Gov. Dannel Malloy on Monday announced a change to Connecticut’s pension funding plan that he said will avoid a spike in the state’s obligation in fiscal 2032 and avert a potential crisis.
He wants to increase annual contributions by $125 million to make the plan fully funded by 2032.
Connecticut’s employee retirement system was funded at 48% as of last June 30, one of the lowest in the country, according to a report by Cavanaugh Macdonald Consulting LLC of Kennesaw, Ga. The Pew Center on the States, a Washington think tank, considers 80% an acceptable threshold.
Malloy’s move follows Friday’s downgrade by Moody’s Investors Service of the state’s general obligation bonds to Aa3 from Aa2. Moody’s, which revised its outlook to stable from negative, cited Connecticut’s high combined fixed costs for debt service and post-employment benefits relative to its budget, pension funding ratios among the lowest in the country, and depleted reserves.
Standard & Poor’s and Fitch Ratings each rate the state’s GO credit AA with a stable outlook.
According to Malloy, the restructuring will save the state nearly $6 billion over 20 years. Malloy aims for an 80% funding level by fiscal 2025 and 100% by 2032.
Starting in 2014, the Democratic governor says he wants the state to appropriate additional funds above the annually required contribution to reach the desired funding levels without having to make a payment of more than $2.05 billion. Under the current contribution plan, the state would have to pay $4.5 billion in fiscal 2032.
Additionally, Malloy wants to amend the spending cap to exclude pension contributions of more than the retired contribution.
The State Employees Bargaining Agent Coalition and the State Employee Retirement System must approve the changes.
Central to the change is reversing agreements former Gov. John Rowland made with unions in 1995 and 1997 that called for escalating payments in later years.
“For more than 20 years, the state relied on a series of gimmicks to hide the fact that our finances were a mess,” said Malloy, who added that “pie in the sky” planning led to the Moody’s downgrade.
State Sen. L. Scott Frantz, R-Greenwich, a ranking member of the General Assembly’s Banks Committee, said the downgrade should serve as a wakeup call for the state to get its finances in order.
“I consider it a gift from Moody’s that they didn’t downgrade our rating even further,” he said.