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advocacy community education
It's rare to succinctly state a universal
truth that so many of us want to ignore.
John Bogle delivered a speech in 2005
entitled "The Relentless Rules of
Humble Arithmetic" to wake up a group
of financial analysts to a reality they
would rather ignore. Ever since I read
the speech, I've been smitten with the
title. So, I'm stealing it (with apologies
and thanks to John Bogle), because
sometimes you just can't fight the
mathematical realities.
It was my privilege to serve on
Connecticut's Other Post-Employment
Benefits (OPEB) Commission. We
began our work in March 2010 and
submission of our report to Governor
M. Jodi Rell. The purpose of the
commission was to identify and review
Connecticut's state pensions and
OPEB structure and propose options
to begin to reduce the liabilities'
unfunded percentages.
Here's what I learned about the system.
There are three major pension plans
for state employees: the state employ-
ees retirement system (SERS), the
teachers retirement system (TRS),
and the judicial retirement system.
SERS has three tiers with its plan, with
progressively less generous benefits:
Tier I, Tier II, and Tier IIA. There are
benefit variations within each tier for
hazardous vs. non-hazardous duty.
The current SERS contract is in effect
until 2017.
Connecticut received its latest actu-
arial valuation in November 2010.
The SERS plan is 44.4 percent fund-
ed and has an unfunded liability of
$11.7 billion. Our funding ratio is one
of the lowest in the country.
The largest percentage and dollar
amounts of Connecticut's unfunded
liabilities relate to retiree and depend-
ent healthcare (OPEB). Connecticut
is wholly unfunded (less than 1 per-
cent funded), and the total liability is
in the $27 billion range.
Connecticut allows people who had
served in state employment for
10 years, but left for other employ-
ment, to return at retirement for full
retiree/dependent healthcare benefits.
In 1992, pension and OPEB were
5.5 percent of the state budget; in
2009, they were 9.69 percent of the
budget. They are projected to
increase to 18.35 percent of the
budget by 2032, assuming average
growth in state spending.
In 2010, the annual required contribu-
tions to the plans are in the $3 billion
range; they are projected to increase
to the $9 billion range by 2032.
Connecticut tax receipts from all
sources averaged about $12.5 billion
from June 2006 through June 2010.
Income tax averaged $6.6 billion. In
total, 37.8 percent of the income tax
receipts came from 29,000 out of
1.74 million Connecticut taxpayers.
What I Learned Serving on Connecticut's
Other Post-Employment Benefits Commission
By Julie McNeal, CPA, CSCPA Membership and Finance Director
The Relentless Rules of Humble Arithmetic