background image
Given current contractual obligations,
liability projections are dependent on
many factors, including the actual
and assumed rates of return on plan
assets, the smoothing of investment
gains and losses, the assumed and
actual rates of medical inflation,
whether or not the state pays its full
actuarial required contribution, the
age of retirement, and longevity of
plan beneficiaries.
Replacing the state's defined benefit
plan with a defined contribution plan
will not reduce the pension's unfund-
ed liabilities because eventually a
closed plan would only have retired
members. The investment options
would be limited (and would need to
be very conservative) and no state
contributions associated with current
workers would be added to the plan.
Healthcare cost and availability is the
driver of cost trajectory of both the fed-
eral/state entitlement/OPEB costs.
The demographics of the baby
boomer generation and the structure
of federal entitlements guarantees
that the federal Social Security and
Medicare systems will be most
stressed at the same time as
Connecticut is facing huge shortfalls.
A federal bailout of state pension
plans is unlikely to be a good solution
for Connecticut's public retirees and
their dependants. It is not logical that
taxpayers in less generous states
would look kindly on bailing out
"wealthy" Connecticut.
There is no single or simple solution.
Strategies to Consider to Reduce
the Growth of Connecticut's
Pension and OPEB Liabilities
Paying the actuarial required contri-
bution (ARC) is the surest way to
reduce the unfunded liability. ARC
calculations are annual and consist of
the normal cost of retirement benefits
earned by working employees during
the year and the amount necessary
to amortize the existing unfunded lia-
bility over no more than 30 years.
advocacy community education
11
The largest unfunded liability on all states' financials,
not just Connecticut's, is for healthcare.
(continued on next page)
paid advertisement