Pensions Increase Risk to Taxpayers
401(k)s are the future

The Malloy administration is taking a much-needed closer look at Connecticut’s pension system. The report issued today from the Boston College Center for Retirement Research provides important context for this discussion.

“Connecticut’s pensions are grossly underfunded. Nobody disputes that. Some will argue that the system is now affordable. But that will be true only if the most optimistic scenarios play out as they predict. For example, the stock market would have to enter a century-long bull market and politicians can never again game the system,” said Carol Platt Liebau, president of the Yankee Institute. “Is that a gamble we can really afford to take?”

“Pensions require a lot of guesswork and when the guesses are wrong, the taxpayer is on the hook to make up the difference. This report is a 69-page explanation of where we’ve already guessed wrong,” Liebau said. “So let’s stop guessing and join everyone else in the 21st century with 401(k)-style plans. That’s the fair solution.”

The best estimates of pension costs over the last 30 years ended up being wrong by $12.5 billion. These uncertain commitments put taxpayers – and Connecticut’s fiscal sustainability – at risk.

Pensions cannot be evaluated in isolation. On average, state employees receive pay and other compensation that totals at least 25 percent more than non-government workers with the same skills, doing the same work.

[Read more about state employee pay and benefits in Yankee’s latest study, Unequal Pay:]

Although Connecticut state employees earn only slightly lower salaries than their private sector counterparts (about $150 less), they receive extra compensation in the form of healthcare and pensions totaling $54,000. In contrast, top companies in Connecticut provide retirement accounts and health insurance worth about $29,000.

In addition to pensions, Connecticut also has $19.5 billion in unfunded liabilities for retiree healthcare. This is something not addressed by the study, but warrants attention. The lower legal standard for changing these benefits can make them easier to reform than pensions.

“If policymakers insist on maintaining taxpayer-guaranteed pensions for state employees, they should at least make up for the cost and uncertainty by reducing pay or implementing more reasonable health care benefits,” Liebau said.

The Yankee Institute for Public Policy is a Connecticut think tank that develops and advances policy solutions to promote smart, limited government; fairness for taxpayers; and an open road to opportunity for all the people of our state.

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