Connecticut lawmakers passed a pension agreement to which Gov. Dannel Malloy and state employees agreed in December, but only after Lt. Gov. Nancy Wyman's "yes" vote broke a party-line tie in the Senate.
"I do have to vote so there is a majority to pass this resolution," said Wyman. "And I will be voting yea."
Malloy and Wyman are Democrats. Republicans gained three seats in the November elections to pull even in the Senate, 17-17. The House of Representatives vote was 76-72, reflecting the Democrats' narrow majority.
The governor and the State Employees Bargaining Agent Coalition, in a move that bond rating agencies praised, agreed to lower the assumed rate of return for the State Employee Retirement System from 8% to 6.9%, while extending the amortization period for unfunded liability to 2046 from 2032. It also transitions from level percent of payroll to level dollar amortization over five years.
According to state budget secretary Benjamin Barnes, Connecticut will remain on schedule to retire $4.3 billion of the unfunded liability by 2032. The actuarially required contribution over the remainder of the new 30-year schedule will remain between $1.5 billion and about $2.3 billion, said Barnes, who estimated that the 8% assumption had pushed up Connecticut's unfunded liability by as much as $4.2 billion from 2001 to 2014.
Malloy estimated the unfunded liability for SERS at $15 billion. The agreement does not change contributions of retirees or current employees.
"This agreement was created to help put our state's finances on a path toward stability and predictability, which we need to create confidence and growth," Malloy said in a statement. "That is why so many applauded the plan and urged its ratification when we announced it – including the business community and national credit rating agencies."
Wednesday's split Senate vote could portend friction during debate over the fiscal 2018 budget, which Malloy is scheduled to release next week.
S&P, Fitch Ratings and Kroll Bond Rating Agency rate Connecticut's general obligation bonds AA-minus while Moody's Investors Service assigns an equivalent Aa3 rating. S&P and Moody's have negative outlooks while Fitch and Kroll have stable outlooks.
State Treasurer Denise Nappier had urged passage of the measure, citing commitment to an actuarially funded plan, upholding the 2032 deadline for paying off at least some of the unfunded liability, the lowered rate of return assumption and a transition to more stable annual contributions.
Still, Nappier said it doesn't go far enough. She called for an "ironclad commitment" to stick to the funding schedule and a strict limit on the use of 25-year phase-ins to avoid using them for benefit enhancements such as early retirement incentive programs that could cost the state in the long run.
Republicans sought unsuccessfully to delay the bill. GOP leaders wanted the state to contribute $200 million more annually to reduce the financing period by seven years, and to increase state employee contributions by 4%, with a cap on cost-of-living adjustments.
"We asked to have the matter postponed was only so we could look at different options," said Len Fasano of North Haven, the Senate's Republican president pro tempore. "This may be the best. I don't know."
