Connecticut should phase in a reduction of its investment return assumption for pensions to 7% from 8% to conform "more realistically" to expectations for capital markets performance, according to state Treasurer Denise Nappier.
"This transitional approach will ease budgetary pressure, given that the state's annual pension contributions will grow when the return assumption is lowered," Nappier said in an analysis of Gov. Dannel Malloy's proposals for funding the state's largest pension plans.
Bond rating agencies would label such a move a credit positive, she told the state's Investment Advisory Council.
Nappier also said she would change the method for calculating the state's contributions to the State Employees' Retirement Fund from level percent of payroll to level dollar. "This will improve the funded status more quickly by employing a more aggressive plan for paying down the unfunded pension liability," she said.
In addition, Nappier would convert to a rolling amortization period when the funded status of SERF reaches an adequate level at 75%. This would delay full funding, she said, while but placing less pressure on financing the unfunded liabilities by smoothing annual pension contributions and avoiding a balloon payment when compared with the current closed 2032 amortization schedule.
Nappier opposes things she describes as gimmicks, such as retirement incentive programs.
In November, the Center for Retirement Research at Boston College waved red flags in a report that said if SERS and the Teachers' Retirement System, if funded under the existing approach and if investment returns meet assumptions, would require Connecticut's contributions to double from $2.5 billion to roughly $5 billion around 2032.
Malloy commissioned the report.
