The State of Connecticut employs nearly 50,000 people on a full-time basis and like most employers, they provide benefits to help employees plan for their retirement. Unlike most private sector employers, however, public employees are provided a defined-benefit retirement plan that provides benefits as calculated by a complicated formula rather than a 401(k)-type plan like available in the private sector that provides far greater portability and flexibility for employees.
Defined-benefit retirement plans present another challenge for taxpayers. Poor planning and saving habits by state lawmakers has left the retirement system chronically underfunded. According to a Yankee Institute estimate, the state owes retirees $51 billion more than they have saved, dragging down the state’s bond rating, crowding out other state spending, and setting the stage for higher taxes in the long run.
A new report from the US Census Bureau last week reveals that the state’s retirement system is more generous than most states. Connecticut is one of a handful of states that pay an average of more than $30,000 per year to each pensioner and has the highest average of all 50 states at $35,079.
Yankee advises policymakers to follow the model provided by Rhode Island in 2011. Connecticut’s neighbor to the east faced a very similar pension crisis in 2011 until that state’s legislature, led by Treasurer Gina Raimondo, converted the pension system to a hybrid defined-benefit/defined contribution system to guarantee a secure retirement for retirees while saving the state billions in costs.