Pension Flexibility: Connecticut

Analysis of Connecticut's policies

Connecticut only offers a defined benefit pension plan to its teachers as their mandatory pension plan. This plan is not fully portable and does not vest until year 10. It also limits flexibility by restricting the ability to purchase years of service.

Vesting in a defined benefit plan guarantees a teacher's eligibility to receive lifetime monthly benefit payments at retirement age. Non-vested teachers do not have a right to later retirement benefits; they may only withdraw the portion of their funds allowed by the plan. Connecticut's vesting at 10 years of service is very late and limits the options of many teachers who leave the system prior to this point. According to a recent report, about 55 percent of employees in Connecticut's teacher-covered pension plan vest, meaning that 45 percent do not become eligible for a pension and, therefore, can only collect their refundable contributions.

While Connecticut's relatively low mandatory contribution rate allows for flexibility in teachers' retirement savings, it also means that the state needs to educate teachers on what happens if they leave the system and encourage savings in other portable supplemental plans. Furthermore, teachers who remain in the field of education but enter another pension plan (such as in another state) will find it difficult to purchase the time equivalent to their prior employment in the new system because they are not entitled to any part of the employer contribution.

Connecticut limits teachers' flexibility to purchase years of service. The ability to purchase time is important because defined benefit plans' retirement eligibility and benefit payments are often tied to the number of years a teacher has worked. Connecticut's plan allows teachers to purchase one year of service for out of state teaching for each two years of service accrued for teaching in Connecticut. Any credits purchased above 10 years are purchased at full actuarial price. In addition, teachers may not purchase service for teaching in private or parochial schools. While Connecticut is commended for not putting a cap on the total number of credits a teacher can purchase, restricting one out-of-state credit for every two credits in-state disadvantages teachers who enter Connecticut with more outside service than they are eligible to purchase.

The state's plan also allows for the purchase of one leave of absence credit for each five years of service. Teachers may purchase up to three years for each approved leave of absence, including maternity and paternity leave.

Citation

Retirement Overview, http://www.ct.gov/trb/lib/trb/formsandpubs/retirementpresentation.pdf (accessed 9/5/2016). State of Connecticut, Teachers' Retirement Board Withdrawal privilege, http://www.ct.gov/trb/cwp/view.asp?a=1579&Q=272084&trbPNavCtr=|#41328 (accessed 9/5/2016). Purchasable Service Credit, http://www.ct.gov/trb/cwp/view.asp?a=1789&q=284876&trbPNavCtr=|#41337 (accessed 9/5/2016). Aldeman, C. and Rotherham, A. (2014). Friends without Benefits: How States Systematically Shortchange Teachers’ Retirement and Threaten Their Retirement Security, Bellwether Education Partners.

Recommendations for Connecticut

Offer teachers a pension plan that is fully portable, flexible and fair.
Connecticut should offer teachers for their mandatory pension plan the option of either a defined contribution plan or a fully portable defined benefit plan, such as a cash balance plan. A well-structured defined benefit plan could be a suitable option among multiple plans. As the sole option, however, defined benefit plans severely disadvantage mobile teachers and those who enter the profession later in life. Because teachers in Connecticut do not participate in Social Security, they have no fully portable retirement benefits that would move with them in the event they leave the system.

Increase the portability of its defined benefit plan.
If Connecticut maintains its defined benefit plan, it should allow teachers that leave the system to withdraw their full employee contribution plus matching employer contributions. The state should also decrease the vesting requirement to three years. A lack of portability is a disincentive to an increasingly mobile teaching force.

Offer a fully portable supplemental retirement savings plan.
If Connecticut maintains its defined benefit plan, the state should at least offer teachers the option of a fully portable supplemental defined contribution savings plan, with employers matching a percentage of teachers' contributions.

State response to our analysis

Connecticut did not respond to repeated requested to review this analysis.