Connecticut Democrats on the Finance, Revenue, and Bonding Committee sided with Gov. Ned Lamont and State Treasurer Erick Russell, shooting down a bill that would create an investment board that would act as a fiduciary for Connecticut’s $60 billion in pension investments.

The bill’s demise leaves Russell as the sole fiduciary for Connecticut’s pension investments and leaves Connecticut as one of the only states to vest that responsibility in the treasurer alone. 

Connecticut has an Investment Advisory Council (IAC) that approves or disapproves of potential investments, but the Treasurer can override the IAC if he or she chooses – a move that, although rare, was used by former Treasurer Denise Nappier to funnel $150 million to Fairview Capital in 2014, drawing criticism.

But Russell, the Lamont administration, and members of the IAC all came out against the change, arguing it would impede the progress and reforms already made in the Treasurer’s office following a report issued in 2023 by the Yale School of Management that showed Connecticut had the second-worst investment performance of all fifty states. 

Under Connecticut’s two previous treasurers, the state’s poor investment performance meant missing out on tens of billions of dollars at a time when Connecticut’s budget was in crisis, leading to tax increases and benefit reductions for state employees. 

That report, authored by Jeffrey Sonnenfeld and Steven Tian of the Yale School of Management – and a team of graduate students – led to changes in the Treasurer’s office and the IAC. While Sonnenfeld and Tian testified in support of this latest bill to transfer responsibility for the state’s pension performance from the Treasurer to an investment board like 48 other states, Democrats on the Finance Committee sided with Russell and shot the legislation down, overwhelming Republicans in a party-line vote.

Connecticut’s investment performance has improved under Russell and is now, by most accounts, “middle of the pack,” however, Sen. Ryan Fazio, R-Greenwich, ranking member on the Finance Committee and lead proponent of the bill, believes the bill was shot down so Democrats could maintain power over Connecticut’s $60 billion in pension investments.

“Only one other state has a system like this, and that state is moving away from that system because they have the lowest pension performance in the country, and that’s North Carolina,” Fazio said in an interview. “The Democratic party doesn’t want a position that it has held for decades to give up more power, and currently it has legal fiduciary power over $60 billion in investments.”

“That is mostly what this is about,” Fazio continued. “The sole fiduciary system is basically unheard of in both the public and private sector for funds of this size. The only justification for opposing reform in this area, which has been much debated in recent years, is political power-plays by the state Democratic party. There’s no two ways about it. Everybody knows that’s what’s happening.”

The report from the Yale School of Management that found Connecticut vastly underperformed other states in pension returns encompassed the tenures of Denise Nappier and Shawn Wooden, both Democrats, over 22 years.

A Republican hasn’t held the office of the Treasurer since 1995, when Christopher Burnham was elected. Burnham, however, resigned after two years, and Gov. John Rowland appointed Paul Silvester to serve. Silvester subsequently lost an election to Democrat Denise Nappier in 1999 and was then convicted of taking kickbacks for steering pension money to certain investment funds.

Finance Committee co-chairs, Sen. John Fonfara, D-Hartford, and Rep. Maria Horn, D-Salisbury, said the legislature and the committee bear some responsibility for the state’s poor pension investment performance in the past, but could not support this change because it didn’t involve collaboration with the Treasurer’s Office. 

“Candidly, this legislature, this committee, and this chairman have been asleep at the switch over the previous administrations,” Fonfara said. “We have not done our job. We’ve done our job with respect to the guardrails, which are helping on our $60 billion debt, but we haven’t done our job with respect to understanding the performance of the Treasurer’s Office.”

“Currently, we have really started to turn the ship around and that is due to the good work of our Treasurer,” Horn said. “Because I don’t think this bill reflects collaboration with the current people who are making those changes, I too am opposed to the bill.”

Russell, who has received much praise from both sides of the political aisle for embracing reforms to the IAC and how Connecticut invests its pension money, has overseen relatively good pension returns, bringing in 10.5 percent last year, well above the assumed rate of return of 6.9 percent. 

Failure to meet the expected rate of return can result in higher annual payments made by the state and newer state employees can be required to pay more into the system to make up for losses.

 “It seems more territorial than anything else,” Fazio said. “In the future, when things get bad again as they have in the past, every single Democrat on the Finance Committee is on the record voting against reform, voting against good government, voting against check and balances over $60 billion in pension retirements for state employees. They can defend that to the public.”

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