Business owners overwhelmingly want state pension reform, according to survey

A survey by the Connecticut Business and Industry Association shows that business owners want Connecticut to reform its state retirement benefits by a wide margin.

Of the business owners surveyed, 91 percent want reforms to Connecticut’s state pension system, which includes eliminating overtime from pension calculations and moving employees into a 401(k) style defined contribution plan.

Such reforms could lower pension costs in the future and prevent further tax increases and budget stalemates.

But the possibility for reforms to the state employee retirement system were delayed when the state legislature narrowly approved a $1.5 billion concessions deal with state union leaders on July 31st. Under the terms of the concessions deal negotiated by Gov. Dannel Malloy, the retirement benefits contract is extended until 2027, making it a 30 year contract.


Employers also said Connecticut taxes, high cost of living and state regulations hampered their ability to grow.

Connecticut’s pension plans remain woefully underfunded, despite the state contributing the actuarially required payment for the past six years. During that time, unfunded pension obligations have actually increased, leaving Connecticut’s pension system for both state employees and teachers underfunded by $34.8 billion, according to official estimates.

Pension payments – which, along with debt service and retiree healthcare, are known as “fixed costs” – are one of the fastest growing state government expenses and threatens to put more pressure on future state budgets.

The cost of those underfunded pensions and retiree healthcare has grown more than the 2011 and 2015 tax increases combined, according to Office of Policy and Management Secretary Ben Barnes.

This year, Connecticut will pay $1.5 billion toward the state employee retirement system and an additional $1.9 billion toward the teachers retirement system.

The annual state payment into SERS will grow to $2.2 billion by 2027 after the state extended the unfunded pension payments until 2046. The cost of teacher pensions could to grow to more than $6 billion by 2032, if the system is not reformed in some way.

According to a study on the Connecticut state employee retirement system, moving all new hires to a defined contribution plan would save $100 million over ten years but its true value would lie in reducing Connecticut’s long-standing liabilities and make the pension system more solvent.

Connecticut is one of only four states which set state employee retirement benefits through collective bargaining rather than through state statute.

Unlike state employees, teacher pensions are set in statute and can be reformed through legislative action, although there has yet been little interest from lawmakers to make changes.

The effects of those increased costs are already being felt during Connecticut’s budget stalemate. Malloy is running the state through executive order and is limited to last year’s spending requirements. However, because of the increase in fixed costs, the governor has less money to redistribute to cities and towns in the form of education funds.

Under the governor’s latest executive order, education funding for 85 towns would be eliminated and another 54 would see severe cuts so the state can meet its expense payment obligations. The order goes into effect if the legislature cannot reach a budget by October 1.

Some towns have said these cuts would leave them insolvent and would likely result in laying off teachers and other municipal employees.

House Democratic leaders and Malloy have both put forward budgets calling for increased taxes and cuts to municipal aid, which will likely result in increased property taxes for Connecticut homeowners.

On the other hand, budgets put forth by Republicans in the House and Senate, which relied heavily on labor reforms, were not given allowed a vote.

High business taxes, uncertainty of legislative decision making, and high cost of living were all cited by business owners as impacting their ability to grow. Connecticut’s employment and business growth has remained among the lowest in the nation since the 2008 recession.

Connecticut has been plagued by a loss of businesses and population to other states. Of the 440 businesses which responded to the survey, 32 percent said they had been approached by states like North Carolina, South Carolina and Florida, urging them to move out.

Business owners also said that raising the minimum wage to $15 per hour and a state-mandated paid family medical leave program would hurt their business.

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