The Town of Ellington may have to fork over an estimated $2.2 million to Connecticut’s Municipal Employee Retirement System (CMERS) following a court decision that said Ellington either has to be all-in or all-out of CMERS and pay for losses to the state-run retirement plan for municipalities.
Ellington ceased enrolling new employees into MERS in 2012 under a collective bargaining agreement that enrolled new hires into a 401A Money Purchase Plan, but continued to pay the cost for their employees who were still in CMERS.
The State Employee Retirement Commission, which initiated the lawsuit after multiple warning letters, argued successfully in court that Ellington has to either continue to enroll employees in CMERS with retroactive payments or withdraw from the system completely, which involves paying for all future retirement liabilities.
Although the town argued they were still paying for future liabilities by continuing to pay for the employees already in the system, SERC argued and presented evidence that allowing municipalities to simply opt out causes losses to the retirement system that the municipality must cover under state law.
Ed Koebel, an actuary who supplied an affidavit on behalf of CMERS, indicated that “CMERS is a cost sharing plan which pools risks of employers to spread risks across participating municipalities, and that allowing municipalities to opt out would result in an increase in the required funding by all participating municipalities and result in future volatility in the fund,” the court decision states.
Superior Court Judge Kaitlin J. Halloran wrote that the evidence showed “significant financial impacts on the CMERS fund that are occurring as a result of the Town’s actions.”
Halloran ordered Ellington to enroll all employees hired since 2012 and future employees into the CMERS system and “make the fund whole with a payment that includes the financial impact to the plan as a result of the Town’s actions,” unless the town withdraws completely from the plan, which would also require “payment of all future retirement allowances and refunds already vested by the retirement of members from the municipality.”
How much Ellington will have to pay to CMERS will be determined at another hearing, but “make whole” estimates provided in an exhibit put the total at $2.2 million as of 2024, which would be three percent of the town’s entire budget. At the time of their initial complaint filing in 2023, SERC had estimated nearly $1 million.
The hefty price may give more weight to a long-standing criticism of CMERS that once a town joins the plan, it’s nearly impossible to get out due to the costs of withdrawal. As of 2023, there were 107 municipalities that have some or all of their employees enrolled in the system, amounting to more than 10,000 active members.
“I was deeply disappointed in the judge’s summary judgement decision in favor of the State of Connecticut in the CMERS lawsuit,” said Douglas Harding, chairman of Ellington’s Board of Finance, in an emailed statement. “I want to make it clear that the Board of Finance has not been asked for any appropriation in regards to this ruling. If the Board of Finance is asked for an appropriation, the Board will discuss the options that are available to fund it in an open and transparent manner.”
State Sen. Saud Anwar, D-South Windsor, and Rep. Jaime Foster, D-East Windsor, both of whom represent Ellington, issued a statement on state letterhead criticizing the current town administration for not settling earlier and letting the liability grow ahead of the upcoming municipal elections.
“Other towns facing similar situations chose to settle early, recognizing the legal and fiscal risks involved,” they wrote. “Ellington’s decision to take a different path — to delay and litigate rather than resolve — proved to be a high-risk, no-reward approach that presumably leaves taxpayers footing a much larger bill, according to the expert witness cited.”
According to emails to Ellington’s state representatives, however, the town had reached out to both Republican and Democrat state senators and representatives for help in 2024, seeking a statutory revision that “would keep this situation from repeating itself in municipalities around the state.”
“Could the legislature resolve this dispute by passing legislation directing the Retirement Commission to request a dismissal of this and all similar controversies and then amending the language of the statute to provide for the non-enrollment of future employees in the CMERS?,” wrote Town Administrator Matthew Reed in a November 20, 2024, email. “Ellington acted based upon a duly negotiated bargaining unit agreement. The Town of Thompson acted based upon an agreement awarded in binding arbitration. This action is costing local taxpayers tens of thousands of dollars in attorney and expert witness fees and ought to be disposed of as soon as possible.”
Historically, CMERS hasn’t had the massive unfunded debt problems of Connecticut’s two largest pension funds – the State Employees Retirement System and the Teachers Retirement System – but CMERS did experience a rapid escalation in costs and debt heading into 2023 that had municipalities, including Ellington, reaching out to Comptroller Sean Scanlon, asking him to address the matter.
At that point, unfunded liabilities for CMERS had grown from $332 million in 2016 to $1.3 billion, with its funding ratio dropping from 91.6 percent to 68.7 percent. The debt and other factors strained municipal budgets as benefit costs were reaching over 20 percent of payroll.
In 2023, Scanlon announced a bipartisan reform deal for CMERS that would purportedly save municipalities more than $840 million over the next thirty years, which included changing how the annual cost of living adjustment is calculated, re-amortizing the debt and incentivizing employees to stay on the job longer. The savings figure was later decreased to $740 million.
Although some of those changes, like the COLA adjustment, wouldn’t be implemented until 2025, the 2024 pension valuation report showed improvement for CMERS, largely due to the re-amortization of the debt and higher-than-expected investment returns; CMERS’ unfunded liabilities decreased by 100 million and its funding ratio increased to 73.5 percent.
While Ellington officials also argued that moving new hires to a new retirement plan starting in 2012 was negotiated as part of a collective bargaining agreement – which typically supersedes a conflicting state statute – the judge determined the contract was not in conflict with statute because the contract did not address “the method or manner of covering or removing employees” from CMERS coverage.
A hearing will be held to allow CMERS “to seek and recover the financial impact and costs,” according to the decision.
“This is not the result anyone wanted, and it represents lost opportunities to invest in the priorities that truly matter — maintaining safe roads and bridges, supporting our schools, and strengthening community services,” Anwar and Foster wrote. “Our focus now must be on helping Ellington recover, restoring confidence in local governance, and ensuring decisions like this are never repeated.”
“I have full confidence that the Board of Selectmen, at their October 27 meeting, where they will meet with the Town’s labor counsel, will make the best decision for the Town regarding the future of this lawsuit,” Harding said.
**This article was updated with quotes from Sen. Anwar and Rep. Foster’s letter, and with Matthew Reed’s email**
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