Connecticut will dedicate more than a tenth of its budget this year toward retirement benefits for state employees, past and present.
While candidates say it doesn’t come up frequently during forums or door-to-door chats with voters, there’s a good chance the next General Assembly will vote on these benefits in the coming term for the first time since 2017.
But while debates once centered on whether Connecticut was too generous with the pensions and health care offered to retirees, there’s growing concern, as some agencies grapple with staffing crises, that these benefits have been whittled down severely through repeated union concessions deals.
“I don’t think there’s any question that many of the positions we hire … as well below the private market” in salary, said Sen. Julie Kushner, D-Danbury, co-chairwoman of the legislature’s Labor and Public Employees Committee. “We’ve always assumed people stayed in the public sector because of the good benefits, and I think we’re seeing that is deeply eroded.”
But House Minority Leader Vincent J. Candelora, R-North Branford, said the quality of pensions and health coverage aren’t the only things that have been weakened over the past two decades.
Connecticut taxpayers faced major hikes in 2009, 2011 and 2015, with a small array of increases in 2019. And throughout much of the past 20 years, funding for core programs has struggled to keep pace with inflation.
“We are not at a sustainable point,” Candelora said, adding that Connecticut remains a high-tax, high-utility-cost state that makes it difficult for many residents and small businesses to survive economically.
Legacy debt is the largest share of pension costs
Connecticut has offered state employees a pension since 1939 and retirement health care since 1978. And by the 1990s, legislatures began struggling to meet the costs.
Gov. John G. Rowland would negotiate a 20-year benefits contract with unions in 1997, and within a few years lawmakers and others began to question whether the state had locked itself into unaffordable programs.
But the biggest cost was never the benefits themselves. It was the financial penalties that legislatures and governors would incur by irresponsible budgeting.
The state failed to make billions of dollars in pension contributions between 1939 and 2010, forfeiting billions of dollars in potential investment earnings in the process — a legacy of debt Connecticut still grapples with now.
For example, the state will spend more than $2.4 billion this fiscal year, almost 11% of the General Fund, on pension contributions and health care for state workers.
A September analysis by the Pew Charitable Trusts, which examined spending on pensions — not just for state employees, but also for municipal teachers — found Connecticut’s expenditures ranked fourth-highest among all states as a share of overall public-sector payroll.
But only $206.5 million, or 13% of this year’s $1.6 billion contribution to the state employees’ pensions, represents the normal savings to cover benefits for present-day workers.
The overwhelming bulk of the cost involves covering the debt left by past generations.
Between 1988 and 2017, the state has whittled down retirement benefits four times to offset this failure of governors and legislatures to save.
Gov. M. Jodi Rell sought benefits concessions in 2009, and her successor, Gov. Dannel P. Malloy, asked unions for help in 2011 and 2017. In exchange for each of the last two rounds of givebacks, the state granted five-year extensions to the benefits deal, which now expires June 30, 2027.
New workers, who once paid nothing toward their pensions, now contribute 5% of their salaries toward a much smaller benefit based on a smaller average of peak salaries. This newest pension plan offered workers is a hybrid, complemented by a 401(k)-style program that encourages workers to set aside even more of their own funds for their retirement.
The Connecticut Mirror looked at a hypothetical pension.
The first, based on a median salary of $98,179 for unionized, Executive Branch workers in non-hazardous jobs with 30 years of experience, examined the pension for a retiree at age 65.
Under the earliest tier, which pre-dates 1988, the annual pension would be $55,783.
Based on the rules for people hired in 2017, the pension would be 30% less, or $39,156.
Governors and legislatures also have made similar changes, through union concessions deals, to retirement health care.
Workers once contributed nothing, but now all contribute at least 3% of their pay for 10 years. Employees hired after 2017 contribute 3% for 15 years.
And it also takes 15 years of experience to qualify for this benefit, while it previously required 10.
Benefits changes taking a toll on state’s recruiting efforts
While newer workers were being offered diminished retirement benefits, all staff have been asked to do more for nearly a decade and a half.
The Executive Branch workforce shrank more than 10% from 2011 through 2018 — more than 3,200 positions — as Malloy and the legislature frequently used attrition to mitigate budget deficits.
