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STATE OF CONNECTICUT EXECUTIVE CHAMBERS HARTFORD, CONNECTICUT 06106 |
M. Jodi Rell Governor |
FOR IMMEDIATE RELEASE October 29, 2010
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Contact: 860-524-7313
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Governor Rell’s Unfunded Liabilities Panel
Presents Strategies for Resolving Billions in Debt
Read the Report
Governor M. Jodi Rell today announced that the commission she established to help reduce the state’s $34 billion in unfunded pension and health care liabilities has delivered its final report, a menu of short- and long-term strategies for dealing with one of the state’s most intractable problems.
In February, as Governor Rell announced her budget proposals to the Legislature, she also issued an Executive Order creating the State Post-Employment Benefits Commission. The problem of unfunded liabilities – which has accumulated over decades – now totals about $25 billion for retiree health benefits and about $9 billion for retiree pensions. The Governor charged the Post-Employment Benefits panel with developing recommendations to reduce these liabilities and prevent them from recurring.
“Like virtually every other state in the Union – and like the federal government and local governments everywhere – Connecticut struggles to pay the ever-increasing costs of health insurance and other benefits for its retired employees,” Governor Rell said. “There are no quick or easy solutions to these problems. However, the recommendations contained in this report offer a comprehensive set of options for lawmakers, state employees and the Executive Branch to consider and put into motion.
“The only option that cannot be considered is doing nothing,” the Governor said. “The trends are stark: The annual costs related to our pension and retirement plans were about 5.6 percent of the state budget in Fiscal 1992. Today, they are estimated at about 11.2 percent of the budget – and if the trend is permitted to continue, they will be almost 19 percent of the budget by 2032. Meaningful action is essential if we are to keep our promises to employees who have already retired and those who serve the state now.”
The panel’s short-term recommendations included ensuring that the state always makes the Annual Required Contribution (ARC) – the amount that must be paid into the account to cover current costs as well as, over time, earn enough interest to pay estimated future costs – and increasing the amount that state employees contribute toward the plans.
In addition, the panel recommended increasing the retirement age for state employees or adding incentives for later retirement and taking steps to control the annual increases in health insurance costs.
Over the long-term, the panel proposed setting performance benchmarks – for example, achieving a funding ratio of 55 percent by 2018 – and requiring that all future actions, such as retirement incentive programs, be subject to a full analysis of their long-term impact on the plan before they are approved.
Under the agreement Governor Rell negotiated with the State Employee Bargaining Agent Coalition (SEBAC) in 2009, two additional provisions are helping to reduce the unfunded liability. The first – the “Rule of 75” – concerns entitlement to health benefits for state employees who leave state service with vested pension rights but do not immediately begin collecting a pension.
Until the rule took effect, former state employees qualified for retiree health benefits when they reached retirement age with at least 10 years of state service. Under the “Rule of 75,” the combination of a retiree’s age and years of service must equal or exceed 75 before he or she can begin receiving health benefits, even if the former employee qualified for a pension at an earlier date. This reduces the state’s overall health benefits obligation (which is the largest portion of the state’s unfunded liability).
In addition, under the SEBAC agreement, current employees with less than 5 years of service and all new employees must contribute 3 percent of their earnings to help pay for retiree health benefits. Previously, there was no contribution from active employees to fund retirees’ health plans. This establishes a new revenue stream to help further support the retiree health care fund.
“I want to thank all of the members of the group who have served with great energy and dedication,” Governor Rell said. “I believe their work is truly a roadmap to a more stable and secure financial future for our state.”
A copy of the panel’s report is attached. Copies are also available on the Office of Policy and Management website at https://www.ct.gov/opm/.
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