Pension Sustainability: Connecticut

Analysis of Connecticut's policies

As of June 30, 2010, the most recent date for which an actuarial valuation is available, Connecticut's pension system for teachers is 61.42 percent funded and has a 25.3-year amortization period. This means that if the plan earns its assumed rate of return and maintains current contribution rates, it would take the state more than 25 years to pay off its unfunded liabilities. While its amortization period meets regulatory requirements, Connecticut's funding level is exceptionally low. The state's system is not financially sustainable according to actuarial benchmarks.

In addition, Connecticut commits excessive resources toward its teachers' retirement system. The current employer contribution rate of 19.2 percent, which is paid by the state, is too high. This rate is set by statute, which requires the employer contribution to cover the normal cost rate in excess of the active member contribution rate and the additional amount necessary to amortize the unfunded liability within specific timelines. While this rate allows the state to pay off liabilities within the required 30-year period, it does so at great cost, precluding Connecticut from spending those funds on other, more immediate means to retain talented teachers. The mandatory employee contribution rate of 7.25 percent is reasonable considering that teachers are not also making contributions to Social Security.

Citation

http://www.ct.gov/trb/lib/trb/formsandpubs/actuarial_valuation_rep_2010.pdf

Recommendations for Connecticut

Ensure that the pension system is financially sustainable.
The state would be better off if its system was over 95 percent funded to allow more protection during financial downturns. However, Connecticut should consider ways to improve its funding level without raising the contributions of the state and teachers. In fact, the state should work to decrease employer contributions. Committing excessive resources to pension benefits can negatively affect teacher recruitment and retention. Improving funding levels necessitates, in part, systemic changes in the state's pension system. Goals 4-G and 4-I provide suggestions for pension system structures that are both sustainable and fair.

State response to our analysis

Connecticut contended that the analysis and conclusion are incorrect but did not offer any additional explanation. The state added that the recommendations will not lead to retirement security for Connecticut teachers.