Pondering Pensions

Public employees and unions are keeping a close eye on big changes to the New Hampshire Retirement System that could be coming down the pike — and on a newly created House committee on pension reform.

When the recession hit, the state’s public employee pension system was already battered from a decade of chronic underfunding. Now, lawmakers are looking for ways to deal with more than $3 billion in unfunded liabilities for future retirees. The pension system serves over 75,000 active and retired teachers, fire fighters, police officers and public employees from more than 450 New Hampshire municipalities.

Following suit on the stated priority of pension reform in the new Republican-dominated Legislature, House Speaker William O’Brien (R-Mont Vernon) last week created a 16-member Special Committee on Public Employee Pensions Reform. Chaired by Rep. John Reagan (R-Deerfield), the committee holds its first meeting today. It is charged with all things pension—including funding, eligibility, benefits and “alternatives to public employee plans and programs.” It will be the first stop for all pension-related bills, of which 18 have been filed but none had been designated for committee action as of Jan. 20.

A defined retirement benefit plan is currently in place, and recent legislative actions to shore up the system (such as House Bill 1645 from 2008) have included:

• a different formula that reduced the state budget’s burden by bumping up required contributions from employers (i.e. cities and towns) and employees,
• increased contributions from new employees,
• and an investment committee to oversee long-term investment plans.

According to the most recent 2010 NHRS annual report, the pension system’s assets increased by $437 million to $4.9 billion, but they remain far below the 2007 asset level of $6 billion. The system is funded at 58.5 percent, up slightly from 58.3 percent in 2009. A rule of thumb is that pension plans should be at least 80 percent funded to be considered strong.

David Lang, president of the Professional Fire Fighters of New Hampshire, tells Front Door Politics he is closely watching the actions of the new special committee.

“We understand that House leadership wants to take a look at the retirement system,” says Lang, whose union represents more than 2,100 active and retired members throughout the state. “They have some beliefs about the system that I don’t share, but they told us they will be open and transparent and that we will have a place at the table.”

Lang is particularly concerned that reforms to shore up the system in 2006 and 2008 are not lost and “we don’t return to the 1990s,” he says. At that time, municipalities used actuarial formulas that counted on high rates of investment return, thereby deflating employer contributions. This produced “a long-term pension (payment) holiday for employers,” Lang says, which pushed the funding problem down the road. That road has reached a dead end today.

New Hampshire is not alone in its pension funding shortfall. In a report released last year, the nonpartisan Pew Center on the States conservatively estimated a $1 trillion funding gap nationally — and that was using figures from 2008, before the full brunt of the recession took its toll on investment portfolios. Pew said more than half the states had fully funded plans in 2000 (New Hampshire was one of those) but only four states have them now. Pew also put New Hampshire in the “serious concern” category.

>> The House Special Committee on Public Employee Pensions Reform holds its initial meeting in the Legislative Office Building, Room 205, today, Friday, Jan. 21, at 1 p.m.

This Daily Dispatch was written by Michael McCord.

http://frontdoorpolitics.com/government/pondering-pensions/