At a meeting of the state’s treasurer’s investment advisory board, State Treasurer Denise Nappier raised concerns about Gov. Dannel P. Malloy’s proposed changes to funding state pensions. She raised concerns about their calculation methods and interest assumptions, among other issues.
Among the recommendations from Nappier’s investment advisory board:
- Phase-in a reduction of the investment return assumption, from 8 percent to 7 percent, in order to conform more realistically to expectations for how capital markets will perform going forward. This transition approach will ease budgetary pressure, given that the state’s annual pension contributions will grow when the return assumption is lowered, and have the added benefit of being a “credit positive” according to Moody’s Investors Service.
- Change the method for calculating the state’s contributions to the State Employees’ Retirement Fund (“SERF”), from level percent of payroll to level dollar. This will improve the funded status more quickly by employing a more aggressive plan for paying down the unfunded pension liability.
- Convert to a rolling amortization period when the funded status of SERF reaches an adequate level at 75 percent. This would delay full funding, but place less pressure on financing the unfunded liabilities by smoothing annual pension contributions and avoiding a balloon payment when compared to the current closed 2032 amortization schedule.
- Avoid gimmicks such as retirement incentive programs.
Nappier said she is concerned about a pay-as-you-go plan for Tier 1 retirees, separate and apart from a fund for remaining active employees. She said, in a statement, such a move “is a material departure from the hard-fought disciplined funding approach to the State’s pension liabilities” and “raises many serious legal and implementation questions.”
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