Retired teachers concerned about plan to reduce funding for pensions

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Retired teachers concerned about plan to reduce funding for pensions

By Nancy Thompson

Journal Inquirer April 02, 2003

The retirement fund already is about $3.3 billion short of the amount it is obligated to pay out, and the governor's proposal to freeze contributions at the current level for two years would worsen that, according to Michael Norman, a retired Manchester teacher who is legislative chairman for the Association of Retired Teachers of Connecticut.

William J. Sudol, the administrator for the Teachers Retirement Board, agreed that the move would increase the unfunded liability, but said that would not affect payments.

"It does not imperil the fund," Sudol said.

The fund has $10 billion, Sudol said, and is paying out about $750 million annually. It is continuing to earn investment income and to receive contributions from teachers who now are working, he said.

But Norman said retired teachers are "very concerned" that the unfunded liability will grow and that the money may not be there for future retirees. Teachers do not pay into the federal Social Security system and receive pension benefits only through the retirement board.

Norman said that actuaries predict that payments from the pension fund will exceed income from active teachers in 2010. Teachers are concerned that those who now are paying into the system won't get money from the state to match their contributions.

A 1979 law requires full funding of the teachers retirement system, but, with the exception of 2001-02, funding has been frozen at 85 percent since 1992, according to the board. The governor's proposal would pay 68.5 percent of the amount actuaries say is required for 2003-04 and 65 percent of the certified amount for 2004-05.

Sudol said the state should be paying about $270 million in 2003-04 and $281 million in 2004-05; the governor is proposing to freeze the amount at $185 million in each of the next two years.

That will save the state, which is struggling to craft a balanced budget for those years, $85 million in 2003-04 and $96 million the following years, according to the governor's budget document.

It also will cost more down the road, Sudol said.

The state eventually will have to make the payment to the fund to meet its obligations to retired teachers, Sudol said, and it will have lost out on the chance to earn interest on the money.

Norman said the teachers are concerned that the state may renege on its promise to match teachers' payments into the pension plan.

According to a November 2002 report from Office of Legislative Research, the state's obligation to maintain teacher-retirement benefits is "unclear."

"If the teachers' retirement benefits are entirely dependent on state law, which they appear to be, then they can be changed at any time," the report states.

Norman said Connecticut is unique in that regard. Other states protect teachers' pensions through contract or by constitutional provision.

A bill sponsored by Sen. Mary Ann Handley, D-Manchester, and Rep. Melody A. Currey, D-East Hartford, that would establish a contractual right of teachers to their pensions is slated for a hearing Tuesday, April 8, before the legislature's Appropriations Committee.

"That would make all the difference in the world," Norman said, noting that the state has made arbitrary changes in benefits, such as reducing cost-of-living increases.

Rowland also is proposing legislation that would increase teachers' contributions to the Retired Teacher Health Insurance Premium Account. Under his proposal, active teachers' contributions would increase from 1 percent to 1.25 percent in 2004.

The state and the retired teachers now each pay one-fourth of the premium cost, with the account picking up the rest. Beginning in 2005, the state and retirees each would pay one-third, reducing the account's payment to one-third, under the proposed legislation.

That is expected to keep the account solvent, Sudol said. Norman said it has been projected to run out of money in 2005 without the change.

The state has about 23,000 retired teachers and 49,000 active ones, Sudol said.