The best intentions can sometimes lead to bad outcomes. While the State of Connecticut has been relatively aggressive in funding its pension for the past 14 years, it still has a $27 billion unfunded pension liability. Its funding ratios are near the bottom of the state pension rankings. At 42% for its State Employee Retirement System (SERS) and 59% for its Teachers’ Retirement System (TRS), funding levels surpass only last place Illinois.
Connecticut is one of the wealthiest states in the Union, but its pension funding levels are so low that the Center for Retirement Research at Boston College (CRR) was asked to perform an analysis of the state’s retirement systems to determine the factors that contributed to the problem. The CRR identified four factors that have contributed to the state’s low funding levels:
Our readers are well aware that pension liabilities are of major focus for us as we analyze the financial condition of municipalities. Some states, like Connecticut, we avoid entirely because of these issues. CT is selling $650mm of general obligation bonds this morning, but we’ll be on the sidelines as the yields on the bonds don’t adequately compensate investors for the long-term risks presented by these types of issues.Source: The Center for Retirement Research at Boston College, SNWAM Research