State agency employment continued to shrink modestly in 2019 and 2020, Lamont’s first two years in office, according to data from the Office of Policy and Management. More than 4,400 senior workers retired between Jan. 1 and June 30, 2022, roughly double the retirements of an average year. Many workers stepped down then to avoid new pension benefit caps that took effect in the second half of 2022.
And while the Lamont administration says it is trying to reverse some of these losses, unions and many legislators say increasing numbers of state agencies are in a staffing crisis.
Department of Transportation Commissioner Garrett Eucalitto told the CT Mirror last year that private-sector competitors pose a big obstacle to recruiting and retaining engineers.
Connecticut’s benefits contract with its unions runs through mid-2027, about six months after the next legislative term ends. But unions may not want to wait to see who the governor at that time will be. With Lamont, a Democrat, in office through early January 2027, labor may seek to extend the deal sometime in the next two legislative sessions.
Lamont’s budget spokesman, Chris Collibee, said administration believes state government “is an employer of choice. We have great employees and continue to attract great candidates for open positions.”
And while he added that “retirement benefits are one component of that” attractiveness, he declined to comment on the prospects of any contract extension, noting the administration would be responsible for negotiating any such agreement.
Better retirement benefits traditionally have been the state’s chief recruiting tools to counter superior wages offered by private employers.
A 2015 study from the Center for Retirement Research at Boston College warned that Connecticut spending on pension benefits for present-day workers already had slipped below the national average. And that was before a 2017 concessions deal weakened those benefits again.
“These sacrifices have hampered the effectiveness of the pension system as a recruitment and retention tool, especially for employees who are entering the prime of their career and are comparing a continuation in public service against often higher-paying jobs in the private sector,” said Drew Stoner, spokeswoman for the State Employees Bargaining Agent Coalition, which includes most bargaining units in state government. “There is no question that improvements must be made, especially in light of the state’s ongoing staffing shortage across many agencies.”
The staffing challenges also are straining the state’s overtime budget. According to nonpartisan analysts, the state spent $301 million on overtime in the 2023-24 fiscal year, which wrapped June 30, and $305 million the year before that. That’s nearly 50% higher than the $204.4 million OT bill they ran up in 2017.
No legislators have proposed beefing up retirement benefits to date, but Rep. Emmanuel Sanchez, D-New Britain, warned that pensions and retiree health care can’t erode any more without doing even more serious damage to programs.
“We want state services to reflect the overall value that we say we encourage in Connecticut,” he added.
Legacy pension debt will burden CT finances for years to come
But others say things are more complicated than that.
Connecticut entered 2024 owing more than $81 billion between bonded debt and unfunded obligations to its retirement benefit programs for state employees and for municipal teachers, making it one of the most indebted states, per capita, in the nation.
And that’s despite roughly $7.7 billion in budget surplus dollars legislators funneled into pension programs since 2017 via some very aggressive annual savings programs. Another $800 million from the 2023-24 surplus is going into pensions this fall.
Even if Connecticut gets more aggressive with its savings — and its economy enjoys unprecedented good fortune in the years to come — that pension debt likely will pressure state finances into the late 2030s or early 2040s, according to a recent analysis by the Hartford-based Yankee Institute for Public Policy, a conservative policy group.
Rising pension contribution costs were big factors behind the big tax hikes and state budget deficits of the 2010s.
Carol Platt Liebau, president of Yankee, said taxpayers and private-sector workers, in general, still have had a tougher road to travel than state employees.
“Decades of underfunding pensions and backroom deals between union leaders and state officials have left taxpayers on the hook,” she said, adding households must contribute 10% to 12% of their earnings toward retirement.
Over the past four fiscal years, as state savings programs have begun shoring up pension debt, unionized state employees have received annual raises of about 4.5%.
Further complicating matters, while Connecticut has stabilized its pension costs, its retiree health care program still shifts hundreds of millions of dollars in present-day costs onto future taxpayers.
For example, the state and its employees, collectively, paid $291 million in the 2021-22 fiscal year to put toward the future retiree health care costs of present-day employees.
But the program analysts say the amount that needed to be pre-paid in 2021-22 — if the goal was to leave no expenses for future generations to cover — was $906 million. And because that $615 million differential was left to the future, analysts estimated it would add another $516 million in interest costs.
“Government can’t always be insulated from the economic pressures that taxpayers face,” said Liebau, who added more pension reform is needed, including removing overtime earnings from pension calculations.