Government Worker Pensions Should be Ended Gradually

Chris Powell


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Maybe the state should applaud the plan announced the other day by state Comptroller Sean Scanlon and leaders in the General Assembly to restore the solvency of the Connecticut Municipal Employees Retirement System. The system is run by state government and 107 of the state’s 169 towns participate in it to some extent.

Just like the state government employee pension fund, the municipal pension fund system now is carrying large unfunded liabilities, which have risen from $332 million in 2016 to $1.3 billion today, an increase of 313% in just six years. While to be considered healthy a pension system should be at least 80% funded, in the last five years the municipal system’s funding has fallen from 92% to only 69%.

The reform plan is supposed to reverse the trend toward underfunding as well as to save money for the participating towns. But since the plan involves extending by eight years the time for properly covering the fund’s liabilities, during which inflation may persist and entitle pensioners to higher cost-of-living increases, the plan’s savings may not be as great as projected.


In any case refinancing the municipal pension system is not the pension reform Connecticut most needs. That reform is the gradual extinction of the state and municipal government employee pension systems, since they are no longer necessary to draw people to government work and since they will always be vulnerable to unfunded liabilities that can worsen for many years before they are much noticed and elected officials find the courage to address them.

Government employee pension systems were premised largely on the belief that employee compensation was low and great fringe benefits were needed keep people in government work. But for many years state and municipal government employee compensation in Connecticut has exceeded compensation in many comparable positions in the private sector.

Additionally, as their unfunded liabilities show, the state and municipal pension systems have permitted governors, state legislators, and municipal elected officials to promise benefits without fully appropriating for them.

So these elected officials have reaped the political support of the government employee unions while transferring the expense of that support far into the future.

That could happen again, and since the public pays little attention to the long-term financial details of government, it almost surely will.

Of course this doesn’t mean that government employees should go without retirement savings plans. It means that they should be paid well enough that they can finance their own retirement, as most private-sector workers do to supplement their Social Security.

As things are structured now, most government employees couldn’t care less about fairness or unfairness in Social Security or about the system’s solvency. Incorporating government employees into Social Security would bring the system enormous political support, which it badly needs.


A lesser but still shocking cause of state government’s huge unfunded pension liabilities was disclosed two weeks ago by a report from the Yale School of Management.

According to the report, Connecticut state government’s pension fund performance from 2017 to 2022 was the second worst among the states, exceeding only North Carolina’s.

The median rate of return on state pension funds in that period, according to the report, was 7.79%, while the return on Connecticut’s state pension fund was only 5.4%. The report concluded that if Connecticut’s fund had performed at the median rate, it would have gained another $5 billion.

The report attributed this underperformance in large part to the state treasurer’s practice of delegating fund management to investment firms of no special talent. Indeed, ever since the state pension fund scandal of the late 1990s, when state Treasurer Paul J. Silvester was convicted of corruption involving his assignment of fund management to investment firms that paid him kickbacks, the treasurer’s office should have been putting pension fund money into basic stock index funds, avoiding high management fees.

Instead state treasurers continued to preserve their ability to assign pension fund management contracts as political patronage.

The Yale study should put an end to that, but probably won’t.


Chris Powell is a columnist for the Journal Inquirer in Manchester, Connecticut. (