FACT CHECK: The Truth about State Employee Pensions:

(Cross-posted from Pelto’s Point at the New Haven Advocate)

“Unsustainable” – Has Become a Political Term of Art

Except for the phase “shared sacrifice”, the term “unsustainable” has become the most common piece of political speech in Connecticut.

Last check found over 100 news articles in which Governor Malloy has said that Connecticut’s state employee benefit and pension system is unsustainable.

Newspaper editorial writers have picked up the chant by also declaring that Connecticut’s public employee benefit and pension system is unsustainable.

The problem is that the politicians and editorial writers either don’t understand the whole situation or are purposely misleading the public on this vital issue.

It is fair to say that healthcare costs are “unsustainable” – for the state of Connecticut, for the private sector and for individuals.  Getting healthcare costs under control is one of the most important issues we face as a society.

While healthcare costs are unsustainable, it is factually incorrect and intellectually dishonest to say that Connecticut’s pension system is “unsustainable”.

That is not to say that Connecticut doesn’t have a pension funding problem.

Over the past 35 years state government legally agreed and contracted with its employees to provide certain pension benefits.

However, the state failed to set aside the funds to pay for those benefits.

The problem is NOT the un-sustainability of the pension system but that Connecticut’s pension system is $9 billion dollars short of what it needs to be 100% funded.

Connecticut could do away with pensions completely for all future state employees and the state’s pension system would still require those funds.

This situation came about because Connecticut’s Tier 1 pension plan is far more generous than the Tier II system or the present Tier IIA system.

The Tier I pension plan was closed to new enrollees at the end of 1984.  More than 88% of the state
employees in Tier 1 have already retired.  The remainder will be retiring in the next couple of years.

As of now, governments cannot legally go back and change benefit levels for those who have already retired (or probably even for those who have vested their pension rights).

That means the state of Connecticut is “on the hook” for those Tier I commitments.

Luckily for state government, IIA pension benefits are far more limited and the long-term cost will be significantly less after the Tier I obligations are met.

So how “generous” was the Tier 1 pension?

There are over 27,000 Tier I retirees and their average pension is $33,500 a year.

The underlying issue is that an employee’s pension is based on their salary and so employees with high salaries have high pensions.

Earlier this year, the Hartford Courant reported that there were 378 retired state employees with pensions greater than $100,000 in 2010 and 24 whose pensions exceeded “the governor’s salary of $150,000.”

Although the Courant went on to report that the average state employee pension was just a fraction of that
amount, those high pension amounts have stuck in people’s minds and politicians, editorial writers and the public have all responded by demanding wholesale reform of Connecticut’s pension program without understanding that (1) Connecticut has already adopted wholesale changes to its pension system (called
Tier II and then Tier IIA) and (2) the excessive pensions are primarily a product of the higher salaries provided to selected professionals (such as doctors and lawyers), state managers and political appointees.

First, the difference between Tier I, Tier II and Tier IIA are profound.

The average annual Tier I pension is $33,500

The average annual Tier II pension is $21,900

The average annual Tier IIA pension is $11,472*

Note that Tier IIA is relatively new and there are only about 900 retirees. The average will increase but will still be below the average Tier II annual pension.

But equally important is to understand the differences within the Tier I pension system.

Tier I average annual pension:     $33,500

Tier I average-managerial positions:     $63,540

Tier I average-elected/appointed positions:     $50,544

Tier I average-legislative staff:     $36,780

And remember, there are huge differences between Tier I, Tier II and the present Tier IIA.

Take managers for example.  While the average Tier I manager’s pension is $63,640, the average Tier II manager’s pension is $39,276 and the average Tier IIA manager’s pension is $18,098.

Meanwhile, compare the pension levels for managers, elected or appointed positions, and legislative staff to state of other categories of employees.

Average pension all tiers/all employees:     $29,000

Average pension-Maintainers:     $20,712

Average pension-Clerical:     $16,548

Average pension-Correctional officer:     $33,278

Average pension-Correctional supervisor:     $49,572

Average pension-Social/human services:     $29,232

Average pension-State Police:     $49,080

Average pension-UConn Faculty:     $59,256

Average pension State Auditor Office:     $98,952

The state of Connecticut is facing significant fiscal challenges, but unless and until politicians and editorial writers handle the situation honestly, it is going to be impossible for the public to understand and properly engage is the debate.

  • Jeff Klaus

    Jon, you leave out an important fact. State employees can retire years before the average private sector can hope to retire now. So its not just the amount of the annual pay out but the ACCUMULATION of years of pension pay-outs. Private sector workers must worry about retiring too early lest their 401k run out of $$. Not so for state pensioners who have no concern whatsoever for things like investment performance or age and longevity.

    The private sector equivalent 401k balance to equal $29K a year is over $600K. And that assumes that a person doesn’t live past 80 AND that the investments are in secure safe U.S. treasuries (hah). btw, will there be any change in pension payments for state retirees if the the U.S. defaults on its debt?

    Bottom line is that the state employees at whatever tier get a substantially better deal than the average private sector taxpayer and that’s just not fair.

    • Barbara

      you have a race to the bottom mentality.
      A throw the baby out with the bath water mentality.
      Yes 401ks don’t stack up to defined benefit pensions.
      THE 2008 STOCK MARKET DEBACLE SHOWED THAT.
      But state employee pensions are not grandiose. The wind was taken out of that sail back in 1984 when the pensions were major league reformed.
      I believe all working people should have defined pension plans.the fact that corporations have stuck it to their workers when it was not necessary, doesn’t mean its the right thing to do. The did it because they could
      and that is wrong.

    • YADYADYAD

      You have no idea what you are talking about. Get your facts straight before you post comments.

