Future Projections of SERS & STRS
This section models future projections for Connecticut’s State Employee Retirement System (SERS) and Connecticut’s State Teacher’s Retirement System (STRS), anticipating the trajectories of its funded ratio, unfunded liabilities, and state government contributions under different scenarios. To visualize the scenarios in more detail, visit the interactive funding model for SERS and STRS .
- a. Funded Ratio (MVA) Projections The projected funded ratio (market value of assets) of SERS and STRS from 2024 to 2053.
- b. Unfunded Market Liability: The projected unfunded market liability, adjusted for inflation, of SERS and STRS from 2024 to 2053
- c. State Government Contribution (% of Payroll): The projected state government contributions as a percentage of payroll for SERS and STRS from 2024 to 2053. This highlight the financial relief for state government under a more aggressive funding, reducing the burden on payroll, especially once pension debt is eliminated.
- d. All-In State Government Costs by 2053: The final table combines the total state government costs paid into SERS and STRS by 2053 and the final state of the unfunded liability by that date. Comparing these figures between different scenarios shows the potential long-term savings of paying down the debt sooner.
Scenario 1: Status Quo Employee and State Government Contributions
This scenario examines the expected financial trajectory of SERS and STRS over the next 30 years if funded solely through established employee and government employer contribution rates. This initial projection does not assume supplemental contributions from fiscal guardrails, which have previously accelerated the recovery of the funds.
This scenario illustrates the projected trajectory of the pension system when it is exclusively funded through Actuarially Determined Employer Contributions (ADEC). This projection assumes that both SERS and STRS achieves a steady 6.9% rate of return, and it does not encounter any economic recessions throughout the period being modeled.
Figure 9a. Funded Ratio (MVA) - SERS & STRS
Figure 9b. Unfunded Market Liability (Infl. Adjusted) - SERS & STRS
Figure 9c. State Government Contribution (% of Payroll) - SERS & STRS
Figure 9d. All-In State Government Costs by 2053 - SERS & STRS
| Scenario | Total ER Contribution (infl adj) | Ending UAL (infl adj) | All-in ER Cost (infl adj) |
|---|---|---|---|
Status Quo - SERS 6.9% Assumed Return | $37.53 B | −$20.97 M | $37.51 B |
Status Quo - STRS 6.9% Assumed Return | $34.63 B | $791.3k | $34.63 B |
Figures 9a and 9b illustrate the projections for SERS and STRS funded solely by employee and employer contributions. Under this scenario, if all actuarial assumptions are met, SERS is estimated to reach full funding by 2046 and STRS by 2047— as unfunded liabilities reach zero and the funded ratio tops 100%.
As the legacy pension debt is paid off and the plans approach full funding, government employer contributions as a percentage of payroll decline consistently. Actuarially determined employer contributions as a percentage of payroll are projected to stabilize around 3.5% for SERS by 2047 and 5.5% for STRS by 2048. This marks a significant reduction from the current rates of 80% and 55%, respectively, of payroll contributions for these plans.
Under present actuarial assumptions, the status quo contributive schedule will result in a total government (employer) contribution of $37.51 billion to SERS and $34.63 billion for STRS by 2053.
Scenario II: Traditional Contributions + Additional Yearly Contributions of $1B and $800M until full funding
This scenario evaluates the impact of additional annual supplemental contributions from surplus funds under Connecticut’s fiscal guardrails, in addition to the traditional employee and government employer contributions. This approach assumes the allocation of an additional $1 billion annually to SERS and $800 million to STRS from surplus funds until both funds reach full funding, approximately what has been contributed annually to the funds since the fiscal guardrails were adopted in 2017.
As shown in Figures 10a and 10b, continuing these supplementary contributions significantly impacts the pension plans’ funding trajectory.
If the guardrails continue to function effectively, assuming $1 billion and $800 million in supplemental contributions is reasonable. Additional contributions are sent to the pension funds once the Budget Reserve Fund (BRF) reaches a specific threshold. In FY 2023, the state’s contributions included additional contributions of $1.4 billion for STRS and $1.7 billion for SERS, after fulfilling the ADEC. Since 2017, a total of $7.7 billion from budget surpluses have been allocated to the pension funds. This proactive approach to pension debt amortization has immediately reduced the annual required contributions by approximately $170 million.
Figure 10a. Funded Ratio (MVA) - SERS & STRS
Figure 10b. Unfunded Market Liability (Infl. Adjusted)
Figure 10c. Employer Contribution (% of Payroll)
Figure 10d. All-In Employer Costs by 2053
| Scenario | Total ER Contribution (infl adj) | Ending UAL (infl adj) | All-in ER Cost (infl adj) |
|---|---|---|---|
Annual $1B - SERS 6.9% Assumed Return | $33.77 B | −$74.34 M | $33.70 B |
Annual $800M - STRS 6.9% Assumed Return | $31.67 B | −$48.87k | $31.67 B |
Assuming annual supplemental contributions of $1 billion until full funding accelerates the elimination of unfunded liabilities for SERS by nine years, making the plan fully funded by 2037 rather than 2046. Additionally, these contributions drastically accelerate the decrease in the ADEC as the pension debt gets paid faster. That is, the required employer contributions as a percentage of payroll reaches the stable rate of around 3.5% by 2038, as opposed to 2047.
