President of the CT AFL-CIO Sal Luciano sent a letter to Gov. Ned Lamont requesting the governor extend his executive order requiring school districts to continue paying staff and vendors until June of 2021 in case schools are forced to close again. “We ask you to quickly issue a new ...
Connecticut teacher pensions mired in “fog” of uncertainty, according to new study
Connecticut’s teacher pension fund leaves more questions than answers for both taxpayers and teachers, according to a study by the National Council on Teacher Quality.
The report showed that despite the praise often heaped on teacher pension plans, they are becoming more costly to teachers, less flexible and ultimately unsustainable.
“Despite serious financial consequences for public coffers, as well as teachers’ and taxpayers’ pockets, most states steadfastly cling to traditional defined benefit retirement programs.”
The authors recommend – among other changes – offering teachers the option of a defined contribution plan and readjusting the assumed rate of return for pension funds.
Connecticut did not fare well in the study due to the pension system’s underfunding and the fact that teachers must work 10 years before becoming eligible for a pension.
The authors also criticized a lack of transparency in the system, saying that teachers and taxpayers in Connecticut did not have a clear understanding of the pension system’s problems.
In Connecticut the teacher pension fund remains 41 percent underfunded. Because of that 82 percent the state’s contribution goes toward paying that debt rather than toward the teacher benefits.
Connecticut’s contribution to the pension system is increasing as well. Connecticut’s annual required contribution to the plan grew by $283 million this year, contributing to the $1.5 billion state deficit.
In an effort to lessen the state’s burden for teacher pensions, Gov. Dannel Malloy proposed that towns contribute one-third of the teacher pensions costs. The idea has not proved popular with Connecticut municipal leaders or the public.
The unfunded liabilities also lead to riskier investments and assuming higher rates of return, which often don’t materialize.
The Connecticut Teachers’ Retirement Fund estimates an investment return of 8.5 percent. However, the ten-year return has only been 5.25 percent, far below expectations. This results in taxpayers having to make up the difference.
The financial pressure on the state and taxpayers leads to pensions becoming political issues, which can result in greater restrictions and requirements for teachers to get into the pension system, according to the study.
Unlike the state employee retirement system, teacher pensions in Connecticut as set in state statute, which has remained unchanged since 2003.
Connecticut teachers do not pay for social security nor do they receive social security benefits upon retirement. Instead they contribute 7.25 percent of their income to their pension while the state contributes 23 percent.
However, Connecticut teachers have to work longer than most others to receive those benefits. Nationally the average length of time a teacher must work before becoming eligible for a pension is 6.5 years. However, in Connecticut teachers must work 10 years before they are vested in the retirement plan.
Connecticut teachers have to work 20 years before they are eligible to retire, but according to a study by Thomas B. Fordham Institute, Connecticut teachers won’t see an actual return on their investment unless they work for 25 years. Retirement before that time will result in the teacher actually losing money over the course of his or her retirement.
In light of the continuing pension system problems which ultimately cost both the teachers and the taxpayers, the authors of both studies see 401(k) plans as a possible solution.
Defined contribution plans are more portable so a teacher that does not remain in the education system does not risk losing their investment. It would also lessen the burden on the taxpayers, making the system less susceptible to market and political fluctuations.
The authors of the study note that they are not against pension plans in general but that the problems which continue to plague state pension systems means alternative options must be examined.
Nationally, the teacher pension debt across all the states stands at $516 billion.
Only South Dakota and Wisconsin have fully funded teacher pension systems and only seven states have systems funded over 90 percent.
Despite these increasing debts the authors state “there is no sign of comprehensive pension reform that will have a significant and long-term impact on the systems’ financial health. At best, states have merely slowed the exponential growth of their teacher pension debt.”
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