Commission Explores Method to Shrink State’s Unfunded Pension Liability
The state’s unfunded pension liability will surely be discussed at length this election season, but a state commission created by the legislature is already at work this summer exploring ways to address the problem.
The Connecticut Pension Sustainability Commission is charged with studying “the feasibility of placing state capital assets in a trust and maximizing those assets for the sole benefit of the state pension system.”
CEA Retirement Specialist Robyn Kaplan-Cho serves on the commission, representing teachers. “Placing a state asset, such as the Connecticut lottery, into the Teachers’ Retirement Fund would dramatically reduce the state’s unfunded liability. That would allow the state to reduce its yearly payment into the fund since there would be less unfunded liability to pay off,” she says.
Jim Millstein of Millstein & Co., a financial services firm, told the commission that this approach would relieve some pressure on state budgets going forward, making it easier for elected officials to balance the budget. “It would also give credit rating agencies greater confidence that the state is getting its act together,” he said.
He said that transferring an asset such as the state lottery to the pension system would improve the state’s credit rating and ultimately lower borrowing costs.
Federal officials recognize that many states are facing a pension funding crises, Milstein added, and the idea of facilitating the transfer of state assets to pension plans is gaining traction. “I can tell you that every state in the union is now looking at this approach,” he said.
CEA has taken a lead in promoting a transfer of state assets such as the lottery to shore up the Teachers’ Retirement Fund. Last winter CEA Executive Director Donald Williams told the legislature’s Public Safety and Security Committee, “If structured correctly, this would utilize a public asset for a public purpose, significantly pay down the state’s unfunded pension liability, and correspondingly reduce the state’s yearly financial obligation.”
While a transfer of state assets to the pension system, if done properly, would serve the state well, there are those who seek to broaden the charge of the Pension Sustainability Commission, recommending increased retirement contributions for teachers, cuts to benefits, and other problematic proposals.
Kaplan-Cho says, “Teachers need to stand strong together, ready to fight back should any of these proposals gain traction. Legislators listen to their teacher constituents, especially when we speak with a united voice.”