While past governors legislatures and governors get much of the blame for Connecticut’s massive pension debt, a new analysis says politically appointed oversight boards should share the heat both here and in other states.
A recent analysis from The Manhattan Institute, a conservative, New York-based public policy group, also charged that labor representatives on these boards risk long-term pension stability to achieve short-term union objectives.
“Among the sources of the underfunding malaise are the boards that oversee the pension funds,” the report states. “ … Unfortunately, the incentives of board members lead them away from protecting employees and taxpayers from major financial risks.”
In 2016, states’ pension funds held — on average — enough assets to cover 69 percent of their long-term obligations.
In Connecticut, which underfunded its pension programs for more than seven decades between 1939 and 2010, the state employees retirement system’s funded ratio is 37 percent. The teachers’ pension is better,p at 56 percent, but it also benefitted from a $2 billion deposit the state borrowed — at about 5.8 percent over 25 years — in 2008.
The typical pension board has five to 15 trustees, usually a mix of appointees by governors and legislatures, and current and retired workers selected to represent labor.
In some states, these appointed pension boards decide how billions of dollars in pension assets are invested. In others, like Connecticut, the pension investments are controlled by the treasurer’s office.
But in many states, including Connecticut, these boards play a key role in helping to determine how much states must budget for pension contributions.
In Connecticut, the State Employees Retirement Commission and the Connecticut Teachers Retirement Board not only administer retirement benefits, they also set the discount rate — the assumed average rate of return on pension investments.
This is key because the higher the assumed rate — the more money the panels estimate pension fund investments will earn — the less money governors and legislatures must budget for pension fund contributions.