Connecticut’s teacher pension debt decreased by roughly $941 million during fiscal years 2021 and 2022, marking the first time the plan’s unfunded liabilities went down in 8 years, according to the latest pension valuation released by the Connecticut Teachers Retirement Board.
The Teachers Retirement System now has $17.1 billion in unfunded liabilities, meaning it is 57 percent funded. Although, 80 percent funding is generally considered healthy, this represented a 6 percent increase in funding over the course of two years.
The last time Connecticut’s teacher pension decreased was in 2014 when it decreased by $324.7 million before increasing by $2.3 billion the following two years.
Connecticut’s Teachers Retirement System, along with the State Employee Retirement System, account for the vast majority of Connecticut’s unfunded pension obligations that have dogged the General Assembly and state budgets since 2008.
The unfunded liabilities for TRS grew from $6.5 billion in 2008 to $18 billion by 2020, and annual payments to the system rose from $518 million in 2008 to $1.4 billion by 2022. That annual payment is expected to increase to $1.5 billion this fiscal year before leveling off.
The rapidly increasing costs to service both pension plans drove tax increases in both 2011 and 2015, all of which went to pay for the escalating costs, according to comments by former Gov. Dannel Malloy.
Connecticut’s teacher pensions, in particular, were of great concern following a 2015 report by the Center for Retirement Research at Boston College, which estimated the annual payments for teacher pension debt had the potential to balloon to $6 billion per year.
In response, Gov. Ned Lamont re-amortized both teacher and state employee pension debt, stretching payments out until 2045. Although the move increased the overall cost of the debt, it smoothed out the annual payments to prevent the spike.
The General Assembly also instituted a volatility cap to use surplus revenue derived from volatile tax receipts to pay down Connecticut’s pension debt as part of the 2017 budget agreement.
After maxing out the state’s Budget Reserve Fund, the volatility adjustment was used to pay down $2.8 billion in pension debt for both TRS and SERS in 2022. This followed $1.6 billion in pension payoffs made in 2021 and $60 million in 2019.
According to recently released Consensus Revenue estimates, Connecticut should be poised to continue paying down its pension debt for the next several years, as analysts estimate $5.4 billion in volatility adjustment transfers between this year and 2026, if numbers remain steady.
The decrease in teacher pension debt comes after a similar decrease in state employee pension debt of $1.5 billion, according to the most recent report from the Connecticut Office of the Comptroller.
Connecticut’s current unfunded pension liabilities for both SERS and TRS stands at $38.3 billion, down from $42 billion in 2020.