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The debate over CT retiree benefits is rife in the 2025 legislative session

Online Niel October 30, 2024

Connecticut will devote more than a tenth of its budget this year to retirement benefits for state employees, past and present.

While candidates say it doesn’t come up frequently during forums or door-to-door conversations with constituents, there’s a good chance the next General Assembly will vote on these benefits in the upcoming term for the first time since 2017.

But while debate once focused on whether Connecticut was too generous with pensions and health care for retirees, there is growing concern, as some agencies grapple with staffing crunches, that those benefits have been severely reduced by repeated trade union concession agreements.

“I don’t think there’s any doubt that a lot of the positions we’re hiring for … well below the private market” in pay, said Sen. Julie Kushner, D-Danbury, co-chair of the Labor and Public Employees Committee of the legislature. “We’ve always assumed that people stayed in the public sector because of the good benefits, and I think we’re seeing that deeply eroded.”

But House Minority Leader Vincent J. Candelora, R-North Branford, said the quality of pensions and health coverage aren’t the only things that have been weakened over the past two decades.

Connecticut taxpayers faced major increases in 2009, 2011 and 2015, with a small range of increases in 2019. And for much of the past 20 years, funding for core programs has struggled to keep up with inflation.

“We’re not at a sustainable point,” Candelora said, adding that Connecticut remains a high-tax, high-utility state that makes economic survival difficult for many residents and small businesses.

Inherited debt is the biggest part of pension costs

Connecticut has offered state employees a pension since 1939 and retiree health care since 1978. And by the 1990s, legislatures were struggling to meet the costs.

Gov. John G. Rowland would negotiate a 20-year benefits contract with the unions in 1997, and within a few years lawmakers and others began to question whether the state had become bogged down in unaffordable programs.

But the biggest cost was never the benefits themselves. It was the financial penalties that legislators and governors would bear through irresponsible budgeting.

The state defaulted on billions of dollars in pension contributions between 1939 and 2010, losing billions of dollars in potential investment earnings in the process — a legacy of debt that Connecticut still faces today.

For example, the state will spend more than $2.4 billion this fiscal year, nearly 11 percent of the General Fund, on pension and health care contributions for state workers.

A review from September by the Pew Charitable Trusts, which examined pension spending — not just for state employees but also for municipal teachers — found that Connecticut’s spending was fourth among all states as a share of total public sector wages.

But only $206.5 million or 13% of this year’s $1.6 billion contribution to state employee pensions, represents the normal savings to cover benefits for current workers.

Most of the costs involve covering the debts left by past generations.

Between 1988 and 2017, the state cut pension benefits four times to compensate for this failure of governors and legislatures to save.

Gov. M. Jodi Rell sought benefit concessions in 2009, and her successor, Gov. Dannel P. Malloy, asked unions for help in 2011 and 2017. In exchange for each of the last two rounds of refunds, the state granted a five-year . benefits agreement extensions, which now expire on June 30, 2027.

New workers, who once paid nothing into pensions, now contribute 5% of wages to a much smaller benefit based on a lower average of peak wages. This newest retirement plan for workers is a hybrid, complete with a 401(k)-style program that encourages workers to set aside even more of their own funds for retirement.

The Connecticut Mirror looked at a hypothetical retirement.

The first, based on an average salary of $98,179 for unionized Executive Branch workers in nonhazardous jobs with 30 years of experience, examined the pension for a retiree at age 65.

Under the oldest tier, which dates back to before 1988, the annual pension would be $55,783.

Based on the rules for people employed in 2017, the pension would be 30% lower, or $39,156.

Governors and legislatures have also made similar changes, through union concessions, in the area of retiree health care.

Workers used to contribute nothing, but now they all contribute at least 3% of their salary for 10 years. Employees hired after 2017 contribute 3% for 15 years.

And it also takes 15 years of experience to qualify for this benefit, up from 10 previously.

Changes in benefits affect the state’s recruiting efforts

While newer workers have been offered reduced retirement benefits, all employees have been asked to do more for nearly a decade and a half.

The workforce in the Executive branch was cut by more than 10 percent from 2011 to 2018 — more than 3,200 positions — as Malloy and the legislature frequently used attrition to alleviate budget shortfalls.

