Journal Inquirer

12/19/2007

Not ready to pay the bill, Conn ranks among worst at saving for public employee retirements
By Keith M. Phaneuf , Journal Inquirer

Connecticut is among the worst-prepared states in terms of saving money to cover retirement benefits for public employees, according to a study from one of the nation's leading nonprofit public policy groups.

The state faces a combined pension and health care obligation of almost $56 billion, and has set aside just $19 billion toward that responsibility, according to the Pew Center on States, a Philadelphia-based affiliate of the Pew Charitable Trusts.

The study unveiled Tuesday, titled "Promises with a Price," found that while states, on average, have socked away 85 percent of their pension obligations - and more than 70 percent when pension and health insurance obligations are considered - Connecticut ranks far below the national average.

The Pew report did cite recent efforts in Connecticut to reverse that trend, including a $2 billion initiative to bolster its statewide teachers retirement program and higher annual contributions to that fund in the last few years.

"Connecticut has double the trouble of most states: a severely underfunded pension system and some of the steepest bills in the country coming due for retirement health and other nonpension benefits," the report states.

Despite recent efforts, for many years the state contributed well below the level recommended by analysts to pension funds covering teachers and state employees, it adds.

In 2006, Connecticut's pension programs carried a liability of about $34 billion - the theoretical amount needed to cover the pension payments to all public school teachers, judges, and state employees if they retired simultaneously.
Though it isn't necessary to have a savings that matches the full liability, actuaries recommend about 80 percent as a healthy level. According to the Pew report, Connecticut stood at 56 percent in 2006.

Further complicating matters, the cost of providing health insurance to retirees was estimated at $21.7 billion, and the state hadn't reserved any money for that as of 2006.
Connecticut's 56 percent ratio in 2006 was matched by Rhode Island. Only West Virginia ranked lower, with 55 percent.

Connecticut also joined Illinois, Hawaii, Kentucky, and New Hampshire in seeing the worst drops in their funded ratios, the report states. Pension programs here were funded at 72 percent of liability in 2001. And it's one of four states that has saved almost nothing to cover retiree health benefit costs.

According to the report, it would cost each resident in Connecticut $5,000 to cover retiree health insurance costs.

The bleak outlook on Connecticut isn't mirrored in the assessments of many other states, however.

"From a national perspective, states' pension plans seem to be in reasonable shape," according to the Pew report.
All totaled, states can expect to pay out about $2.73 trillion over the next 30 years to retirees, including $2.35 trillion in pension payments and $381 billion in health benefits.

But while states, on average, have saved about 85 percent of the funds needed to meet those costs, there are some problems facing all states, even those that have saved well.

"Past experience indicates that good times may become perilous for the long-term health of pension systems," the report notes, adding that most depend heavily on sustained stock market growth, which is subject to fluctuations.
Further compounding the problem, health care costs are seeing double-digit growth, as Americans are living longer and requiring more care.

Connecticut has taken steps in recent years to reverse the trend.

It budgeted 100 percent of the recommended annual contribution to its teachers retirement fund each of the past two fiscal years, and the approved budgets for 2007-08 and 2008-09 call for that to continue.

The legislature and Gov. M. Jodi Rell also agreed this year to borrow $2 billion to dramatically reduce the unfunded liability in the teachers fund.

Rell further asked lawmakers to start a reserve account with $20 million for retiree health benefits. The legislature approved that account with $10 million.

"We are beginning to see a change," Rell's budget director, Office of Policy and Management Secretary Robert L. Genuario, said Tuesday, adding the governor has made shoring up the pension funds a priority since she took office in 2004.

"It is a problem of decades - literally decades - of bad budgeting habits," Genuario added. "We have been trying to change that, and I think the legislature has been responsive."

The Pew trusts also fund the Pew Research Center, the third-largest public policy group in Washington, D.C., after The Brookings Institution and the Center for American Progress.

The trusts are the sole beneficiary of seven charitable funds established between 1948 and 1979 by the children of Sun Oil Co. founder Joseph N. Pew.