By all accounts, the pension fund well in Connecticut – which ranks as the nation's fifth-worst state in funding its pension obligations – is running dry.

Many towns here in Fairfield County are faced with the effects the 2008 economic downturn have had on state and local government pension plan funding. 

As a result, taxpayers are paying a high price. In Fairfield and other local municipalities, they are footing a multi-million-dollar bill, due to the stock market crash some two years ago, and the town's decision to invest pension fund money with convicted felon Bernie Madoff.

The problem of unfunded liabilities – which has accumulated over decades – now totals about $25 billion for retiree health benefits and about $9 billion for retiree pensions. Gov. Jodi Rell in October charged the Post-Employment Benefits panel with developing recommendations to reduce these liabilities and prevent them from recurring.

As Rell announced her budget proposals to the legislature in February 2010, she also issued an Executive Order creating the State Post-Employment Benefits Commission.

According to a recent Northwestern University study, the state employee pension fund will run out by 2019, at best, and sooner, at worse, if the expected 8 percent return on investments doesn't come home.

A 'Band-Aid' Approach to Retiree Medical Benefits

According to Tom Flynn, chairman of the Board of Finance in Fairfield, the town continues to contribute annually to its employee pension funds in amounts calculated by independent actuaries. Other Fairfield County towns follow similar processes. 

"In Fairfield, historically the pension funds have been adequately funded. However, investment returns the past few years have suffered with the economy, the Madoff scandal put a dent in the account and the town did not make contributions for several years, while the town was paying for many large school building projects," Flynn explained.

Flynn told Patch the next annual pension analysis will be presented to the finance board in late January and will be accounted in for in the next fiscal year's budget.

More than pensions, though, Flynn said the bigger issue in Fairfield is in the retiree medical benefits, also known as OPEB, where the administration has taken a band-aid approach to funding the account. 

"The bigger concern is with the OPEB where for many years the town was 'paying as we went' and not contributing to the long-term obligations," Flynn said. "The Board of Finance has focused on this issue for the past several years and has made a concerted effort to begin funding this long-term obligation."

According to the Center for State and Local Government, pension funding will likely continue to decline to 72 percent by 2013. State officials said that reversing this decline will be difficult, as plans face constraints in increasing revenues from either employee contributions or taxes.

Some Municipalities in Good Shape, Others Nearly Dry

Stamford Mayor Mike Pavia told Patch that the city's pension funds are "fully funded" and the city's Director of Administration Fred Flynn, said as of June 30, 2010, the city's pension funds were 97 percent funded.

Yet Fred Flynn told Patch, "I know the state of Connecticut has a serious unfunded pension problem."

"Like virtually every other state in the Union – and like the federal government and local governments everywhere – Connecticut struggles to pay the ever-increasing costs of health insurance and other benefits for its retired employees," the outgoing Gov. Rell said in a recent statement. "There are no quick or easy solutions to these problems."

Trumbull First Selectman Tim Herbst recently warned that the town's pension fund could run dry in a matter of years. A report completed by actuaries Hooker and Holcomb, which is done every two years, showed that, as of June 30, 2010, the town's pension fund was only about 30 percent funded, and that the town had an unfunded liability of $40 million.

State Goal: 55 Percent Funded by 2018

Over the long-term, the state's panel proposed setting performance benchmarks – for example, achieving a funding ratio of 55 percent by 2018 – and requiring that all future actions, such as retirement incentive programs, be subject to a full analysis of their long-term impact on the plan before they are approved.

In Westport, the investment of each of the six pension trust funds is carried out by the town's Investment Committee, which is comprised of the chair of the Board of Finance, the finance director, and a third person chosen by the two and approved by each pension board of the various funds, according to town officials.

Westport begins its preliminary budget discussions for the 2011-2012 year on Jan. 5 at a Town Hall meeting.

According to the town's website, pension boards in Westport "have adopted an investment policy to allocate 55 percent of fund assets to equities with the balance invested in fixed income securities and cash equivalents."

Under the agreement Gov. Rell negotiated with the State Employee Bargaining Agent Coalition (SEBAC) in 2009, two additional provisions are helping to reduce the unfunded liability.

• The first – the "Rule of 75" – concerns entitlement to health benefits for state employees who leave state service with vested pension rights but do not immediately begin collecting a pension.

Until the rule took effect, former state employees qualified for retiree health benefits when they reached retirement age with at least 10 years of state service. Under the "Rule of 75," the combination of a retiree's age and years of service must equal or exceed 75 before he or she can begin receiving health benefits, even if the former employee qualified for a pension at an earlier date. This reduces the state's overall health benefits obligation (which is the largest portion of the state's unfunded liability).

• In addition, under the SEBAC agreement, current employees with less than five years of service and all new employees must contribute 3 percent of their earnings to help pay for retiree health benefits. Previously, there was no contribution from active employees to fund retirees' health plans. This establishes a new revenue stream to help further support the retiree health care fund, according to the governor's office.

In the state's last complete actuarial valuation, the fund had $19.2 billion worth of obligations, but had barely $10 billion in assets, or about 52 percent of its liability.

Incoming Gov.-Elect Dan Malloy, who will take office Jan. 5 has said the General Assembly "needs the discipline" to fully fund the pensions.