by Ray Bendici
Oct 5, 2012
11:39 AMUnsteady Habits
Still Ticking . . .
In February 2010, we published “The Pension Bomb,” an article by Richard Urban reporting on the projected shortfall in the state’s employee pension fund. At that point, the state had set aside a mere 52 percent of the $18.75 billion then needed to pay pension benefits for its workforce and retirees—in other words, there was a $9 billion discrepancy.
Now it’s two years later, and the situation has only gotten worse. As of the most recent reading, the shortfall had grown to $11 billion, with only 48 percent of the needed funds having been tucked away—ranking us among the most unprepared states in the nation.
To add to our woes, credit-rating giant Moody’s has recently proposed a new methodology for assessing pension-plan growth. Instead of allowing estimates of as high as 8.5 percent as the projected return rate on pension funds’ long-term investments (a tad optimistic in light of last year’s -1 percent return in Connecticut), Moody’s new plan would lower the rates to a more realistic 4 or 4.5 percent. This will further increase the gap between what’s estimated to be needed and what might be on hand. Such a change wouldn’t have a direct effect on Connecticut’s fund, but it would make for a more painfully practical forecasting tool.
The good news is that, unlike previous administrations that ignored the obligations or even raided the fund, the Malloy administration has been proactive. In “The Pension Bomb,” it was suggested that state employee unions would need to agree to concessions to help alleviate the burden; they have, including raising retirement ages and modifying cost-of-living increases. Gov. Malloy also won legislative approval to increase annual payments by $3 billion over the next decade, resulting in a $5.8 billion in overall savings.
Has a bomb disposal team finally appeared?