Those changes would allow new teachers to save more of what they earn and take their savings with them if they change jobs. Closing off the pension system to new hires would prevent the state from incurring more liabilities in the future.
“Although DC plans shift investment risk to each employee, it would give teachers portable accounts that would, by definition, be fully funded as the match is paid with each paycheck,” wrote study author and actuary, Eric Halpern. “A teacher would not be left to wonder whether Connecticut, which has never fully funded the CTRS in the system’s 100 years, is actually capable of making good on its commitments.”
Nearly half of all teachers leave the profession before becoming vested in the pension plan and Connecticut teachers have to work 25 years before they will see a return on their investment, according to a study by EdChoice.
Teachers’ unions have opposed the idea of changing the state’s retirement benefits, but absent any significant changes, the pension costs will continue to rise and may force future tax increases, pension contribution increases and benefit reductions to make up the difference.
Gov. Dannel Malloy originally proposed forcing municipalities to pay part of the cost of teacher pensions, an idea that was largely rejected as it would lead to property tax increases. Under latest iteration of the plan, municipalities would have to contribute $200 million annually to the pension system.
The governor also proposed refinancing the unfunded pension liabilities to stretch them out over a longer period of time to avoid the massive spike in costs. This would essentially shift the cost burden onto future generations and cost billions more in interest payments, similar to what the governor did with the state employee pension system.
But that plan could be hindered by a $2 billion bond taken out by the state in 2008 to help fund the teacher pension system. The bond to be paid over 25 years dictates that Connecticut cannot pay less the actuarially required contribution to the pension system.
According to a press release by State Treasurer Denise L. Nappier, “We must be sure to adhere to the bond covenant adopted in 2008 in conjunction with the sale of pension obligation bonds to boost the resources of the Teachers’ Retirement Fund. Any language allowing the State’s actuarially required contributions to be extended into the future could restrict our ability to carry out contractual obligations and result in a costly legal breach.”