Policy Recommendations

To ensure the long-term viability and stability of Connecticut’s SERS and STRS, the following policy recommendations are proposed:

• A. Fund SERS and STRS Beyond the Actuarially Determined Minimum Whenever excess revenue is available, it is crucial that it be used to accelerate the payment of pension debt in Connecticut’s largest pension systems. This approach expedites the reduction of unfunded liabilities, minimizes interest costs, and strengthens the overall financial health of the pension systems. Connecticut can make significant strides in stabilizing and ultimately eliminating pension debt by committing to contributions above the actuarially determined minimum (ADEC) whenever surplus funds permit.
• B. Maintain the Fiscal Guardrails The 2017 fiscal guardrails have proven very effective in controlling spending and ensuring that excess revenues are directed toward reducing pension liabilities. These guardrails provide a mechanism where funding STRS and SERS becomes the default option once the Budget Reserve Fund (BRF) reaches its threshold. Maintaining these fiscal policies is essential to continuing the progress made and safeguarding the financial stability of the state’s pension systems. The successful implementation of these guardrails has enhanced Connecticut’s fiscal reputation in prudent financial management — increasing the state’s attractiveness to residents, investors and businesses.
• C. Adopt Conservative Assumptions Utilizing realistic assumptions in the making and discounting of pension liabilities projections is critical. By adopting more cautious investment return assumptions and demographic projections, the state can better prepare for potential shortfalls and reduce the risk of unfunded liabilities. Realistic assumptions help ensure that the pension funds are not overly optimistic, which can lead to underfunding and increased financial stress during economic downturns.
• D. Implement Stress Testing Regular stress testing of the pension funds should be conducted to assess their resilience under various economic scenarios. Stress testing involves modeling the potential impacts of economic recessions, market volatility, and other adverse conditions on the funded status of STERS and SERS. These tests help identify vulnerabilities and inform strategies to mitigate risks, ensuring that the pension systems can withstand economic shocks and continue to meet their obligations to beneficiaries.

Conclusion

The 2017 fiscal guardrails have significantly contributed to the improved funding status of Connecticut’s SERS and STRS. Both funds have seen substantial progress, but meaningful challenges remain. The analysis highlights that continued commitment to the current fiscal policies is critical to ensuring the long-term viability of these pension systems.

SERS and STRS have demonstrated improved funded ratios and reduced unfunded liabilities due to increased contributions and strategic financial management. However, to achieve the projected full funding by 2053, the state must adhere to disciplined budgetary allocations and remain vigilant against market volatility and unexpected economic shifts.

The additional contributions from budget surpluses have accelerated debt repayment and generated significant interest savings, enhancing Connecticut’s fiscal stability and creditworthiness — which leads to a positive feedback loop of interest savings. Maintaining this trajectory will require ongoing legislative support and prudent financial planning to secure public employees’ retirement benefits and safeguard the state’s economic future.

The fiscal guardrails, along with Connecticut’s General Assembly and Governor’s persistence in pursuing pension solvency, have been vital in stabilizing and improving the state’s pension and overall budgetary position. Their continuation is essential for achieving the long-term financial health and sustainability goals for SERS and STRS, benefiting not only the pensioners who rely on these plans (over 5% of Connecticut’s population) but also the state’s present and future taxpayers.