Connecticut lawmakers are considering increasing the state’s teacher pension contribution rate to 7% of a teacher’s pay from 6% as part of a new compromise budget package, according to think tank the Yankee Institute.
The increase in contribution rate is expected to raise $38 million per year, which could help offset the rising costs of teacher pension liabilities, which could increase by six times by 2032, according to the Yankee Institute. The rate would still be below the national average of 8%, and the 11% contribution required in Massachusetts.
However, “even with the proposed contribution change, Connecticut will have to make drastic cuts and tax increases to handle the projected increase in pension costs, or teachers may be forced to pay even more in pension contributions and get less in retirement,” wrote Mark Fitch in a Yankee Institute blog.
According to Connecticut’s Office of Fiscal Analysis, the state’s teachers do not pay into, nor receive, social security, but they collect some of the highest pensions in the country, as the average Connecticut teacher pension is nearly $60,000.
The state currently pays 23% of a teacher’s salary into the pension fund, but those payments are spent entirely on the unfunded liabilities, said the Yankee Institute. Of the $1.2 billion Connecticut paid for teacher pensions in 2016, more than $1 billion was to pay for the $10 billion in unfunded liabilities. The state is expected to pay $1.3 billion in 2018.
“Those liabilities threaten the stability of the teachers’ pension fund and state budgets in the future,” said Fitch.
Nearly half of all teachers leave the profession before becoming vested in the pension plan and Connecticut teachers have to work 25 years before they will see a return on their investment, said the Yankee Institute, citing a study by EdChoice.
Gov. Dannel Malloy originally proposed forcing municipalities to pay part of the cost of teacher pensions, an idea that was largely criticized because it would allegedly lead to property tax increases. In the latest version of the plan, municipalities would have to contribute $200 million annually to the pension system.
According to the Yankee Institute, a teacher who spends his or her career in the Connecticut system, for example from age 23 to age 60 1/2, will receive a retirement income of 75% of their salary. A cost-of-living adjustment is applied annually once a teacher begins to receive benefits, which are actuarially adjusted for various factors, such as early retirement.
Tags: Connecticut, Gov. Dannel Malloy, Pension, Teachers, Yankee Institute