Gov. Dannel P. Malloy deserves credit for making significant progress in addressing the state's underfunded pension and retiree health care liabilities. Wrestling these long-term obligations into something manageable could prove to be among the governor's legacies.
Past governors, with the acquiescence of lawmakers, have often found it politically expedient to ignore these funding requirements. To avoid budget cuts or tax increases, they have transferred payments intended to fund pension obligations into the general fund and left contributions to pay for future retiree health care for another day.
Just keep the voters happy for the next election and let the future, and some future governor, deal with the problem. Such was the thinking. But now the problem looms closer and the state's bond rating has suffered as its unfunded liabilities grow.
The latest evidence that the Malloy administration is taking such matters seriously was the recent announcement by Comptroller Kevin Lembo of a big reduction - about $13.3 billion - in the size of the projected unfunded retiree health care liability, from $31.2 billion as of June 30, 2011 to $17.9 billion now.
About $6.2 billion of the reduction is attributable to agreements between the state and its labor unions to establish and fund a post-employment benefit trust fund. About another $5 billion results from changes in the retirement insurance plan design, including contribution requirements for employees and retirees, introduction of a health wellness program to lower medical outlays, and other policy changes.
And $2.12 billion is tied to negotiated increases in employee and state contributions.
Changes in the state pension plan will likely lead to employees in the future retiring at older ages, delaying their participation in the retiree health insurance program, and further reducing the liability, though those possible savings were not calculated in the report.
While the focus of last year's deal with state employee unions was short-term savings to address a massive projected deficit, one under-reported result was its potential for sizeable pension savings. Increased penalties for early retirement will encourage state employees to work longer and by 2022 the normal retirement age will raise to age 63 or 65, depending on date of hire. The result is $21 billion in projected pension savings over the next two decades.
As important, Gov. Malloy earlier this year initiated steps to boost state contributions to the pension plan. That strategy - akin to doubling up on the mortgage payment to cut interest costs - begins next year when contributions to the pension fund will grow to $1.06 billion, about $125 million more than existing plans called for, and to $1.3 billion the year after, a $429 million jump. If faithfully followed, the approach of increasing contributions could save $5.8 billion over the next 20 years and avoid looming balloon payments of $3.3 billion in 2029 and $4.5 billion in 2030.
Of course, there are no guarantees that this or some future governor won't again abandon long-term obligations for short-term political convenience. But in a relatively short time, Gov. Malloy has significantly improved the situation.
Paul Choiniere is editorial page editor.