The rich benefits of state-employee pension plans are well known. Many critics suggest they should be changed from defined-benefit to defined-contribution plans.
Connecticut already has an optional defined-contribution plan, similar to a 401(k), higher education employees can choose, forgoing their pensions.
The Alternate Retirement Program is designed to give employees additional flexibility and portability, while the state minimizes its future liabilities by paying members their entire compensation in the year they earn it.
However, ARP – like the state’s traditional pensions – has no comparison among for-profit employers. ARP is comparable to programs at Yale, the University of Hartford, Wesleyan and Trinity College.
Higher education jobs make up most of the highest-salary jobs among state employees.
Employees of the University of Connecticut, state universities and community colleges can opt into ARP. Five percent of employee salaries are deposited into an investment account. The state, in turn, deposits 8 percent of their salary, a 160 percent match.
“That’s a very generous match by contemporary standards,” said Edward Zelinsky, professor at Yeshiva University’s Cardoza School of Law. His book, The Origins of the Ownership Society, recounts how defined-contribution plans have come to replace traditional pensions.
According to the Comptroller’s Office, 9,613 state employees are in ARP.
The state is expected to spend $31.1 million on ARP contributions this year and $37.9 next year, a 21.8 percent increase. If ARP had a 100 percent match, the state would have saved $11.7 million this year and could save $14.2 million next year.
According to a 2004 TIAA-CREF study by a Stamford professor, most private universities only offer a defined-contribution plan, while most public universities offer a choice of defined-benefit or contribution.
Zelinsky said the private sector often matches 401(k) contributions on a one-for-one basis up to 4 or 5 percent of an employee’s salary.
According to the CBIA 2011 Compensation and Benefits Survey, the average match for a private-sector employer in Connecticut is 84.9 percent of the first 6.4 percent earned.
At this hypothetical average employer, an employee would contribute 6.4 percent of their salary with the employer contributing 5.43 percent. The average private sector employee contributes 28 percent more than a state employee and gets a 32 percent smaller contribution from the employer.
A 2008 TIAA-CREF white paper charted the characteristics of some public defined-contribution plans. Based on the unscientific sample, employer matches vary considerably. A few plans require no employee contribution (Washington, D.C.; Florida; Indiana University and Purdue University), although Washington, D.C., and Florida have vesting periods.
ARP has no vesting period.
Among the plans that require an employee contribution in the TIAA-CREF paper, the State University of New York system has a match that almost triples employee contributions.
Michigan State University has a 200 percent match. The University of Michigan has a program that is partially optional, but it also matches at up to 200 percent. The University of Iowa has a similar match.
University of Rhode Island matches at 180 percent after a two year waiting period.
A program for teachers in West Viriginia provides a 166.67 percent match, but requires 12 years to vest.
New Jersey has a higher education plan with the same 160 percent match as Connecticut.
A number of other states have plans less generous than the ARP. Nebraska matches 156 percent. Colorado matches for most state employees at 127 percent.
North Dakota has a retirement plan for state employees with a 103 percent match. The University of Washington has a 100 percent match. Michigan, Montana, Ohio and South Carolina all match less than 100 percent.
Massachusetts has a plan for higher education employees with no match.