Retirement Benefits

There are at least seven NH House and Senate sponsored bills to fix the New Hampshire Retirement System (NHRS). Click here for a review of bills relative to retirement system reform in the 2011 Legislative Session.

In 2010 the NHRS reported an unfunded pension liability of $3.7 billion. Three factors contributed to the unfunded liability: the 2008 fiscal crash, a flawed funding methodology between 1991-2007 in which the NHRS faked low employer contribution rates, and diversion “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 instead of being redistributed into the main body of the pension system.

Moreover, the money leaves a complicated trail. The retirement system broke the law by appropriating money from the pension system into an account used to pay employee medical subsidies. This maneuver was a violation of an IRS tax code because the pension system is funded by employers and employees who are required by law “to pay the entire cost of medical subsidies.”

SB 3, HB 465-FN, and HB 464-FN are the major bills sponsored in the 2011 Legislative Session which propose to restore New Hampshire’s failing retirement system. HB 465-FN and HB 464-FN address specific aspects of the retirement system and SB 3 attempts to encompass both Bills and additional requirements.

HB 465-FN proposes to increase the number of years for calculating the average final compensation for new and non-vested members, from three to five years. After July 1, 2011, average earnable compensation will be based on the retirees highest five years of income or all years if less than five. It is retained in a house committed but was the topic of discussion in a recent news article.

HB 464-FN requires the transfer $89 million from a “special account” which pays for cost-of-living adjustments for public employees into the state annuity accumulation fund. The state annuity accumulation fund is the main reserve for the state’s pension system. The NHRS states this bill will allow towns, cities and states to decrease their contribution amount to the pension system by 3-4 million over a one year span. The Bill has passed the Senate and its status is concurred in the House.

SB 3 embodies the aims of HB 464 and 465 in a list of eight changes to the state retirement system. Some of these changes are a redefining of earnable and average final compensation, eliminating the special account, increasing the retirement age, increasing contribution rates and eliminating the system’s funding of medical benefits premium payments. The bill passed the Senate and its status is reported filed in the House.

Supporters say without these changes the retirement system will not be sustainable and the unfunded liability will not be reduced, property tax will continue to increase, bond ratings will lose value, and more layoffs will occur. 

Dean Michener of the New Hampshire School Boards Association, said employer rates for school districts have increased 25% on average over the last four years, and he expects a 31% increase this July. "This kind of growth is really not sustainable," Michener said. "We're a labor intensive business and the only way to deal with these increases is through layoffs.”

Yet, opponents of the bill say public employees will have to pay more, newly hired and non-vested employees will have to work longer hours, and retirees will have to give up cost-of-living raises in to the near future. According to a Union Leader Report, David Lang, president of the Professional Fire Fighters of New Hampshire, said the reform is simply an income tax on public employees.  "You are taking 2 percent out of public employees' pockets. That means less money will be spent at the grocery store or for school clothes for their kids," he said.

In addition, retired firefighter and Manchester School Board member Arthur Beaudry disagrees with the bill because it eliminates cost-of-living increases and the health care escalator, and without these, many retirees would be in dire need.  Beaudry said with health care costs escalating up 10 to 15 percent, “retirees will not be able to absorb the increase,” and “it won’t be long before your pension plan is eroded to nothing.”

Pension Reform Update June 10, 2011

Bringing an end to months of frustration on the issue, The New Hampshire House of Representatives adopted SB 3 on June 8 in a roll call vote of 250-112. SB 3 will bring a number of changes to the state retirement system. 

Senate Bill 3, authored by Sen. Jeb Bradley (R) Wolfeboro, will soften the impact on retired members and those vested in the system; allow cities and towns to hire new employees on a part-time basis; eliminate "spiking" by halting use of unused sick time and vacation time to boost compensation averages; and other benefits, according to a NH House Majority Office press release.

The measure also caps the annual pensions benefit at $120,000 or 85 percent of average final compensation.

House Speaker William O’Brien said reform was a long time coming, and added:  "For years it has been apparent that New Hampshire should address the major problems within our current retirement system including the large and growing unfunded liability of over $3.5 billion."

Pension Reform Update June 17, 2011

Gov. John Lynch on June 15 vetoed Senate Bill 3, a retirement benefits reform bill to require public employees to pay more toward their pensions, and require some employees to work more years before they can collect. 

Lynch said he was vetoing the legislation "given the Legislature's stated intent to change the legislation further and my responsibility to review legislation in its full and final form."

By raising employee contribution rates, legislators say the state can curtail the practice of subsidizing local public employee pension costs without an increase in municipal contribution rates.

The current budget reduced the state's local pension cost from 35% to 25%. The Senate eliminated the state's share in the 2012-2013 budget.

Passage of SB 3, before Lynch's veto, prompted hundreds of employees to file for retirement this year, as concerns grow over losing benefits, according to the Associated Press.  Lawmakers, in an attempt to assuage their fears,  moved the deadline from July 1, 2011 to Jan. 1, 2012 to become vested and elude the changes that would affect new hires and workers.

Reform Update July 18, 2011

Tuesday July 12, 2011 a second lawsuit was filed against the new retirement law. The New Hampshire Retirement System Board of Trustees filed a lawsuit in Merrimack County Superior Court, reported the Concord Monitor.

The issue under consideration is whether or not the Legislature or the board controls employer’s rates.

The Board claims the new Legislature is violating the state Constitution by requiring it to recertify employer rates. It cites a clause "in the Constitution adopted by voters in 1984 to protect the pension fund from raids by lawmakers.”

Reform Update Sept. 13

The Board of Trustees met in nonpublic session and voted to drop the lawsuit, according to a report by the Josiah Bartlett Center for Public Policy.

Public should know

On Nov. 3, 2011, the state Supreme Court unanimously ruled that the names and salary amounts of the state's top 500 pension earners must be disclosed.