In the Concord Monitor July 16 editorial, "We must get serious about pension reform," the editors gave three options for how troubled pension systems can come back from the brink of insolvency: employee contributions must go up, benefits must be cut, or retirement ages must increase.
I was troubled that these options were the only ones proposed. If we are truly going to work together toward a healthy pension system, then all options that would help the system should be on the table. Pointing only to employee benefits is the easy way out. It makes certain people feel better but doesn't solve the actual problem our system faces.
Any discussion about pension reform should include the history of how we got to where we are before we start calling on employees to fix the system.
During the economic downturn of the 1990s, the New Hampshire Legislature made a deliberate and poor decision to mortgage pension costs to a future generation of taxpayers. That generation has arrived. This shortsighted decision created more than a decade of artificially low employer rates. Today's employer contributions now reflect the significant repayment of those costs. More than 50 percent of today's employer contribution goes toward paying the debt incurred in the 1990s while the rest, less than 50 percent, is the actual pension cost.
While this cost is painful for taxpayers, the irresponsibility exhibited in the 1990s is the cause of the increased costs, not the employees. The fact is, the debt incurred must be paid if pension costs are going to go down. Cutting benefits and raising the retirement age for future employees will have no impact on today's pension costs.
Despite the hurdle of the unfunded liability, real reform has been done to the pension system in recent years and deserves praise. Employees worked with the Legislature to come to compromises on many important issues. The Legislature changed the way the system is funded by doing away with the irresponsible scheme of the '90s and ensuring pension costs are more accurately reported and paid for. We now have a system that requires you to pay as you go while spreading the debt over 30 years, the maximum allowed under current governmental accounting standards. This change will stabilize employer contribution rates and make them more predictable.
This past year the Legislature passed another real reform surrounding retiree medical costs. Knowing that future retirees were left no other alternative than relying on Medicaid, which would have been a major burden to the state budget, the Legislature overwhelmingly passed a resolution supporting the creation of an employee-controlled retiree medical trust. These trusts are an investment vehicle that will solve the Medicaid problem in a tax-free way. Employees and the Legislature worked together to make that happen.
We must be wary of silver bullets that are supposedly going to fix the system like those proposed by the Monitor. One such move, creating a 125 percent cap on retiree benefits, was supposed to cut costs but instead has caused major headaches for cities and towns who now do not want to see it implemented. The retirement system is an aircraft carrier, not a fighter jet; it will take time to turn it around. Undue pressure without proper information will only lead us down the familiar path of poor legislative decisions. Instead, we should create an environment that examines all aspects of reform. Costs, benefits, and the total picture should be regularly reviewed.
(David Lang is president of the Professional Fire Fighters of New Hampshire.)
http://www.concordmonitor.com/article/better-path-for-pension-systems
