Published January 13. 2014 4:00AM
This is the second in a two-part editorial series concerning the underfunded state employees' pension system and the steps necessary to repair it.
Throughout the private sector, companies have amended traditional defined benefit pension plans. In some cases, workers have seen pension benefits frozen and are forced to move into 401(k) plans to help save for their own retirement. For many others, these self-funded accounts, sometimes with employer matching contributions and sometimes not, are the only resource to prepare for retirement. Likewise, many private companies have cut or eliminated retirement health insurance coverage.
While there are certainly instances of abuse - situations in which corporations are fiscally strong enough to continue offering pensions but opt for cuts that enlarge the bottom line - for the vast majority of businesses these changes are driven by fiscal reality. Workers are living longer. Setbacks from the Great Recession caused huge pension-fund investment losses. The long-term numbers did not add up. Without changes, companies recognized they could not deliver promised pension payments.
These changes occurred at union and non-union shops alike, including a sizable haircut taken by workers and retirees at General Motors, a corporation that faced oblivion if it could not lower its pension obligations.
Last to this new reality have come state governments.
This is a product, in part, to the fact that enhanced benefits and pensions were seen as a way of making government jobs, which historically paid less than their private-sector counterparts, more attractive. In time pay caught up with and in some instances surpassed private salaries, yet the attractive pension and benefits remained and will be difficult to reverse.
Then there is politics. State labor unions, with their ability organize and turnout voters, exert enormous political influence. Many a lawmaker or governor has seen in it their political self-interest to appease them, particularly when it came to promising pension payouts that other political leaders would have to figure out how to pay for well into the future.
While Democrats share the far more cozy relationship with public unions, Republicans, at least in this state, have cut their fair share of deals, too.
As laid out in a three-part series by Day Staff Writer Johanna Somers that concludes Tuesday in The Day, the future is arriving quickly. Connecticut's state pension plan is grossly underfunded, second only to Illinois in the size of the gap between savings and what the state will need to meet its obligations, funded at only 42.3 percent as of 2012.
As noted in Sunday's editorial, Gov. Dannel P. Malloy, working with a legislature controlled by fellow Democrats, has taken steps to improve the outlook, including negotiating modest increases in retirement ages for some workers and making a commitment to fully fund the state's pension contribution going forward.
In our estimation, the state needs to do more.
• Gradually increase retirement ages for white-collar, non-physically demanding jobs to 65 to receive full pension benefits. State employees retired at an average age of 59.1 in 2012.
• Place a cap on pension payouts. California recently imposed a $132,000 cap. Connecticut's highest pensioner received more than $276,000 in 2012.
• Move state employees to hybrid defined benefit/401(k)-type plans that require them to contribute more to their future retirement fund, while reducing the burden on taxpayers.
Such changes would be nothing new in the private sector, but a radical departure for state workers. Any changes must be negotiated and it will not be easy. But without further adjustments, Connecticut workers will at some point face the prospect of mandated benefit cuts, such as seen recently in Illinois and neighboring Rhode Island. Both states face court challenges.
Gov. Malloy, pointing to savings achieved and his commitment to fully funding pensions, said he sees no urgency to seek more concessions at this time. It is, by the way, an election year. The governor did say, if need be, he would consider at some point in the future discussing with labor the utilization of 401(k)-type saving plans and making other changes.
The several Republican candidates for governor all express varying degrees of interest in seeking significant concessions to stabilize the pension system, yet resistance to such policies would be certain in a legislature that will almost definitely remain in control of Democrats after the November 2014 election.
Without change, propping up the pension plan will continue to wreak havoc with the rest of the state budget, prompting cuts to education and other programs and requiring tax increases. Voters should not accept that.