We Make Connecticut Happen

Will state follow Detroit into peril

By Reps. Jeffrey J. Berger and Timothy D. Larson
Waterbury Republican-American
July 31, 2013

As we take a look at the grim economic situation that has caused Detroit to file for public bankruptcy, we believe a significant contributor was the underfunding of Detroit's pension program over the years. Pension funding and retiree benefits are, in many instances, the largest portion of a given municipality's or state's budget. Underfunding this part of any budget puts at jeopardy the solvency of the respective governing body and the economic health of the city or state under its purview.

Connecticut could face a similar situation. Although we have the appropriate funding levels for our defined-benefit pension program for the current 50,000 employees and 50,000 retirees, we don't have an equivalent funding mechanism for other post-employment benefits.

In the recently concluded legislative session, we proposed allowing the state to assess the potential for life insurance on current state employees and retirees. "Key Man" insurance is used by businesses. Millions of dollars are secured to provide survivor benefits to businesses to continue their operations. Connecticut should support a similar option for state employees.

We listened to proposals from insurance agencies when we proposed House Bill 6611 to the Insurance Committee. The proposal calls for the state to purchase life-insurance policies so that when employees die, the life-insurance benefit would be split between the employee's estate and an irrevocable trust with the sole purpose of paying liability on future health benefits.

One approach discussed before the Insurance Committee was to have Connecticut identify 400 or more retirees ages 67 to 79 with an insurable interest to retiree's survivors who agree to use their unused insurance capacity to allow the issuing of a $1 million to $2.5 million life-insurance policy.

A "Life Trust," funded by an outside investment group, would own and be the beneficiary of the 400-plus policies that remain in the trust until the death of the retiree. At the death of the retiree, the trustee would divide the death-benefit proceeds as per the schedule between Connecticut and payments to the outside investment group. Connecticut then would use the death benefit to pay for unfunded liabilities and pay a portion of the death benefit to the retiree's survivor.

There are many winners in this scenario. Public employees would have life-insurance benefits after they retire, and could reduce the cost of the share they pay out of their biweekly paychecks. The state would have a funding mechanism and vehicle that could pay for the future cost of health insurance. This arrangement may improve the state's credit rating and support a government accounting standard practice that puts all liabilities on the books.

It would be a good idea for the state comptroller and treasurer to analyze this concept and provide an actuarial report before the next legislative session. While this is not the only approach, it is important to pursue investment tools such as our proposal to better secure the future sustainability and financial health of our state.

As the one-time insurance capital of the world, Connecticut clearly has the talent to craft such an insurance contract that could benefit state employees and the state by providing much better financial security and control over the pension fund and benefits.

Rep. Jeffrey J. Berger, a sales associate with Laskas Agency Realty, is a Democrat representing part of Waterbury, and deputy House speaker. Rep. Timothy D. Larson, a Democrat representing East Hartford, Manchester and South Windsor, is executive director of Tweed New Haven Airport Authority and a former East Haven mayor.

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