The Center for Retirement Research at Boston College (CRR) recently provided an assessment of Connecticut’s two largest pension plans: the State Employees Retirement System (SERS) and the Teachers’ Retirement System (TRS).
The brief shows that the state’s SERS is heavily underfunded, with a funded ratio of only 42 percent in 2014, among the lowest in the nation. The pay-as-you-go structure during the 1939-1971 period was a major cause of the plan’s current low funded status. Even after the state started to pre-fund the plan in 1971, the unfunded liability has kept growing due to in inadequate contributions, insufficient investment returns, and negative actuarial experience, all of which are commonly present in poorly funded public plans. Among those factors, inadequate contributions have contributed the most to the rise in SERS’s unfunded liability since 1985. The substantial pension debt has been translating to high pension costs, which are expected to steadily increase in years to come and may skyrocket if the assumed investment returns do not materialize.
The brief offers a two-pronged approach to improving the system’s finances: 1) a separate, more flexible funding scheme for liabilities associated with members hired before pre-funding; and 2) stricter funding of the ongoing plan, including switching to a level-dollar amortization method and reducing the assumed rate of return.
To read the brief, go here.