Ignoring It Won’t Make it Go Away: Connecticut’s $51 Billion Unfunded Retiree Liability
Connecticut’s state government administers retirement benefits for state employees, teachers, and those in the judicial system. These three groups include about 175,000 working or retired people. Of those, 71,781 drew pension benefits in FY 2008.
The state estimates that pension obligations for active and retired state employees, teachers, and judges total $41.3 billion. Yet, the state has only set aside $25.5 billion in assets to pay for these obligations. As a result, the defined benefit retirement system is massively underfunded. The pension system reports an unfunded liability of $15.9 billion – an amount nearly equal to the state’s entire annual budget.
New analysis by the Yankee Institute concludes that Connecticut’s real unfunded liability is actually even bigger. Pension liabilities are being dramatically underestimated by the state because of unrealistic assumptions about discount rates and rates of return. This new study finds that the real pension liability is between $50.4 billion and $80.7 billion. Applying the $25.5 billion that has been set aside to cover these expenses, the state’s unfunded pension liability is more like $24.9 billion to $55.2 billion, or at least 56 percent higher than currently forecast.
That’s just pension liability. On top of that is Connecticut’s Other Post-Employment Benefits (OPEB) system, such as health and life insurance, which is in even worse shape. The OPEB system has zero assets set aside to pay for $26 billion in obligations. Without offsetting assets, the OPEB system operates on a “pay-as-you-go” basis which maximizes the tax burden on the shoulders of Connecticut’s taxpayers.