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 have retired between 1 January and 30 June 2022, roughly double the pensions of an average year. Many workers resigned then to avoid the new pension caps that came into effect in the second half of 2022.

And 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 in a staffing crunch.

Department of Transportation Commissioner Garrett Eucalitto he told CT Mirror last year that private sector competitors are a major obstacle to the recruitment and retention of engineers.

Connecticut’s benefits contract with its unions runs through mid-2027, about six months after the end of the next legislative term. But unions may not want to wait to see who the governor will be at that time. With Lamont, a Democrat, in office until early January 2027, labor could try to extend the deal sometime in the next two legislative sessions.

Lamont budget spokesman Chris Collibee said the administration believes state government “is an employer of choice. We have great employees and continue to attract great candidates for open positions.”

And while he added that “retirement benefits are a component of that” appeal, he declined to comment on the prospects for any contract extension, noting that the administration would be responsible for negotiating such a deal.

Better retirement benefits have traditionally been the state’s main recruiting tools to counter higher wages offered by private employers.

A 2015 study from Boston College’s Center for Retirement Research warned that Connecticut spending on retirement benefits for current workers has already fallen below the national average. And that was before a 2017 concessions deal weakened those benefits again.

“These sacrifices have hindered the effectiveness of the pension system as a recruitment and retention tool, particularly for employees entering the peak of their careers and comparing continued public service with often better-paying jobs in the private sector,” it said. Drew Stoner, spokesman for the State Employees Bargaining Agent Coalition, which includes most bargaining units in state government. “There’s no doubt that improvements need to be made, especially in light of the state’s continued staffing shortages in many agencies.”

Staffing challenges are also straining the state’s overtime budget. According to non-partisan analysts, the state spent $301 million on overtime in the 2023-24 fiscal year, which ended June 30, and $305 million a year earlier. That’s nearly 50% higher than the $204.4 million OT bill it racked up in 2017.

No lawmakers have proposed increasing pension benefits so far, but Rep. Emmanuel Sanchez, D-New Britain, has warned that pensions and health care for retirees cannot erode further without further damaging the programs.

“We want state services to reflect the overall value we say we encourage in Connecticut,” he added.

The legacy pension liability will weigh on CT finances for years to come

But others say it’s more complicated than that.

Connecticut entered 2024 due to over 81 billion dollars between the obligated debt and unfunded liabilities for its state employee and municipal teacher pension programs, making it one of the most indebted states, per capita, in the nation.

And that’s despite about $7.7 billion in surpluses by lawmakers that were funneled into pension programs in 2017 through very aggressive annual savings programs. Another $800 million of the 2023-24 surplus will go into pensions this fall.

Even if Connecticut gets more aggressive with its savings — and its economy enjoys unprecedented good fortune in the coming years — pension debt is likely to strain the state’s finances by the late 2030s or early 2040s, according to a recent analysis made by the Hartford company. Yankee Institute for Public Policya conservative political group.

Rising pension contribution costs were major factors behind the large tax increases and state budget deficits of the 2010s.

Carol Platt Liebau, Yankee president, said taxpayers and private sector workers in general still had a tougher road ahead than state employees.

“Decades of pension underfunding and backroom deals between union leaders and state officials have left taxpayers on the hook,” she said, adding that households must contribute 10 percent to 12 percent of their earnings toward retirement.

Over the past four fiscal years, as state savings programs began to support the pension debt, unionized state employees received annual increases of approximately 4.5%.

Further, complicating matters, while Connecticut has stabilized its pension costs, it is the retiree health care program still shifts hundreds of millions of dollars in current costs onto future taxpayers.

For example, the state and its employees collectively paid $291 million in fiscal year 2021-2022 to cover the health care costs of future retirees of current employees.

But program analysts say the amount that needed to be paid upfront in 2021-2022 — if the goal was to leave no costs for future generations to cover — was $906 million. And because that $615 million difference was left for the future, analysts estimated it would add another $516 million in interest costs.

“Government cannot always be insulated from the economic pressures facing taxpayers,” said Liebau, who added that more pension reform is needed, including removing overtime earnings from the pension calculation.

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