Report: Reduce Retirement Benefits - Hartford Courant
January 28,
2011|By MARA LEE,
maralee@courant.com, The Hartford
Courant
Connecticut should reduce its retirement benefits for
state employees, following the lead of other states, according to a report by a
private group released Friday.
The report by the Connecticut Regional Institute for the
21st Century pegged unfunded pension and retiree medical benefits at $41.9
billion, using an estimate from the National Association of State Budget
Officers.
Review the
Report at … http://ctregionalinstitute.files.wordpress.com/2011/01/pensions_fullppt.pdf
Estimates vary widely. The Pew Center
on the States, which did a similar roundup of how states are reducing their
retirement benefits, said in November that Connecticut's liability was $34 billion.
Connecticut pays for retiree medical benefits as they're
incurred, out of operating revenue, so it's unfunded by design. The state sets
aside money for the future pension obligations.
The state's own accounting shows
that the shortfall between pre-funding and pension obligations has grown
rapidly, from $9.2 billion in June 2008 to $11.7 billion in June 2010, the most
recent data available.
The new report criticizes Connecticut for not doing more to cut
retiree benefits, or increase employee contributions, as other states have
done. For instance, Pew reports that seven states have reduced the
cost-of-living adjustments to future pensions (and one did the same to current
pensions). Seven other states changed how an employee's final salary is calculated,
typically stretching the average from three years to five years.
The state already requires new hires to contribute 3
percent of their pay toward their pensions, but only for the first 10 years
with the state. The report's authors say that is not enough, given that Connecticut has one of
the biggest shortfalls between what it has promised and what it has put aside.
According to the state comptroller's office, the average
pension of the state's nearly 42,000 retirees is $30,252. There are just over
50,000 state employees who will draw pensions after retirement. Their average
salary is $65,829.
Larry Dorman, spokesman for the largest union
representing state workers, was not receptive to the report's recommendations.
"We all acknowledge we're in an economic crisis, but that crisis was not
caused by state correctional officers, or clerical workers or social
workers," he said.
The report says that the state should make its
compensation comparable to the private sector, which rarely offers pensions these
days, instead, contributing to 401(k) plans. Alaska and Michigan no longer
offer pensions to state workers, but all other states do.
The report does not explicitly say the state should stop
offering pensions, but said new employees should either have a 401(k) or a
hybrid plan.
"These are a series of recommendations only a Wall
Street financier or a big bank or a big corporation could love," said
Dorman, with the American Federation of State, County and Municipal Employees.
"It is premised entirely on driving down and weakening what's left of the
middle class in Connecticut."
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Peter Gioia, one of two
steering committee members from the Connecticut Business and Industry
Association, said the report does not recommend that all eight ways the state
could cut pension coverage or three ways it could reduce retiree medical costs
should be implemented.
"I think they should seriously consider doing more
than half of them," he said.
The institute was formed in the late 1990s to give
businesses input into public policy questions.
One idea is that the state should give cost-of-living
increases for future retirees. That's more radical than other states' actions
on COLAs.
But given that unions would have to agree to decreases,
how likely are these recommendations to become reality?
"I don't know that I can answer that," said Jim
Torgerson, chairman of the steering committee.
"I think the state needs to sit down with the unions and talk about these things."
Torgerson, chairman of United Illuminating's parent
company, said his own company stopped offering pensions for those hired since
2005, instead providing a 401(k). In that kind of arrangement, the worker
shoulders the investment risk.
Current retirees can't have their pensions changed, by
law, but Gioia said pension rules for current workers
can and should be modified so that education, public safety and social services
aren't squeezed and taxes aren't raised to pay for retiree benefits.