
The governor and Legislature made similar changes to retiree health insurance through union concession agreements.
Previously, workers contributed nothing, but now everyone contributes at least 3% of their salary for 10 years. Employees hired after 2017 contribute 3% for 15 years.
You must also have 15 years of experience to qualify for this benefit, up from the previous 10 years.
Benefit changes hit state hiring efforts
All employees have been asked to pay more for nearly 15 years, while new employees are offered reduced severance pay.
Between 2011 and 2018, the executive branch workforce declined by more than 10%, with more than 3,200 positions eliminated, as Malloy and the Legislature made frequent cuts to reduce the budget deficit.
State agency employment continued to decline modestly in 2019 and 2020, Lamont’s first two years in office, according to data from the Office of Policy and Management. More than 4,400 senior workers left the company between January 1 and June 30, 2022, nearly double the number of departures in previous years. Many workers have since quit to avoid new pension benefit caps that will take effect in the second half of 2022.
While the Lamont administration says it is trying to reverse some of those losses, unions and many lawmakers say a growing number of state agencies are understaffed.
Department of Transportation Secretary Garrett Eucharit told CT Mirror last year that private competitors were a major obstacle to recruiting and retaining engineers.
Connecticut’s benefits contract with unions runs through mid-2027, about six months after the end of the next legislative term. But unions may not want to wait until who the governor is at that time. Lamont, a Democrat, is in office until early January 2027, and Labor could seek an extension to the deal at some point in the next two parliaments.
Lamont’s budget spokesman, Chris Colivy, said the government considers the state to be the “employer of choice.” We have a great workforce and continue to attract great candidates to our open positions. ”
“The severance package is also an attraction,” he added, but declined to comment on the prospect of a contract extension, saying the responsibility for negotiating such a contract rests with the administration.
Enhanced retirement benefits have traditionally been the state’s main recruiting tool to compete with the superior wages offered by private employers.
A 2015 study by the Boston University Retirement Research Center warned that active workers in Connecticut are already spending less on pension benefits than the national average. And that was before the 2017 concession agreement weakened those benefits again.
“These sacrifices hinder the effectiveness of pension plans as a recruitment and retention tool, especially for employees who are in the prime of their careers and are comparing continued employment in the civil service with higher-paying jobs in the private sector. ” he said. Drew Stoner is a spokesperson for the Federation of State Employee Bargaining Agents, which represents most bargaining departments in state government. “There is no question that improvements are needed, especially given the continued staffing shortages in many state agencies.”
Staffing issues also strain the state’s overtime budget. The state spent $301 million on overtime pay in the 2023-24 fiscal year that ended June 30, compared with $305 million the year before that, according to nonpartisan analysts. This is nearly 50% higher than the $204.4 million inflated OT bill in 2017.
No lawmaker has proposed strengthening retirement benefits so far, but Rep. Emmanuel Sanchez (D-New Britain) said pensions and retiree health benefits can be further undermined without further damaging the system. I warned him that it would not happen.
“We want our state services to reflect the overall values that we claim to promote in the state of Connecticut,” he added.
Legacy pension obligations will burden CT finances for years to come
But some say the situation is more complicated than that.
Entering 2024, Connecticut has more than $81 billion in bonded and unfunded obligations for state and municipal employee retirement plans, the highest per capita debt in the nation. It became one of the states.
And that’s despite the fact that since 2017, lawmakers have poured about $7.7 billion in budget surplus into pension programs through highly aggressive annual savings programs. An additional $800 million from the 2023-2024 surplus will be pumped into pensions this fall.
A recent analysis by the Hartford-based Yankee newspaper shows that even if the state becomes more aggressive in saving and the state’s economy enjoys unprecedented good fortune in the coming years, pension obligations will rise in the late 2030s. It is said that there is a high possibility that state finances will be under pressure from the early 2040s to the early 2040s. Public Policy Institute, Conservative Policy Group.
Rising pension contribution costs were a major factor in the large tax increases and national budget deficits in the 2010s.
Yankees President Carol Pratt Liebau said taxpayers and private sector workers in general still have a tougher road than state employees.
“Decades of pension shortfalls and backroom deals between union leaders and state officials have left taxpayers in the lurch,” she said, adding that households are struggling to prepare for retirement. It added that people would need to contribute 10-12% of their income.
Over the past four fiscal years, unionized state employees have received raises of about 4.5% annually as state savings programs have begun accumulating pension obligations.
Further complicating matters, while Connecticut has stabilized pension costs, its retiree health care program still passes hundreds of millions of dollars in current costs to future taxpayers. .
For example, the state and its employees paid a combined $291 million in fiscal year 2021-22 to cover the medical costs of future retirees of current employees.
But program analysts say the amount that needs to be paid upfront in 2021-2022 is $906 million, with the goal of leaving no burden on future generations. And that $615 million difference was left in the future, which analysts estimated would add an additional $516 million in interest costs.
“Governments cannot always be shielded from the economic pressures faced by taxpayers,” Liebau said, adding that further pension reforms are needed, including removing overtime pay from pension calculations.
