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CONCORD – The state Senate’s top Republican today will propose sweeping changes to New Hampshire’s retirement system that would force newer public employees to work longer and contribute more to receive future pensions.
Senate Majority Leader Jeb Bradley, R-Wolfeboro, said comprehensive reforms are needed to deal with an estimated $4.75 billion unfunded liability of the system.
The changes to benefit levels and employee contributions would affect new employees and those with fewer than 10 years service on public payrolls.
The 10-year bar is the minimum time all public employees must work before they are “vested” and can collect any pension.
Bradley defended requiring those with less than a decade of service to experience dramatic cuts in their retirement benefits.
“Given the enormity of the funding shortfall and the pending impact on property taxpayers, it is certainly appropriate to ask beneficiaries with less than 10 years of service to share in the potential solution,” Bradley said. “Not doing so accelerates the Day of Reckoning for the NHRS and property taxpayers.”
But organized labor leaders claim a 1982 Supreme Court decision clearly prevents changing the retirement scheme for all employees once they get past a temporary worker stage.
“You can’t be on probation for longer than 12 months, and once permanent, you can’t change these benefits,” said David Lang, president of the Professional Fire Fighters of New Hampshire.
Bradley disagreed in a commentary written Tuesday night.
“New Hampshire courts have held that once an employee is vested there is an expectation akin to a contract of receiving pension benefits upon reaching retirement age.” Bradley said.
“However, the NH Supreme Court has never ruled the same obligations apply to those employees who have less than 10 years of service and are not vested.”
Retirement experts report that a decade ago, the state’s retirement system was 89 percent paid for into the future but that barometer fell to 58.3 percent funded in 2009.
Bradley said lawmakers caused this in part during the early 1990s by changing the accounting methodology to save employer costs that masked the true picture.
When investments exceeded estimates, then the system paid out higher benefits instead of saving those surpluses for the future, Bradley continued.
The market crash led to losses of 18.1 percent or a loss of value totaling $995 million in 2009.
Lang said the labor group known as the NH Retirement Security Coalition will offer later today a competing proposal that would make some concessions on benefits for new but not any existing workers.
“There are some things we will agree with,” said Lang, who declined Wednesday to elaborate.
House and Senate GOP leaders have identified reforming retirement as top priority for 2011 along with balancing the next state budget and improving the state’s business climate.
House Majority Leader D.J. Bettencourt, R-Salem, has signed on to Bradley’s bill along with numerous other GOP senators.
Officials with local government employers were expected to endorse Bradley’s outline at a news conference later today.
These are the major provisions of the bill, according to a copy that www.TheLobbyNH.com has obtained.
? Eliminate “extra” compensation: New workers and those with fewer than 10 years on the job could not get added to their pension base vacation, sick pay or end of job buyouts to boost their retirement.
? Higher contributions: New teachers and municipal workers would pay 7 percent of their pay toward their future pensions compared to the current 5 percent; new police and fire employees would get 11 percent taken out of salary, up from 9.3 percent.
? Public safety workers who are new or have fewer than 10 years on the job would have to work 25 years and reach age 50 to get a pension; today they qualify after working 20 years and reaching 45.
? $90 million transfer: This bill would drain a special account that pays for cost-of-living increases for retirees and deposit the money into the system’s annuity that would otherwise lower what state and local property taxpayers pay as employers of public employees.
? Pension cap: No employee in the future would be able to receive a pension greater than their final year’s salary.
? Changes highest years pension: Currently, pension are based on the average of workers’ three highest years of service; this bill would change it to the five highest years.
? Overhaul trustees board: The bill would cut in half the union membership on the NHRS board of trustees and strip public employers of having a voting majority on the 14-member board that would be cut to 13.
? Study IRA-style pension: This sets up a committee to look into a voluntary, defined contribution or 401(k)-like system that is common in private employment retirement plans.
“These reforms are reasonable and, pending an actuarial review, should dramatically improve the unfunded liability of the system,” Bradley said.
Firefighters executive Lang said making public employers contribute more to support employee pensions or higher returns on investments are the only way to reduce the longtime unfunded liability.
“Those are the only two ways I know of,” Lang added.