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Fringe benefits for state employees cost up to 86 percent of payroll

Fringe benefit costs for Connecticut state employees can range anywhere from 56 percent of payroll to 86 percent for judges, family magistrates and compensation commissioners, according to a memorandum from state comptroller Kevin Lembo.

The memorandum was written to update lawmakers on changes to retirement rates as a result of Gov. Dannel Malloy’s concessions deal with state employee unions. Under the terms of the concessions deal, current state workers will have to contribute more toward their pensions and health benefits, but the costs to the state for employee benefits remain high.

The benefit calculations include the state’s contribution toward pensions, unfunded pension liabilities, retiree health insurance, OPEB fund contributions and retirement administration costs, according to the comptroller’s office.

According to the memorandum, fringe benefits for a typical state employee is approximately 56 percent of payroll. That figure jumps to 83 percent for hazardous duty employees, such as state troopers.

However, the benefit costs for state judges, family magistrates and compensation commissioners surpass even hazardous duty employees. Fringe benefits for this group of employees cost 86 percent of payroll. As of 2014, there were 250 retirees in this plan, with another 212 active members, according to the state’s transparency website.

Conversely, as outlined in the document, the state only has to contribute 27 percent of payroll toward teacher pensions, an amount set in state statute rather than through collective bargaining agreements.

Even more cost-effective for the state is the Alternative Retirement Plan, a 401(k) style defined contribution retirement plan, to which the state only has to contribute 14.5 percent of payroll.

The ARP plan is only available to employees in Connecticut’s higher education system. Many of those employees have switched to a traditional pension plan after a grievance was filed by state employee union leaders.

Part of the SEBAC concessions deal was the creation of a fourth tier retirement system for new employees. The Tier IV plan was billed as a “hybrid” plan, which combines a typical pension plan with a 401(k) style retirement savings account.

However, under the terms of the hybrid plan, new employees would only contribute 1 percent of their pay toward the defined contribution portion. Employees will still receive a full pension, but the pension calculations are modified to lower the monthly retirement payment.

The Office of Fiscal Analysis estimated that the changes from the SEBAC concessions agreement would lower Connecticut’s unfunded pension liability from $21.7 billion to $20.4 billion, largely due to employee wage freezes.

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Marc E. Fitch

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