Connecticut Will Step Up Pension Payments to Save $5.8 Billion
Connecticut (STOCT1), which had its general- obligation bond rating cut last week, will raise its pension contributions to save $5.8 billion through the next two decades, Governor Dannel Malloy said.
The stepped-up payment rate is intended to avoid a one-time obligation estimated at $4.5 billion in fiscal 2032, Malloy said yesterday in a statement. The sum, about four times the state’s annual contribution in recent years, was projected based on continuing along that path.
“What we’re announcing today is basically like starting a 401(k) when you’re young, and getting some of the work done earlier,” said Malloy, a Democrat elected in 2010. He said the changes will boost the state’s annual payment by $125 million. Benjamin Barnes, secretary of the policy and management office, said by telephone that the change won’t increase workers’ costs.
In 2014, Malloy’s plan calls for an additional appropriation to bring the State Employee Retirement System up to the 80 percent funded level, generally regarded as a benchmark minimum, by 2025. The 56-year-old governor’s plan also calls for eliminating provisions of labor contracts that were used to cut the government’s payment by more than $105 million in fiscal 2011, according to a state report in October 2010.
Low Funding Ratio
Connecticut’s main pension fund, covering about 40,000 workers, has less than 48 percent of the assets needed to meet future obligations, according to the statement. The state had the second-widest gap between assets and liabilities, based on 2010 information, trailing only Illinois, according to data compiled by Bloomberg in October. The ranking put Connecticut at about 53 percent funded, with Illinois at 45 percent. The average level was about 74 percent.
Moody’s Investors Service cut Connecticut’s general- obligation bond rating to Aa3 from Aa2 on Jan. 20, citing debt costs and retirement benefits that are consuming a rising share of the budget. The reduction to the company’s fourth-highest grade affected about $14.6 billion in debt, Moody’s said.
Malloy, who raised income taxes the most in state history last year, said last week that receipts haven’t met estimates, leading to a projected shortfall of $94.9 million for the current fiscal year and $139 million in 2013.
To contact the reporter on this story: Esmé E. Deprez in New York at edeprez@bloomberg.net.
To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net.
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