Connecticut Leaders Agree to Reform State Pension System

Connecticut Governor Ned Lamont and Comptroller Sean Scanlon announced earlier this month they have reached an agreement with municipal and labor leaders deal to reform the Connecticut Municipal Employees Retirement System.

Lamont and Scanlon state that the deal will save more than 100 cities and towns in the Constitution State more than $840 million over the next 31 years, including more than $32 million in fiscal 2024.

Scanlon, who became the state’s comptroller in January, is overseeing a working group made up of labor and municipal leaders that was created to address the rising cost of the state-run pension plan for municipal public-sector employees. According to Scanlon’s office, employer contribution rates increased an average of 75% over the last five years, while the plan’s unfunded liability tops $1.1 billion.

Following six weeks of talks and negotiations, the working group agreed to six reforms, including amending cost-of-living adjustments and re-amortizing the unfunded actuarial accrued liability to 25 years from 17 years. The group also agreed to increase the pension calculation multiplier for those with longer service and to offer a deferred retirement option plan in an attempt to encourage retention of municipal employees.

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Additionally, the group agreed to improve data collection related to the state’s municipal pension plans to help inform governance structure best practices, as well as other ways to make the plan more attractive to new towns.

“Reaching an agreement on the future of our municipal retirement system is not only important for the sake of ensuring its continued ability to fund pensions for the workers who have earned them,” Lamont said in a release, “but this is also needed to protect taxpayers by providing financial relief to cities and towns.”

AFSCME Council 4, a labor union that represents approximately 15,000 municipal government and board of education employees in Connecticut, supports the reform, stating that the changes strengthen the overall system by improving worker benefits and lowering costs to encourage additional towns to participate.

“During a time when pension benefits in Connecticut have eroded over the past decade, we are excited this agreement is a win for municipal and BOE employees,” AFSCME Council 4 Executive Director Jody Barr said in a statement.

Some of the reforms will require legislative changes and approval from the Connecticut State Employees Retirement Commission. Scanlon’s office said it is seeking to pass several legislative changes this session and has agreed to continue the working group into next year to consider additional reforms.

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Tags: CMERS, Comptroller, Connecticut, Connecticut Municipal Employees Retirement System, Ned Lamont, Pension Reform, Sean Scanlon

Gary Gensler

The Regulation Best Interest rule overseeing how financial advisers make recommendations to clients cannot be treated as a “check the box” exercise, Securities and Exchange Commission Chairman Gary Gensler said at the Financial Industry Regulatory Authority’s annual conference on Tuesday. He discussed Reg BI and Reg BE, as well as artificial intelligence and what each means for advisers and broker/dealers.

Gensler took the chance to reiterate the SEC’s views on Reg BI to the audience of financial sector players just a little less than a month after the regulator put out renewed guidance on Reg BI that calls for advisers to gain a more detailed understanding of their clients and for ensuring a broad array of investment options. On Tuesday, Gensler emphasized that advisers need to look at “more than suitability” and consider all costs and alternatives to be sure their advice is truly in their clients’ best interest, not merely an acceptable recommendation.

The SEC head also made comments about the Regulation Best Execution rule, an SEC proposal made in December 2022 to establish a regulatory framework for the best execution of securities trading for brokers and dealers. FINRA President and CEO Robert Cook, asked Gensler why it was necessary for the SEC to propose a new Reg BE when FINRA, a non-profit overseen by the SEC, already has one.

Gensler responded by saying that Reg BE “is far too fundamental an area” for the SEC to not have it on its books. The SEC, as part of the “official sector,” should have its version of Reg BE and not “rely on a self-regulatory organization,” he said, adding that he was surprised the SEC did not already have such a regulation when he first joined the SEC.

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During the conversation with Gensler, Cook recommended that listeners refer to SEC staff bulletins on Reg BI. These include one on conflicts, which highlights the need to mitigate conflicts and not just disclose them; and another on the Care Obligation, which urges advisers to consider the unique needs of each client and carefully consider alternatives.

At the Washington, D.C.-based gathering, Gensler also weighed in on the potential use of artificial intelligence in financial advising and how such development would be regulated. The SEC head said that predictive AI can help optimize a client’s best interest and can bring greater access to advice and offerings, but that implementation will depend on how the AI is programmed and trained. There are many factors that go into optimal investment advice, and if an AI platform is made to help a brokerage or adviser, then that can introduce new conflicts of interest, Gensler said.

There are currently no proposals to regulate AI, though the chairman did discuss the perils and potentials of AI at a hearing hosted by the House Committee on Financial Services in April, saying that the key regulatory interest in AI is from the perspective of a fiduciary—making sure the technology advances a client’s best interest.

Lastly, Gensler discussed the four market structure proposals that the SEC has brought forward during his tenure, which cover a broad range of issues in the equity markets and include Reg BE. Gensler referred to the proposals as an “important set of initiatives.” He said that the previous update of equity markets was in 2005, and economic and technological changes justify the proposals made in December 2022.

Tags: FINRA, Gary Gensler, SEC