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Board warns adding nongovernmental groups like CIAC/CAS risks TRS tax‑qualified status; Hamden Children's Center slated for sunset in bill
Summary
Teachers' Retirement Board staff told the Appropriations subcommittee that adding nonprofit groups such as CIAC and CAS to the Teachers' Retirement System could jeopardize the plan’s tax‑qualified status under federal law and that the board seeks to remove remaining nongovernmental entities, including Hamden Children's Center.
Teachers' Retirement Board representatives told the Appropriations subcommittee that nonprofit associations such as CIAC (the Connecticut Interscholastic Athletic Conference) and CAS (the Connecticut Association of Schools) are ineligible to participate in the state's tax‑qualified Teachers' Retirement System and said allowing them to remain could risk the plan’s qualification under federal tax rules.
“CIAC…are nongovernmental entities, so they do not qualify to participate in the teacher's pension plan,” Helen said. She added the organizations “do not meet any of the criteria of the IRS guidelines to participate. They would risk the disqualification of the plan for our members, and that would cost…members millions of dollars, should that happen.”
Bruce, the board's pension attorney, explained the mechanics to legislators: if the Teachers' Retirement System were found not to be a governmental plan for federal tax purposes, the Internal Revenue Code and related IRS rules would impose funding, vesting and distribution requirements it does not currently meet. He said disqualification would trigger immediate taxable treatment for vested participants and could expose the plan to ERISA fiduciary requirements that currently do not apply to the governmental plan.
Committee members discussed one specific remaining nongovernmental participant: Hamden Children's Center. Board staff said the center was added to TRS in February 2005 and that the board has been working to eliminate nongovernmental participants over the past seven years. Helen said the agency's package seeks to “sunset” Hamden Children's Center effective July 1, 2025, if the bill is enacted. Staff reported about 23 active members and “maybe 8 retirees” associated with the Hamden Children's Center and said the members already in the system “won't be harmed, but there'll be no new membership.”
Why it matters: officials said continuing to allow nongovernmental participants substantially increases the risk that the plan’s tax‑qualified status could be reviewed by the IRS or Department of Labor, as has occurred in other jurisdictions. Bruce cited a prior Rhode Island case in which federal review challenged a plan and the state “lost” that litigation, which he said shows the risk is real if not immediate.
Legislators asked about the practical consequences for individuals who move between government and nonprofit roles. Helen and Bruce told senators that individuals would not lose past service credit or pension accruals already earned, but the plan must avoid admitting organizations that could change its federal status.
Committee members requested additional information about how many staff at CIAC/CAS would qualify for TRS membership if the statutory standards for service and certification were applied and asked the board for follow‑up detail on the Hamden Children's Center membership counts.
