Despite Connecticut’s improved pension funding, the state continues to have one of the worst funded pensions in the country, according to a report on state pension funding by the Equable Institute.
Despite Connecticut’s dramatic reversal of its pension funding – from 36 percent funded in 2016 to 57 percent funded in 2023 – Connecticut remained in the bottom three, ahead of only New Jersey, Illinois, and Kentucky, according to the State of Pensions 2023 report, authored by Anthony Randazzo, who has written about Connecticut’s pension system in the past, and Jonathan Moody.
State pension funds across all fifty states and Washington D.C. were posted an average funding of 78.1 percent, a nearly 4 percent increase from 2022, which the authors say is tied to better investment returns and “from supplemental contributions.”
“At the end of fiscal year 2023, the average funded ratio for American public pension plans was 78.1%. While this is a modest improvement over the losses of 2022, it is also a continuation of the fragile funded status that has persisted for more than a decade and a half after the financial crisis,” Randazzo and Moody wrote. “Government employers will need to increase regular contribution rates into their pension funds or face a likely future of persistent unfunded liabilities.”
Connecticut has benefitted from both improved investment returns and supplemental contributions. The state’s pension returns at the end of fiscal year 2023 were 8.35 percent for the Teachers Retirement System (TRS) and 9.05 percent for the State Employees Retirement System (SERS), beating the state’s 6.9 percent assumed rate of return, and beating the national average return of 7.47 percent.
Connecticut’s pension investment strategy came under strong criticism following a comprehensive fifty-state analysis of pension investments by the Yale School of Management in 2023, which found Connecticut had vastly underperformed compared with other states, resulting in billions of lost pension growth.
However, the state has also been pouring billions into its pension funding through Connecticut’s fiscal guardrails, which directs surplus volatile tax revenue tied to Wall Street to the state’s reserve fund and, when the fund is full, into paying down the state’s pension debt.
Connecticut has historically placed low in national rankings of states by pension debt following decades of underfunding, but it appears Connecticut’s increased pension funding and performance was mirrored nationally, leaving the state in virtually the same position nationally.
The increased funding has resulted in lower annual payments toward the debt, saving hundreds of millions in the budget, and state leaders have emphasized the need to keep the fiscal guardrails in place to ensure Connecticut can continue to pay down its debt and weather a recession should one occur.
Pension payments are part of Connecticut’s fixed costs that make up 53 percent of the budget. For more than a decade those fixed costs rose faster than Connecticut’s revenue creating a structural imbalance driven, in part, by increasing pension costs. That trend has now subsided, according to the latest report from Connecticut’s Office of Fiscal Accountability (OFA), after Connecticut’s revenue saw a sharp increase during the pandemic and post-pandemic years.
Overall, the total statewide pension debt came to $1.4 trillion in 2023, a decrease from $1.6 trillion in 2022, and the report found that most states and municipalities have “fragile” or “distressed” pension funding, meaning they are less than 90 percent or 60 percent respectively of the full funding needed.
The authors warned that even with the average assumed rate of return at 6.9 percent, the rate may be too high, and that the effects of inflation and interest rate adjustments on pension funds has yet to be realized.
Washington D.C., Utah, Tennessee, Washington, and South Dakota all had pension funds that were funded at 100 percent or more, according to the report.
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State surplus is really a result of over taxing your citizens and should be returned to all tax payers. Bottom line is that state and municipal employees need to contribute significantly more toward funding their retirement. That is the only way to ever achieve true solvency.
The way pensions are figured out for state unions based on their best 3 years gross (with overtime) is not sustainable. While the private sector has lost not only pensions but also company sponsered retirement health insurance, state unions enjoy both of these Golden Teets at taxpayers expense. Politicians won’t change this because of the pool of votes to get elected.
I am disgusted by our state pension system. Something needs to be done. I am sick of paying state pensions so they can live better than me
If the citizens would get involved with how their extracted taxes are spent, along with reading Connecticut’s actual constitution, one would conclude that the citizens are to have the exact same benefits as the Connecticut state workers. You can’t complain unless you have tried to make a change and enforce the actual laws. Never give up because its we the people, not me the people.
Common sense 101