Connecticut’s unfunded state employee pension debt has been decreasing by roughly $2 billion per year, and the overall funded ratio has been increasing by roughly five percent per year as state officials continue to funnel surplus billions into pension funds that had plagued Connecticut’s budget for more than a decade, forcing higher taxes, wage freezes, and service cuts.
Connecticut’s unfunded State Employee Retirement System (SERS) liabilities decreased from $18.9 billion to $16.7 billion between 2024 and 2025, according to the latest pension report for June 2026, continuing a multi-year trend that, despite a slight uptick in 2022, has seen the debt decline roughly $2 billion per year since 2020 when the pension debt was more than $23 billion.
That also means the funded ratio of SERS has increased roughly 5 percent per year. As of the latest report, SERS is 61.5 percent funded, up from 35.8 percent in 2020 and 31 percent in 2016.
The decrease in unfunded liabilities means Connecticut’s annual payments to service the debt decrease as well, freeing up millions in the budget. The Actuarily Determined Employer Contribution (ADEC) decreased from $2.14 billion to $2.01 billion between 2023 and 2025, according to the financial report.
Connecticut’s escalating pension debt for both the state employee retirement system and teacher’s retirement system had set off a decade of state budget deficits starting around 2009 that resulted in two major tax increases in 2011 and 2015 which, according to then Gov. Dannel Malloy, went entirely toward the state’s pension payments, and a series of negotiated wage freezes and benefit reductions for state employees as the governor and legislature tried to handle the escalating annual payments.
Those annual payments – known as ADEC – have likewise decreased since Connecticut started paying down billions in pension debt since 2020 through the state’s volatility cap, part of the “fiscal guardrails” put in place in 2017 during an extended budgetary battle between Malloy and the legislature that, at the time, was nearly evenly divided between Republicans and Democrats.
Under the volatility cap, tax revenue tied to highly volatile sources like Wall Street earnings is capped, and any revenue over that cap goes first into Connecticut’s Rainy Day fund and, when the Rainy Day fund is full, it is then used to pay down the pension debt. Since 2020, Connecticut has paid more than $10 billion in surplus revenue toward the pension debt for both SERS and TRS.
A report from December 2024 estimated the state would save over $18 billion in annual payments by 2049, when the pension debt is expected to be fully paid off. At the time, SERS was 55 percent funded with more than $19 billion in unfunded liabilities.
Connecticut Comptroller Sean Scanlon projects officials will likely make an additional $1.28 billion payment toward the pension funds this year, and the state will still have an additional $322.8 million that will be used to bolster the Early Childhood Education Endowment Fund, a trust fund meant to lower the cost of pre-k childcare.
The Office of Fiscal Analysis, furthermore, projects Connecticut will continue to see surpluses and pay down more than “$1 billion annually in FY 26 through FY 28 and $700 million in both FY 29 and FY 30.”
“We’re continuing to see the benefits of responsible fiscal management,” Scanlon said in a June 1 press release. “And unlike most states, Connecticut’s improved fiscal health has allowed us to both tackle obstacles the federal government has thrown our way while also paying down debt, making historic investments in our kids, and working to bring down costs across the board.”
There is, however, a growing push in the Democrat-led legislature to adjust some of the state’s fiscal guardrails, particularly the volatility cap to allow for more spending on social programs. Republicans have argued that Lamont’s Early Childhood Endowment Fund skirts the state’s spending cap, and the governor, along with legislative leaders, used $500 million that would have gone toward pension debt reduction to establish an Emergency Fund to supplement funding cuts from Washington D.C. for entitlements like Medicaid.
Pension payments — along with retiree healthcare, bonded debt and entitlements like Medicaid — are part of the state’s “fixed costs,” which take up 53 percent of the entire budget. While pension payments may be going down, increasing healthcare costs related to retiree healthcare and entitlements are projected to increase Connecticut’s total spending on fixed costs from $12.9 billion this fiscal year to $15.1 billion by 2030.
According to the OFA, despite the pension pay-down, retiree healthcare costs “are anticipated to grow by an average 11.4% during this period associated with premium increases driven by plan performance, population, and impacts from the federal Inflation Reduction Act.”
Connecticut’s Other Post Employment Benefits plan is in far worse shape than SERS, with the state only starting to make contributions to retiree healthcare in 2013. According to the latest June 2025 report, OPEB has $16.1 billion in unfunded liabilities, making it only 16 percent funded.
According to the report, Connecticut’s annual payment toward OPEB has grown from a little over $1 billion in 2017 to $1.7 billion in 2024, but the state was not making the full payment in any of those years, underfunding OPEB by $955 million in 2024.
Throughout his tenure as governor, Lamont has repeatedly expressed his support for maintaining the state’s fiscal guardrails, touting the state’s long run of budget surpluses and reducing the pension debt, a position supported by Republicans in the legislature.
Lamont’s primary challenger from the left, Rep. Josh Elliott, D-Hamden, argues the volatility cap should be eliminated and replaced with a stronger revenue cap in previous comments to Inside Investigator, arguing the cap has been “artificially starving state government.”
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