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, does not vest until year 10, and does not provide full employee contributions or any employer contribution for teachers who choose to withdraw their account balances when leaving the system. 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. Nonvested 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 teachers who leave the system prior to this point.

Many teachers will leave the system before they reach 10 years of service. Teachers in Connecticut who choose to withdraw their contributions upon leaving only receive about 80 percent of their mandatory contribution plus interest (see Goal 4-H). This means that those who withdraw their funds accrue fewer benefits than what they might have earned contributing to basic savings accounts. Therefore, teachers leaving the pension system would have saved significantly below the level conventionally recommended by retirement advisers for individuals not also contributing to Social Security. 

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. Further, 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 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 with one year of service credit to purchase time for previous teaching experience, up to 10 years. While better than not allowing any purchase at all, this provision disadvantages teachers who move to Connecticut with more teaching experience. In addition, the mandatory one year of service before purchasing previous service makes the purchase cost slightly more expensive. 

The state's plan also allows for the purchase of one leave of absence 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

State of Connecticut, Teachers' Retirement Board http://www.ct.gov/trb/taxonomy/ct_taxonomy.asp?DLN=41319&trbNav=|41319|

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. However, as the sole option, 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 allow teachers to purchase their full amount of previous teaching experience and approved leaves of absence and decrease the vesting requirement to year three. 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 contended that the analysis and conclusion are incorrect, but did not offer any additional explanation. The state added that the recommendations will not lead to retirement security for Connecticut teachers.