Teacher pension predicament requires enlightened solutions

Each new year offers the potential for a fresh start, but progress in 2018 will be challenging in Connecticut.

At year’s end, Gov. Dannel P. Malloy and legislators were still tussling over budget issues, the state continued to lose jobs, and none of the preliminary gubernatorial candidates offered honest solutions to the state’s fiscal quagmire.

Then there’s the Teacher Retirement System, ranked fourth worst nationally in terms of the ratio it funds at 44.1 percent. As Malloy said, “Connecticut simply cannot afford annual payments of $4 to $6 billion into this fund. … if we don’t act, there will be no way to meet these obligations without hollowing out major state programs such as Medicaid and municipal aid.”

Such words rub salt into the wound for teachers, who will see their contribution to TRS increase in 2018, thanks to the new state budget. Teachers were not involved in this decision; it was simply added as an extra revenue source.

The Connecticut Teachers Association called the increase a “payroll tax” since “it replaces and supplants dollars that are supposed to be contributed by the state. By reducing the state’s payment, the state pockets the pass-through revenue of $38 million — just as if it were general tax revenue.”

But that debate is over. My first increased contribution comes out of next week’s paycheck.

I can hear the critics: “Oh, cry me a river! At least you have a pension.”

Foremost among the skeptics: The Yankee Institute, which notes that while Connecticut teachers neither pay into nor receive Social Security, “they receive some of the highest pensions in the country. The average Connecticut teacher pension is nearly $60,000, according to the Office of Fiscal Analysis.”

Not to mention, “Connecticut teachers [are] paying less than the national average of 8 percent and far less than the 11 percent contribution required in Massachusetts.”

Plus, it is true teachers are among the few workers who still have a pension — only 3 percent had one in 2012, according to the Employee Benefit Research Institute, down significantly from 28 percent in 1979.

The reality, however, is much more complicated.

To begin, Connecticut’s high teacher pensions are tied directly to the state’s sixth most expensive cost of living in the country. What’s more, only four states — Pennsylvania, Illinois, West Virginia and Connecticut — compel teachers to work 35 years to qualify for top retirement benefits. Since pensions are calculated as a percentage of a teacher’s highest salary in the final three years of service, it logically follows that pension averages in Connecticut reflect the additional experience and accompanying salaries of its retiring teachers.

In addition, the publicized 7 percent that teachers now pay toward retirement — up from 6 percent — does not account for the extra 1.25 percent deducted from every paycheck for retired teachers’ health benefits. Any way you slice it, that’s 8.25 percent of my pay deducted for retirement, a sum above the national average. Granted, it’s a price I will gladly pay — so long as the funds are still there when I retire.

The state contributed $1 billion, or 6 percent of the General Fund, to TRS last fiscal year — an amount likely to increase by 33 percent over the next two fiscal years. The Center for Retirement Research at Boston College projected that, at that current rate, the state’s annual payment would exceed $6.2 billion by 2032. In short, the very existence of TRS is in jeopardy. So what to do?

One thing not to do, State Treasurer Denise L. Nappier might say, is to ask teachers to increase their contribution again.

“Nappier said the state’s contribution to the teachers’ pension is to be reduced by the same amount as the teachers’ increased payments — about $59.5 million over the two-year budget. But the teachers’ contributions are also factored into determining the value of their pensions. Therefore, when teachers pay more, they will eventually collect more. According to Cavanaugh MacDonald Consulting, the state’s actuarial consultants, the state will end up owing an additional $20.4 million.”

Clearly, more enlightened thinking is needed. The National Council on Teacher Quality offers some noteworthy suggestions, such as offering teachers a choice between a traditional pension and a 401(k)-type plan. Also mentioned are “hybrid” plans that combine pensions with a 401(k.)

Admittedly, there are no easy solutions. But the governor, legislators, and teachers — indeed, how about including teachers? — need to come up with a realistic, long-term solution that makes sense for everyone involved. In that way, maybe 2018 really can become an opportunity for renewal in Connecticut.