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Retirement System Changes

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Citizens Count Editor
Summary

As of June 2017, the New Hampshire Retirement System (NHRS) reported an unfunded liability—pension money it will owe in the future but does not currently have the assets to pay—of $5.04 billion. 

Three factors have contributed to the unfunded liability:

  • The 2001-2002 and 2009 fiscal crashes;
  • A flawed funding methodology between 1991-2007 in which the NHRS faked low employer contribution rates;
  • "Gain sharing" where roughly $900 million in investment returns went into a special account which funded non-pension benefits such as the cost-of-living adjustment.

According to the NHRS website, there is a plan in place to erase the unfunded liability by 2039. 

Options for recovering the retirement system liability

Economic Recovery

First, the retirement system was designed to weather fluctuations in the economy. As the economy improves the NHRS investments could rebound, earning more money and eliminating the unfunded liability.

Higher Employee Contributions

In December 2014, the New Hampshire Supreme Court upheld the right of the state to increase public employees' contribution rates. Going forward, state employees will contribute a greater percentage of their paychecks toward their pensions.

Defined Contribution Plan

The state could switch from a defined benefit system to a defined contribution system.  Under the current defined benefit plan, employees are guaranteed a yearly pension of a specific amount upon retirement.  A contribution system instead establishes 401(k)-style retirement accounts for employees. Although many policymakers believe that a 401(k)-type system would be cheaper for the state than the current system, the New Hampshire Retirement System actuary estimates that switching to a 401(k)-style plan could actually cost the state $1.2 billion.

Cash-Balance Plan

The state could switch to a "cash-balance" plan, which combines individual 401(k)-style accounts and pension guarantees.  Under a cash-balance plan, each year the employer contributes a set percentage of an employee's yearly pay, plus interest, to an individual account.  If the employee leaves the employer before retirement age, the employee may take the cash contents of the individual account with them.  If the employee stays until retirement age, the employee is guaranteed a set monthly pension payment.

Costs for Municipalities

The burden of retirement contributions on municipalities is another problem.  The recession caused the New Hampshire Legislature to increase the amount local governments pay into the retirement system.  To handle those increasing costs, some local governments have allowed full-time employees to retire—at which point they start receiving their pensions—then rehired those same employees part time (up to 32 hours per week).  This strategy means the employer does not have to pay into the pension system anymore for that employee in a part-time position, but still benefits from having an experienced worker on hand. 

Some stakeholders have called this retiring/re-hiring "gaming the system."  Local governments have argued that the practice is a natural consequence of the state downshifting the burden of retirement contributions.

In 2018, the Legislature passed a law that tightened the limits on working for an employer that participates in the NHRS after you've started collecting your pension. Employees who retired after January 1, 2019 are limited to working 1,352 hours per year for employers who participate in the NHRS. That works out to 26 hours per week. Retirees who were already working part-time for NHRS employers before January 1, 2019 were grandfathered in to a 1,664 hour-per-year limit (or 32 hours per week). 

Comments

Ananta

Pew Center on States has published the status report on the pension system of the fifty states. New Hampshire rated as one of the worst with over $3B in unfunded liability, funding ratio at 58% and the state withdrawing its funding to 30% and 25% in the next two years.
It is a huge burden on the local taxpayers that hasn't come ashore yet.
Group II employees can retire after 20 years (amended to 25 for new employees) with retirement pay formula calculated at 125% of the base pay which can include O/T, sick pay and personal time off. It is based on 2.5% for every year of service.
There is no political will to reform the egregious system. The Retirement Board is managed by a select group of 14 with 8 of its members beneficiaries of the system. An attempt to amend that obvious conflict of interest went no where in the legislature last year.
How many of the citizens of the state enjoy such a lucrative pension, not to mention the most generous(Cadillac) health insurance plan, all guaranteed by the tax payers?
It is a system that reflects why we need organizations such as the Live Free or Die Alliance. The party politicians hand out the unsustainable benefits using the tax payer funds to the unions in return for their block votes. It is a corrupt system with regular people that work and save for their future retirement have no meaningful say in it.
You might hear lame excuses for the status as follows: The stock market losses put us in the bind and/or the employers (town taxpayers) haven't been contributing enough into the funds.
Both of those are bogus arguments to cover up the total mismanagement. The actuarial requirement had been set at 8.5% for pension annuity funding. In 1983, some politician wanting to get the votes, managed to pass a bill that siphoned off any excess return on investment over 9%. Guess what they did with the excess. They sweetened the benefits so that they could get the votes. If the excess had been left to accumulate, it would have taken care of the lean years such as the past one.
It is time to take back the state. The state government is for promotion of general welfare, not sweetheart deals to voting blocks at the expense of the rest.
The legislature must get rid of the benefit based pension system for new employees and institute a contribution based system, i.e. 401-K. The board must be totally independent with no employees benefiting from it on the board. The pension system must be the same as enjoyed by the average New Hampshire tax payer. Sunset the Cadillac health insurance largess.
We have got to get the legislature to concentrate on such vital issues instead of trying to legislate motor cycle helmets, smoking bans and the myriad of unwanted rules and regulations. It is really scary getting up from the bed in the morning not knowing you have already violated some state/local regulations or ordinances. That is not the lifestyle of people in the Live Free or Die state.

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