Proposed bill would place 30 percent “forwarding fee” on out-of-state pension payments

One in five pension checks for retired Connecticut state employees are mailed out of state, according to October figures provided by the state comptroller’s office.

Every month more than $25 million in pension payments goes out of state but a proposed bill in the General Assembly would impose a 30 percent “forwarding fee” on those funds.

The legislation, proposed by Sam Belito, R-Ashford, says it’s purpose is to “incentivize individuals receiving a state pension to remain in the state.”

If the measure was enacted, the state would take in $7.5 million in fees every month. The legislation comes as legislators and Gov. Dannel Malloy scramble to address a $1.4 billion budget deficit and the increased costs of an underfunded state pension system.

The average out-of-state pension payment is $2,554 per month, roughly the same as in-state pension payments. However, under this proposed law pensioners living outside of Connecticut would see a decrease of $766 per month.

But Edward Zelinsky, professor of law for Yeshiva University’s Benjamin N. Cardozo School of Law, says the measure would be illegal. “Under federal statutory law only the state in which the retiree currently lives can tax his pension payment.

Zelinsky says designating the 30 percent charge as a “fee” rather than a tax would not make a difference because it is a matter of “substance and form.”

“This is an unconstitutional effort to take part of a non-resident’s retirement check because they now live in another state.”

Connecticut currently faces an out-migration trend. The U.S. Census bureau reported in December that Connecticut had a net loss of population for the third year in a row.

Individuals over the age of sixty-five constitute the largest group of people moving out, according to a report issued by the Connecticut Commission on Economic Competitiveness.

But it isn’t difficult to understand why retirees might want to move. Business forecaster and personal finance news company Kiplinger ranked Connecticut the 4th worst state to retire in due to high taxes and high cost of living.

In 2016, former Gov. M. Jodi Rell departed Connecticut for Florida, taking her monthly pension payment with her. Rell told the Connecticut Post she believed Connecticut was “in a downward spiral.”

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