Connecticut’s Municipal Employee Retirement System (CMERS) showed some improvement in the latest valuation, following some changes implemented in 2023 by Comptroller Sean Scanlon and the legislature to stem the rising costs and unfunded liabilities that were squeezing municipal governments and boards of education.

The latest 2024 MERS valuation shows a decrease in unfunded liabilities by roughly $100 million from 2022 when the unfunded debt topped out at $1.37 billion, and an increase to the funding ratio from 68.7 percent in 2022 to 73.5 percent in 2024.

Coming into 2023, municipal leaders began to raise the alarm over the increasing cost of the CMERS program where their employee contribution costs were rising in tandem with the system’s unfunded liabilities. Municipal leaders said they were paying in excess of 25 percent of payroll for benefit costs and had seen their contribution rates rise 72 percent from 2017 to 2022.

According to the latest valuation, however, those employer contributions remain stubbornly high, ranging from 16-20 percent for general employees and 24-27 percent for police and fire, depending on whether those employees are eligible for social security benefits.

Leaders and analysts from Connecticut’s municipal associations argued the CMERS system, unlike the state employees or teachers’ pension system, hadn’t been updated in decades and needed reforms. Although municipalities can voluntarily join the state’s municipal pension system, leaving it can be more difficult as they have to offer their employees a comparable retirement program.

In response to municipal concerns and the escalating price tag, Scanlon, along with a working group of municipal leaders and union officials who represent municipal employees, proposed and implemented some fixes that would purportedly save municipalities $843 million over thirty years with bipartisan support.

Part of the fix – similar to changes made to both the state employee and teacher pension debt by Gov. Lamont – was to re-amortize the pension debt over a longer period of time, thereby lowering the annual costs but also taking the debt longer to be paid off. 

“The latest valuation confirms what we set out to do: protect the pensions municipal employees have paid into while making the system more affordable for the cities and towns that rely on it,” Comptroller Scanlon said in an emailed statement.

The effects of the change can be detected in the absence of complaints from municipalities, according to Brian O’Connor, director of public policy and advocacy for the Connecticut Conference of Municipalities (CCM), who says their members have not brought any issues to their attention lately.

“When the contribution rates were rising exponentially, we heard from many members that we needed to push for reforms,” O’Connor said. “We’re optimistic and hopeful that additional reforms from the newly constituted Municipal Employee Retirement Board will yield additional savings and will provide stability to CMERS for its members.”

The improved position for CMERS, however, is likely due to the re-amortization of the plan’s unfunded liabilities and solid investment performance thanks to a good year on Wall Street. CMERS investments returned 10.25 percent over calendar year 2024, well above the 6.9 percent assumed rate of return, according to the State Treasurer’s Office.

“I would also say the greater than projected investment yields have probably contributed to the decrease in liabilities and have mitigated increases to the contribution rate,” O’Connor said.

The 2023 fix also included changing the cost-of-living adjustment and offering incentives for municipal employees to stay on the job longer, but those changes will not occur until July of 2025, according to a July 2023 memorandum from John Herrington, director of the Retirement Services Division, who noted “anxiety” by CMERS members based on “misconceptions.”

“We have more work to do, and I am committed to working with municipalities and labor leaders to keep MERS reliable and sustainable for future generations of public servants,” Scanlon said.

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