The Trouble with State Government Employee Pension Plans: The Case of Connecticut

Abstract

This article reviews the literature on the recent benefit and funding landscape of state and local government employee pension plans. Many plans, with generous benefit structures and inadequate funding, are in troubled financial condition. The state of Connecticut’s pension plans are a good illustration of that situation. The author simulates the range of funded ratios and actuarially determined contributions for the three large plans in 2030 under 10-year periods of historical annual investment returns and shows the substantial risk the plans represent to taxpayers. He then considers policy implications that include federal mandatory funding policy and the closing of the plans to new workers to cap the risk and replacing them with defined-contribution plans.