    • redsoxfangeo

      I was a correction officer. The average life span for my profession is 59 years. I don’t suppose we could attribute any of that to the working conditions, do you?

  • Barbara

    Jon,,

    In a June 2010 study of all state employee pensions in New England conducted by the New England Public Policy Center, paid for by the Federal Reserve Bank of Boston, Conn state employee pensions were cited as the least generous in all of New England. The study did not include Tier 1 employees because there were so few left in active state service.
    The study only compared Tier 11 and Tier 11a to other state pensions.
    No one ever cites this study.

  • Notsosure

    You know Jon, you really should consider running for either Governor, or at the very least, a union leader!! I think you are one of the very few who actually “get” the whole picture and see it for what it really is. Thanks for trying to set people straight on the facts. You’re awesome!!

  • iamjh

    A couple of points worth noting. Commenter Jeff Klaus compares the state employees pensions to private sector 401k’s. State employees have a defined benefit plan — where you know you will receive a certain amount per month when retired. In the private sector, employers are doing away with defined benefit plans, especially in non-union workplaces. That is the part that is not fair. Workers should organize so they can fight for fair and reasonable pensions.
    On the other hand, at least some of the “deferral” of payments by the state into the pension plan were bargained with state employee unions, in order to fend off layoffs or other cuts. Not that there were many other viable choices — but it is part of why the plan in the hole right now.

  • Leah

    Thank You Jon for once again enlightening everyone. I would like to point out that not only did the state fail to fund pensions but Governor Rell deferred $100 Million just two years ago! She is not the only one who has had their hand in the cookie jar !! I used to work in the banking industry and know unequivocally that the persons responsible for this sort of “bookkeeping” would be serving time in PRISON!

  • Cassandra

    Retire early? Hah. Retire on Friday and find a job that begins on Monday. What family can live on a $29,000 State pension in Connecticut.
    Why so eager to race to the bottom? INnstead of taking away I would like to see all workers get decent benefits and healthcare.

  • Richard

    $6,780.

    That’s the bill for each of CT’s 1.374 million households for that $9 bil shortfall.

    Here’s a better suggestion: CT revisits Tier I reitrement and adopts Prague’s ;base-pay legislation and eliminates hazardous duty pension and eliminates all pension acceleration schemes.

    Then we can work on a hard cap after which 401K matching is employed for the top 15% of state earners.

    CT won’t be the first to renege on their ‘past promises’ to forego penson contributions in exchange for raises or avoiding layoffs. Isn’t SEBAC represented n those decisions? That’s a rhetorical question. Some would call such agreements criminal–pay us now and sock the pension devt on future generations and take it to court.

    Several other states are closer to impoding than CT. The courts so far are backing distressed communities.

  • Jeff Klaus

    Race to the bottom? Folks, we don’t live in an isolated world. Read Tom Friedman. As long as there are 1 billion chinese and 800 million Indians who can do what we do (only better) we need to compete or we will all be AT the bottom.

    Unionists don’t seem to appreciate that the world is increasingly competitive. That is not a trend which is reversible even if you wanted to try. The kinds of protectionist policies that are advocated on these pages is like building a huge castle of sand on the beach and thinking that the incoming tsunami won’t wash it away.

    Folks, the private sector in our state and our country has been struggling with the economic tsunami (which appears to be very close today!). But the public sector seems to still be lying around on their beach towels thinking the waves won’t reach them!

    But what I find truly amazing is that with all this rancor and talk about state employees, benefits, and taxes, NO ONE ever mentions the quality of the state services being provided! That is amazing! It seems to me that if the state workers are vital and highly qualified at what they do and cannot be replaced easily, they would be making an argument about their economic value to our state and not so much about what they consider to be “fair” compensation.

    Economic fairness is this world is determined by the markets whether you like it or not.

  • ctperson13

    I agree with Barbara (and I’m not a state employee). Instead of advocating to bring state employees down to the level of the private sector, how about focusing those energies on demanding that private-sector benefits be improved? Re China and India–where is the loyalty among U.S. corporate “rulers” for the country that allowed them to get rich? Pursuit of ever-increasing profits at the expense of eveything else is the problem here. The problem is that the money is never enough. Moderate profits aren’t enough–they always want more, more, more! It is a mentality driven by greed. What’s the solution? Heck if I know. Severe financial penalties for farming out work overseas? Honestly, I don’t know enough about the global market to make suggestions. Perhaps someone with more knowledge would like to chime in here?

  • DrHunterSThompson

    What a good job laying out the pension issue.

    There are 2 problems: 1) tier 1, and 2) the legislatures failure to fund.

    Their failures do not make it my issue! I’m voting NO! again.

  • manchesterg

    I believe the state employee unions on many occasions traded for the state to postpone payments into the retirement pension fund for better and higher benefits and pay increases in the then present contracts. And it’s also the fault of the state negotiators for agreeing with this.

  • Wade Gibson

    I much appreciate the desire to get to the data. A caution, however, about relying so heavily on averages. Some folks work at the state for a full career; others work there just long enough to vest (and have another pension, or two). The latter drag down these averages–even though they may be doing quite well in retirement–and make it seem as though CT pensions are less generous than they really are. What we should be examining is the total income of CT pensioners–a $33,500 pension on top of another $70,000 one is very different than $33,500 solo.

  • Bill Lynn

    I know this response is very late but nowhere in this article does it indicate that everyone on a Tier 1 retirement plan also contributed anywhere from 2% – 5% of their gross pay toward that plan biweekly for their entire work careers. Employees who are enrolled in Tier II or Tier IIA retirement plans don’t make any additional contributions to the plan. So, after 26 years of working for the State of Connecticut my Tier 1 pension is higher because I paid 2% of my overall salary for it. It’s not free money like Tier II pension plans are.