NHRS raises employer contribution rates

The New Hampshire Retirement System, which manages pensions for state and local employees such as teachers, police, and firefighters, has announced that employer contribution rates will rise significantly for the 2018 fiscal year, increasing by roughly 7%.

Exact rate changes vary for the different groups that participate in the NHRS, and are based on salaries and other demographic factors.

The rate adjustment is based on an actuarial assessment, which the NHRS holds every two years. Analysts determine how much the NHRS needs to accumulate in order to cover both the costs of benefits currently being accrued by participating employees, as well as the system’s $4.2 billion in benefits already earned but not yet funded.

This unfunded pension liability is the result of several factors, including the recessions of 2001 and 2008 and a policy from 1991-2007 that allowed employers to contribute at rates lower than were needed to fully fund the system.

Roughly 80% of employer contributions to the NHRS go toward funding the shortfall, which is set to be paid off by 2039. The remaining 20% funds benefits being currently accrued by employees.

The rate adjustments are primarily the result of a change in projected annual return on investment, which dropped from 7.75% to 7.25%. Other factors include an increase in the time retirees are expected to live and a reduction in payroll growth. The latter is the result of slower than expected salary growth and a reduction in employment among some groups, such as teachers, who have decreased in number by 5% since 2010.  

State funding for the NHRS was eliminated entirely in 2011, shifting the full burden of the system onto the cities, towns, local school districts and counties that participate. This means that the full burden of the rate increases will have to come from local budgets.

Supporters of this policy argue that shifting pension costs onto local municipalities makes fiscal sense in a time where state budgets are increasingly under strain. They point to other states that have enacted similar policies. 

Opponents counter that making local governments shoulder the full burden is unfair, as wealthier towns are more capable of raising the additional needed revenue, while poor towns may be forced to cut services or let go of employees in order to pay their share.

Learn more at our Retirement System issue page.

Do you think the state should help shoulder the costs of the retirement system? Leave a comment and have your say.