Malloy makes a deal
The savings, particularly over the long term, may well be worth swallowing the unpleasant medicine in the form of that benefits’ contract extension.
T he one major concession Gov. Dannel P. Malloy made in his negotiations with the leadership of the coalition representing unionized state workers is a doozy. It would extend the contract covering worker benefits to 2027, five years beyond the current expiration date.
Locking in health insurance, pension provisions and other benefits for a decade is a treacherous step. Much can change in that time and things have not been changing for the better lately in Connecticut, at least when it comes to state fiscal matters.
Yet it is only fair to acknowledge that the Malloy administration got substantial concessions in return, changes that, for newly hired employees at least, essentially converts what is now a state-funded retirement plan to a state-sponsored plan largely paid for by employee contributions.
As for the legacy of the high-cost but underfunded pension benefits the state has offered in the past, this labor settlement offers the chance to stop the bleeding.
The state is entering a phase of increased retirements, a trend provisions in this deal should accelerate. This means if the deal is approved — and both union members and the legislature must give their OK — any new hires will be enrolled into the new tier, self-sustaining model.
Malloy said this week that the agreement would produce savings of more than $20 billion over the next two decades. The legislature needs to test and substantiate the claim. Whatever the number, however, this deal will produce considerable savings that would significantly improve the state’s fiscal outlook over the long term.
The immediate savings appear solid — $1.55 billion over the next two years — meeting the governor’s labor-savings target toward fixing the state’s $5 billion fiscal shortfall over the next two years.
The savings, particularly over the long term, may well be worth swallowing the unpleasant medicine in the form of that benefits’ contract extension.
New workers would move into a hybrid pension/defined contribution plan. These workers would have to contribute 5 percent of their pay toward funding the pension portion of their retirement, 1 percent (matched 1 percent by the state) to their defined contribution 401(k)-style portion of their plan. That combined 6-percent contribution could move to 8 percent if the pension fund is not growing as forecast.
“The plan we have going forward is almost entirely funded by the employees … the amount the employees will contribute to this (new) Tier 4 is approximately the value of the plan from an actuarial perspective,” said Ben Barnes, secretary of the Office of Policy and Management.
Existing employees would see the contributions toward their pensions double from 2 percent to 4 percent of pay. Only 60 percent of overtime earnings would be applied toward pension calculations, whereas 100 percent of overtime is now calculated. Zero would be better, but negotiations are often about getting half a loaf or, in this case, a bit less for the state.
The deal would delay for 30 months any cost of living adjustment for a worker who retires after July 1, 2022 and the state for the first time would cap COLAs, at 2 percent.
The deal would move retirees into the more affordable Medicare Advantage Plan. Existing workers would see the cost of their premium contributions rise from 12 percent to 15 percent. Co-pays for treatments and medicines would also increase.
State workers would not see pay hikes for three years, followed by 3.5 percent raises in 2020 and 2021. They get protection over that time from layoffs, but it should not be an issue given staff reduction due to retirements.
It is questionable whether a Gov. Malloy who was seeking a third term and needing union support — he is not running — could have gained these concessions. Given changing political winds, labor leaders made the calculation to trade gold-standard benefits for bronze in return for benefits and job security.
Much debate remains, but this proposal deserves serious bipartisan consideration. Rejection would leave the state in a perilous and uncertain situation, something both union members and lawmakers should consider.