4 Hartford Business Journal • November 23, 2015 www.HartfordBusiness.com
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plan is amortized to include back-loaded pay-
ments, which is another thing the administra-
tion wants to change.
But the governor said the state has no
choice but to act now and pay for its past
failures to fund the plan, which wasn't pre-
funded until the 1970s.
Malloy's plan has drawn doubts from
several state officials, including Treasurer
Denise Nappier and State Comptroller Kevin
Lembo. Nappier argued any plan alterations
could violate bond covenants related to $2
billion in debt the state took on in 2008 to
help fund its teacher's pension fund.
Meanwhile, Comptroller Kevin Lembo last
week unveiled an alternative pension-funding
proposal that includes extending the current
amortization period, lowering investment-return
assumptions, and changing the methodology for
amortizing gains and losses based on variations
between actual and assumed experience.
Lembo also proposed regular indepen-
dent comprehensive audits of the plans'
actuarial valuations to determine the rea-
sonableness of the actuarial methods and
assumptions being used.
He did not support Malloy's plan to split off
Tier 1 retirees on a pay-as-you-go basis, argu-
ing it raises to many legal, financial and other
questions.
Barnes said the administration will work to
convince key stakeholders that its plan is the
best way forward. The state also plans to hire
lawyers and actuaries to better vet the proposal.
"We should have a plan implemented over
the coming months," Barnes said.
The administration must also convince
unions to accept some of the changes. While
wage negotiations are happening now with
nearly all state-employee unions, the union
coalition SEBAC isn't required to agree to
open pension negotiations until 2022.
'No' to 401(k) conversion
The number of defined-benefit pensions
has fallen sharply in the private sector, as
companies look to cut costs and liabilities.
What about converting Connecticut state
workers to 401 (k) plans?
It would make only a marginal difference in
annual required contributions because so much
of that money goes to the unfunded liability,
Barnes argued. Plus he said pensions help the
state attract "long-term, committed employees."
He said the state's newest pension system
"Tier III," for employees hired in fiscal year 2012
or later, has helped lower costs. The administra-
tion pushed for the creation of Tier III in 2011.
"Tier III and social security is a safety net
retirement," Barnes said. "It is not a second-
house-in-Vermont kind of retirement."
Putting those employees into a defined-
contribution plan might actually be more
expensive, Barnes said.
Pensions for those Tier III workers cost
the state approximately 3 percent of payroll,
which is right around the national average for
401(k) plans. n
Pension Split
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Comptroller Kevin Lembo agrees with some of Malloy's pension reforms, but thinks splitting the pension fund is risky.
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