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Actuary Sets Record Straight on Teacher Pensions

Misconceptions abound when it comes to teachers’ pensions, but today, in a presentation to the Pension Sustainability Commission, an actuary clarified that Connecticut teachers’ pension benefits are actually quite modest.

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.”

John Garrett, principal and consulting actuary at Cavanaugh Macdonald Consulting, shared findings from the March 2018 report of the Connecticut Teachers’ Retirement System Viability Commission.

Garrett compared Connecticut with 11 other state retirement systems that cover pension benefits to teachers who do not receive social security. “Connecticut has a fairly modest benefit when you look at other non-Social Security covered workforces,” he said.

While some other states have cut pension benefits to teachers in recent years, Garrett said those cuts have simply put their benefits on par with the benefits Connecticut teacher retirees receive. Due to the thriving economy of the 1990s, some states enhanced teachers’ pension benefits, only to have to cut the benefits back when the economy went south. Connecticut didn’t enhance teacher pension benefits during that period, and benefits here are therefore comparable or slightly below what other state’s teacher retirees receive.

“Retirement eligibility in Connecticut is a full 60 years of age and 20 years of service, or 35 years of service regardless of age,” Garrett said. Due to the child-rearing leave many teachers take, their effective average age at hire is mid-thirties—not the early, or mid-twenties as some might expect.

As for the percentage teachers pay toward their pensions, “Teachers are picking up a little more than half the normal costs of the plan, which is a really good metric compared to plans across the country,” Garrett said.

CEA Retirement Specialist Robyn Kaplan-Cho, who serves on the commission representing teachers, asked Garrett about a Boston College report that has been cited many times by the media and legislators. “The Boston College report said that the state might have to pay as much as $6.2 billion down the road toward the Teacher Retirement System, but from your report it sounds like that’s a pretty unlikely scenario.”

Garrett said that the Boston College report, which came out in 2015, used a look-back period that extended to 2000—a period of time that saw two major recessions—and therefore used a 5.5 percent anticipated rate of return.

“When we model future returns, $6.2 billion is possible, but it’s only 18 percent likely. It’s not very likely to cost that much,” said Garrett.

Costs are likely to be much lower to the state, and they will be lower still if the state decides to place an asset, like the state’s lottery system, into the Teachers’ Retirement System and/or reamortize its payments as the commission is discussing.

When asked by Commission Chair and State Representative Jonathan Steinberg about the consequences of gubernatorial candidate Oz Griebel’s plan to suspend pension contributions for several years, Garrett said, “If we defer payments to the pension fund interest is still going to accrue, just like on a house mortgage. Whatever is not paid today is going to cause increased payments in the future.”

Steinberg also wanted to know how the Teachers’ Retirement System would be affected were the state to contribute the $2 billion dollars expected to be in the state’s rainy day fund by year’s end.

Garrett said that that too could be compared to a mortgage on a home. “If you prepay your mortgage, you’ll have less interest to pay in the future. Those prepayments would go toward the principal. If the state were to put rainy day money into the Teachers’ Retirement System it could pay off the bond covenant and then reamortize the remaining payments, stabilizing the costs.”

The Pension Sustainability Commission will meet next on November 16 when State Treasurer Denise Nappier will present to the group.

Subscribe to BlogCEA for further updates on the commission’s work.

4 Comments
  1. Dennis kelly #

    We should get SS benefits we earned I have 40 quarters and only get 45 % of it ehy?

    November 5, 2018
  2. Nancy L. Jones #

    Thank you for the update. I taught for 45 years. That will likely be half of my life. I will need my pension more than ever in the coming years. Please FIX this mess soon. If you look back to when the state approved the lottery, the money was supposed to go to education, but instead it went to the state pot leaving education struggling. I did spend some of my own money for classroom items with very few people who knew this. I certainly could have used it for my family. I am now 70 years old and living off my pension. Prices have gone up, up, up…especially medication, insurance and taxes. We need to be able to live with dignity in our golden years.

    Nancy L. Jones

    November 2, 2018
  3. Lois Krushinsky #

    In Connecticut, We don’t get Social Security and if I didn’t teach 42 years and earn my pension, I couldn’t keep my house. Thank goodness, I get medicare because of my late husband’s job, but I pay for it out of my pocket. I also worked days and went to college at night so I would have three degrees. There was no Santa for me and I worked as a teenager on a farm picking cucumbers and cutting asparagus. While I was in college, I worked as a Chef’s assistant. The house tax, the state tax and the sales tax are very high in Connecticut.

    November 1, 2018
  4. Robert Trail #

    Is our retirement plan solvent, and will it be full for the future? I believe the funds deducted for it were invested rather than dumped into a general fund and spent by politicians, as social security was.

    November 1, 2018

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