Like SERS, the annual supplemental contributions of $800 million to STRS until full funding would accelerate the elimination of unfunded liabilities for STRS by nine years. These contributions also accelerate the decrease in employer contributions as a percentage of payroll — reaching the stable rate of around 5.5% by 2038, as opposed to 2047.
Supplemental annual contributions anticipate future payments and accelerate the amortization of Connecticut’s pension debt. This is projected to save Connecticut $3.81 billion with SERS and $2.96 billion with STRS, resulting in $6.77 billion of total interest cost savings over the next 25 years, accounting for inflation. Continuing the additional contributions to the funds and accelerating the elimination of Connecticut’s pension debt from 2038 rather than 2047 will lead the state to realize nearly $7 billion in interest savings over the next 30 years.
Scenario I projects that SERS and STRS would reach full funding by 2047 through employee and employer contributions alone. Scenario II, modeling the continuation of supplemental contributions, projects full funding by 2038 — achieving it nine years earlier and saving taxpayers $7 billion in interest costs. However, these projections rely on the assumption that actuarial expectations are met precisely, which is not always the case. If this assumption is faulty, unfunded liabilities can quickly accumulate, complicating the path to full funding. Scenario III accounts for the possibility of economic recessions, providing a stressed 30-year forecast that emphasizes the importance of prudent funding.
Scenario III: Stress Testing Recessions
The stress test scenario evaluates the resilience of the pension system under adverse economic conditions, specifically two major recessions followed by a 3-year suspension in supplemental contributions to account for a recovery period for Connecticut’s tax revenue. Stress testing is critical because recessions can drastically impact the funded ratio of pensions. Modeling these impacts aids in predicting long-term outcomes and necessary risk mitigation strategies.
The solid lines represent the plans' path if funded solely through employee and government employer contributions, while the dashed lines assume supplemental contributions of $1 billion for SERS and $800 million for STRS until both plans reach full funding.
The additional contributions are suspended for three years following each recession to accurately represent government tax collections and budget planning lags. This is based on Connecticut’s historical tax collection recovery data from recessions. Connecticut’s tax revenue typically takes about 2-3 years to return to pre-recession levels when adjusted for inflation. Incorporating realistic tax collection lags and budget planning delays ensures more accurate projections.
Figure 11a. Funded Ratio (MVA) - SERS & STRS
Figure 11b. Unfunded Market Liability (Infl. Adjusted)
Figure 11c. Employer Contribution (% of Payroll)
Figure 11d. All-In Employer Costs by 2053
| Scenario | Total ER Contribution (infl adj) | Ending UAL (infl adj) | All-in ER Cost (infl adj) |
|---|---|---|---|
SERS: Status Quo - Double Recession | $51.99 B | $6.963 B | $58.95 B |
STRS: Status Quo - Double Recession | $52.84 B | $7.103 B | $59.94 B |
SERS: Annual $1B - Double Recession | $53.62 B | $4.386 B | $58.01 B |
STRS: Annual $800M - Double Recession | $54.96 B | $3.891 B | $58.85 B |
Assuming two major recessions until 2053 represents a conservative scenario. Since the end of World War II, the U.S. has experienced 12 recessions, averaging one every 6.5 years.
As shown in Figures 11a and 11b, each recession significantly impacts the funding trajectory of the pension funds. These projections indicate that if two recessions occur over the next 29 years, even with additional contributions, both pension funds will no longer achieve full funding in the horizon modeled, with STRS only reaching 90.3% and SERS 86% in funding by 2053.
It is important to consider economic recessions because they can significantly increase the impact that pensions have on state finances. During economic downturns, pension plans experience investment losses, leading to immediate increases in Actuarially Determined Employer Contributions (ADEC) to cover shortfalls. This adjustment places additional financial pressure on state governments and taxpayers, who are already facing economic hardships. Consequently, underfunded pensions can amplify the negative effects of recessions by forcing states to allocate more resources to pension liabilities at a time when financial flexibility is most needed.
Even assuming the continuation of supplemental contributions (with a three-year suspension post-recession), SERS would still have $4.4 billion in unfunded liabilities, and STRS $3.9 billion by 2053, under the two-recession scenario.
Both funds also face much higher total costs in this case. Two recessions from 2024 to 2053 would result in a total state cost of $58 billion in contributions for SERS and $59 billion for STRS, a respective $24.3 billion and $27.18 billion increase from the previous scenario that doesn’t account for economic recessions — meaning assuming two recessions in the next 30 years increases total pension costs paid by 2053 by $51.48 billion.
These projections serve as a reminder of the importance of realistic assumptions and proactive funding measures that account for market fluctuations. Unexpected changes in investment returns can significantly impact costs, making the adoption of sound and resilient investment strategies crucial.
In the SERS and STRS defined benefit structure, if markets fall short, the burden between the assumed and the actual rate of return lies entirely on the state. Overestimating return expectations can lead to underfunding, as it underestimates the necessary contributions by overestimating how much the investments will generate. By setting more realistic return assumptions, pension plans can better ensure that annual employer contributions are adequate to meet future obligations, reducing the risk of underfunding and the need for abrupt contribution rate increases when overestimations are corrected.