The State Labor Deal and the Resulting Retirement Wave

Ned Lamont would have voters believe that he has engineered a “Connecticut Comeback.” On his campaign website, he claims to have turned a $4 billion deficit into a $4 billion surplus.

Lamont has had nothing to do with the temporary improvement in the State’s condition. The transitory improvement is based upon billions and billions of one-time federal assistance that will run out in a matter of months and upon a gusher of individual income tax revenue derived from a stunning decade-long stock market rally that ended nine months ago.

Lamont did have one critical task. He had 100% control over the negotiation of the new state employee wage contract, the SEBAC deal. Over the next decade that deal will cost the state an estimated $6.4 billion.

The SEBAC deal was supposed to prevent a long-feared wave of state employee retirements. It did not. Over 5,000 employees have retired over the last fourteen months, more than twice the normal rate. So many have retired that Lamont has had to hire back hundreds as temporary employees.

When the deal was approved by the Democrat-controlled General Assembly, its cost was calculated at $444 million for fiscal 2023. Yet, that excluded the resulting higher cost of pension benefits for the new retirees.

Given the enormous number of retirements triggered by the SEBAC deal, the “unrecognized increased SERS costs” of the deal are substantial and should – and can – be determined. They can be calculated today based on data available in OpenCT, the transparent source for state financial data created by former Comptroller Kevin Lembo.

According to OpenCT, SERS pension costs for state retirees, including those newly retired, were $215 million this past August. That translates into an annual rate of $2.6 billion for fiscal year 2023. OpenCT also reveals that SERS pension costs were $2.4 billion in fiscal 2022. Thus, pension benefits are running $200 million higher this year than last. The increase is almost entirely due to the huge retirement wave, with cost-of-living increases also a factor.

Adding the additional $200 million to the official SEBAC cost of $444 million brings the total cost of the SEBAC deal to $644 million in fiscal 2023. That cost increase will hit the state not only this year, but next year, the following year, and so on. Over a decade, that’s $6.4 billion.

Technically, the state contributes to the SERS pension fund, which, in turn, makes the actual benefit payments. However, the state is obliged to make contributions to the SERS fund sufficient for it to pay pension benefits.

Did this expensive employee turnover come as a surprise? No. For the last several years, there has been a fear that modest reductions in retirement benefits taking effect on July 1, 2022 would cause massive retirements in the months immediately beforehand as employees sought to avoid the reductions.

Lamont’s logical strategy would have been to schedule payroll benefits to take effect after July 1St to motivate workers to stay on the payroll, and so that the scheduled retirement benefit reductions would take effect and save the state money when employees retired later on.

Instead, Lamont gave state workers a wage increase retroactive to July 1, 2021, which was paid in lump-sum payments aggregating $85 million in the last quarter of fiscal 2022 (an average of $1,840 for each of the “46,237 All Funds union employees covered by this agreement”).

On top of that, he paid a $2,500 bonus to all employees last June 17th ($110 million in total). Together, these were big wet pre-retirement goodbye kisses, averaging $4,340 in cold hard cash per employee.

To add insult to injury the cash haul was added to their base pay used to calculate their pension benefits.

The longer-term result is that the ranks of state retirees have ballooned from 53,700 on June 30, 2021, according to the last SERS pension fund actuarial report, to about 58,100 receiving benefit payments last August.

That does not include the 830 retirees who appeared on the September payroll as “temporary workers” rehired over the last 14 months. Naturally, their pension benefit payments are suspended (and not included in the $200 million increase) while they are receiving wage payments.

When Lamont boasts of engineering a “Connecticut Comeback,” voters should understand that any improvement is temporary and is not something for which Lamont deserves credit.

Instead, voters should think about the SEBAC deal, something with long-lasting costs – think $6.4 billion over the next decade – for which Lamont is 100% responsible.

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