Gov. Malloy: Actuarial Analysis Affirms Billions in Taxpayer Dollars Will be Saved by Adopting Framework Reached With State Employee Unions
Independent Actuarial Analysis Finds That the Proposed Structural Reforms Will Produce Over $24 Billion in Savings
(HARTFORD, CT) – Governor Dannel P. Malloy today released a detailed savings analysis of the framework that his administration reached last month with the state’s employee unions, including independent actuarial analysis of its pension and healthcare provisions. The materials affirm that the proposed structural reforms to pension and benefit costs will result in billions in savings to the state, obtaining significant annual savings for taxpayers over each of the next twenty years.
The analysis found the plan produces cumulative savings of $1.569 billion over fiscal years 2017 and 2018, nearly $5 billion in the first five years, and over $24 billion in savings over the next twenty years.
“These independent analyses affirm that this framework for a labor agreement is a good deal for Connecticut,” Governor Malloy said. “Our state’s employee unions came to the table, entered discussions in good faith, and arrived at an ambitious framework that achieves significant long-term savings. Should this agreement be adopted, it will deliver substantial structural reforms that will produce billions in savings for our taxpayers while continuing to provide for essential government services.”
The analyses, conducted by Cavanaugh McDonald (pensions) and Segal Consulting (healthcare), also showed that:
- The framework completely restructures our pension system into the future, while respecting the promises made in the past. The proposed pension changes will save the state $210 million in FY18 and $238 million in FY19. Over the course of the deal, the Actuarial Determined Employer Contribution could decline by $400 to $500 million per year, creating a new peak of about $2.2 billion, but with an average of $1.8 billion.
- The framework modernizes health benefit plans to reflect the best thinking about how to keep employees healthy at the lowest cost. These proposed health benefit changes will save $136 million in the first two years, but both the premium cost sharing and formulary changes ratchet up those savings to well over $100 million per year into the late 2020s and early 2030s.
- The framework makes major changes to the retiree health benefits program, producing significant immediate savings and gradually shifting costs onto employees and retirees into the future. These savings quickly eclipse $200 million per year in the 2020s as retirees move to the Medicare Advantage program.
- The framework provides for wage freezes that save $716.4 million over the biennium and nearly $500 million per year thereafter.
- The framework takes advantage of our demographic reality. At least a quarter of our workforce is likely going to retire before the existing SEBAC agreement ends. This deal allows the state to change the benefits structure five years sooner, meaning there will be more than 10,000 employees with the new Tier IV pensions on July 1, 2022. This attrition will save the state almost $77 million in the first two years, with the savings increasing to $97 million annually by 2037.