Testimony Regarding S.B. 873, An Act Stabilizing the Teachers' Retirement Fund
Katie Roy, Executive Director & Founder
Appropriations Committee
Friday, April 5, 2019
Chairwomen Osten and Walker, Ranking Members Formica and Lavielle, and distinguished members of the Appropriations Committee:
Thank you for the opportunity to submit testimony on S.B. 873 and Governor Ned Lamont’s efforts to improve the financial health of the Teachers’ Retirement System, address some of the fiscal challenges the system poses to Connecticut’s state budget, and ensure this important pension fund remains solvent.
My name is Katie Roy and I am the executive director and founder of the Connecticut School Finance Project, a nonpartisan, nonprofit policy organization based in New Haven that works to identify solutions to Connecticut’s school and state funding challenges that are fair to students, taxpayers, and communities.
With a below average funded ratio of 57.7 percent, more than $13.1 billion in unfunded liabilities, and annual contributions from the State of Connecticut projected to rise each year until fiscal year 2031, the Teachers’ Retirement System (TRS) is in need of significant reforms such as those proposed by the governor.
Similar to reforms to the State Employees Retirement System that were agreed to by the administration of then-Governor Dannel Malloy and the State Employees Bargaining Agent Coalition, and passed by the General Assembly in February 2017, S.B. 873 would:
- Transition the amortization methodology for the TRS from level percent of payroll to level dollar over a 5-year period;
- Replace the existing amortization schedule with a new 30-year schedule, and allows future gains or losses to be amortized over new 25-year periods; and
- Reduce the assumed rate of return for the TRS, subject to the approval of the Teachers’ Retirement Board, from eight percent to 6.9 percent.
Additionally, S.B. 873 would help ensure Connecticut abides by the bond covenant for the Pension Obligation Bonds (POBs) it issued in 2008 by establishing a Teachers’ Retirement Fund Bonds Special Capital Reserve Fund to secure the payment of the principal and interest for the POBs. S.B. 873 further allows lottery revenue to be transferred to this fund if needed.
Conceptionally, the Connecticut School Finance Project supports the reforms to the TRS contained in S.B. 873 and applauds the governor and members of the General Assembly for working to address the significant fiscal challenges posed by the TRS’ unfunded liabilities that built up over decades.
However, our organization is concerned about the lack of actuarial information and data that has been made publicly available regarding these reforms. So far, no reamortization schedule or actuarial estimates detailing the financial impact of these proposed reforms have been publicly released and available for discussion.
As was done during the previous gubernatorial administration, the Office of the Governor and the Office of Policy and Management should publicly release the actuarial analysis performed examining the impacts of these proposed reforms and how they are projected to affect the funding of the TRS and the State’s future contributions. Without this necessary information, a full and proper discussion of these reforms is not possible and the public will be left in the dark about changes that are of significant importance to the fiscal health of Connecticut.
Thank you again for allowing me the opportunity to provide testimony on S.B. 873, and I hope the important and necessary actuarial information pertaining to these proposed reforms is publicly released so Connecticut residents can better understand the impacts of the changes and a more complete discussion can occur. Should you have any questions, please feel free to reach out to me via the contact information below.
Sincerely,
Katie Roy
Executive Director & Founder
Connecticut School Finance Project