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Local: Time for a reset on Connecticut’s pension crisis

August 1, 2018 By John Calabrese
Local: Time for a reset on Connecticut’s pension crisis

Litchfield's John Calabrese argues it's "time to bring back fiscal responsibility to the statehouse and back away from the abyss of insolvency."

Connecticut has a chronic crisis: pension funds. Pensions fill an important need for retirement and are a valuable tool for employers to attract qualified workers. A properly-managed pension fund will sustain itself in this way.

Defined Benefit Pensions are purchased, not owed. Workers become eligible to purchase pensions by engaging in a contract with an employer. The contract means the employee will contribute into a fund, usually between six and nine percent of salary, and work a pre-determined number of years of service in return for a defined benefit after the employment term and has been fulfilled.

Pension benefits are drawn from a dedicated fund designed to cover the costs of the benefits, and not from the standard operating accounts of the employer. The sustainment of the fund is set by the actuarial recommendations. Specific formulas for contribution and distribution are followed to keep the fund solvent, by issuing benefits from the income earned by the fund thereby preserving the principle. A standard in the industry is that a fund is solvent if it is at 70 percent or higher of the actuary’s recommendation, in relation to the projected distributions.

A pension fund has three sources of revenue: employer contribution, employee contribution, and return on investments. They also have three areas of expenses: debt service if seeded by loans or bonds, management fees, and beneficiary distributions. Properly-managed funds produce a positive percentage balance, minus expenses from the income sources, annually.

It is the fiduciary and moral duty of a fund owner/administrator to adhere to the contribution and distribution guidelines set by the advisors. Federal and state laws also apply to the management, and provide certain protections, of these funds.

In the state of Connecticut, politicians and lobbyists have totally ignored the recommended formulas for sustainment of both the state employees’ pension fund and the teachers’ pension fund for decades. A sovereign state is not bound by some of the previously mentioned laws, so manipulating funds is not illegal, but it is poor governance. Pensions are purchased by contract, and the owner/administrator of the funds (the state) has not fulfilled its terms of the contract. The state’s formula for solving this massive problem is to whistle past the graveyard and dump the whole debacle on municipalities. This issue is only one part of the larger systemic problem of fiscal trickery from Hartford impacting our lives. Combined with exorbitant tax rates, corporate exodus, and the declining population of taxpayers, we are losing ground fast.

Connecticut, it’s time for a reset. It’s time to bring back fiscal responsibility to the statehouse and back away from the abyss of insolvency. Take back Connecticut in November.

John Calabrese is from Litchfield, Connecticut.

Op-eds represent the views of the author, and do not necessarily represent the editorial views of Reclaim Connecticut. If you’re interested in submitting an op-ed to Reclaim Connecticut, contact Andrew Lautz (alautz@reclaimct.com).