Connecticut’s State Employees Retirement Commission (SERC) is suing the Town of Ellington for not adding any members to the Connecticut Municipal Employees Retirement System (CMERS) since 2012, after the town negotiated a new contract with their unionized public works employees.
SERC says in their court complaint filed in January of 2023 that they have sent multiple directives and a declaratory ruling to the town instructing them that all new hires in the Public Works department must be enrolled in CMERS, rather than the 401A Money Purchase Plan agreed to as part of a collective bargaining contract negotiated between the town and AFSCME Local 1303.
According to the complaint, SERC is asking the court to order the town to place all those hires into the CMERS system and pay for losses to the pension plan of at least $920,219 as of 2022, although SERC admits the cost may be greater now as CMERS costs have continued to rise.
SERC’s complaint says the town’s retirement change under the 2012 collective bargaining agreement “illegally shifts the cost of paying for the Town of Ellington’s retirees from the Town of Ellington and the pool, which is based on sound actuarial principles and provided for by statute, to the remainder of the CMERS-participating municipalities.”
The Town of Ellington is arguing, however, that the change in retirement for new hires after 2012 is protected under the state’s collective bargaining statutes that allow union contracts to supersede state statutes, and they deny that the change was illegal or that they owe any money to the CMERS system.
The Town of Ellington is also arguing that SERC’s attempt to reclaim lost pension funds constitutes a tort and therefore SERC is beyond the statute of limitations.
Although Ellington’s switch to a different retirement plan for new public works employees happened in 2012, the CMERS system has, for some time, been a source of criticism for municipalities enrolled in the state plan, saying that once they are in the system, it is cost prohibitive to ever leave.
And those costs have been rising rapidly, particularly in recent years, with a wave a municipal employee retirements and increasing unfunded liabilities and pension investment returns that have mirrored investment performance in Connecticut’s larger pension funds. Those investment returns have recently come under scrutiny following a study out of Yale that showed Connecticut’s investment track record is one of the worst in the country.
In March, shortly before Ellington filed its answer to the court complaint, Ellington’s Director of Finance and Operations for its public school system, sent a letter to Connecticut Comptroller Sean Scanlon highlighting the impact of the rising costs on the town.
While angst about CMERS escalating costs was quietly circulating among municipal organizations, Scanlon successfully convened a group of municipal and union leaders and state officials to work out an agreement to lower the costs through refinancing the debt, recalculating how annual cost of living adjustments are made and offering incentives for employees to stay on the job longer.
It was estimated by the Comptroller’s Office that the changes will save the 107 participating municipalities $843.1 million over the next thirty years. However, there are no available numbers yet as to how much the refinancing of the debt to a longer payoff period may affect the total payoff cost.
CMERS unfunded liabilities grew by nearly $1 billion since 2016 and its pension investments were negative return of nearly 9 percent in 2022.
The General Assembly has yet to approve the CMERS fix, but legislative leaders from both sides of the aisle were present at Scanlon’s announcement and supportive of the measures.
Under a 2017 declaratory ruling by SERC against the town of Thompson, the commission determined under state statute that Thompson, which had also ceased enrolling new employees in CMERS in 2012, would have to either enroll all new employees into CMERS with retroactive payments and interest, or officially withdraw from the system.
When a town withdraws, the town has to pay CMERS “for the payment of all future retirement liabilities,” according to SERC’s complaint.