Malloy: Union Agreement Will Help Avoid Pension Fiscal Cliff

Governor Dannel Malloy and the State Employees Bargaining Agent Coalition reached an agreement Friday that will help prevent the dreaded pension “fiscal cliff.”

Connecticut has an unfunded pension liability of $15 billion due to years of lower than anticipated returns, insufficient contributions and legacy costs, Malloy said.

“Connecticut’s pension liability has been building since 1939 and a single generation of taxpayers should not be responsible for resolving the entirety of the problem,” he said.

Malloy increased state pension contributions by 44 percent in an effort to get them closer to fully-funded when he took office. As of June 30, 2014 SERS was funded at 41.5 percent, among the lowest in the nation for state employee retirement systems. Up until 1971 the state had a pay-as-you-go system for paying out pension obligations.

Without the agreement pension contributions for the state would’ve increased to between $4 billion and $6 billion per year in the 2030’s. Connecticut’s total current state budget is less than $20 billion.

Instead, contributions to the account will remain between $1.5 billion and about $2.3 billion over the course of the agreement, said Ben Barnes, Office of Police Management secretary. That will provide more stability to the budget process in the years ahead.

Senate Republican Leader Len Fasano said Democrats failed to address the issue over the past six years when they had control of the legislature and governor's seat.

“This is an incomplete bailout of a pension system that’s completely out of control," Fasano said. "Simply refinancing our debt is not the structural change we need to change the direction of our state. This package will add billions of dollars in new costs onto taxpayers beyond what is reflected in the governor’s summary."

He called on the plan to come before the legislature for a vote.

“Standard & Poor’s has already raised concerns about proposals to increase and extend unfunded liabilities," he said. "If this credit rating agency didn’t like this idea the first time they heard it, what makes anyone think they will view it differently now? This could prompt further downgrades, which could put all our state’s borrowing at risk."

“This agreement does not alter employee benefits or employee contributions in any way – it simply allows the state to fully fund its obligations at realistic amounts that will end with Connecticut resolving the unfunded liability and emerging with a system that is fully funded,” Malloy said.

The amortization period for unfunded liabilities was moved to a near 30-year period. The date for a portion of the shortfall was moved from 2032 to 2046, which will prevent drastic spending cuts or very high tax increases.

Assumed returns on investments were reduced from 8 percent to 6.9 percent, which will help in market downturns.

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