We’ve made progress in fixing retirement system
The New Hampshire Retirement System was set up to provide retirement benefits for municipal, county and state employees. It is funded by contributions from employees, employers (i.e. the municipalities) and the state general fund. In fact, the state contributes a full 35 percent of the local and county costs to the retirement system for teachers, police officers, firefighters and correctional officers.
The system is also funded from growth in investments over the career of the employee. Over the past couple of decades, this fund has not fared as well as it might have and it currently has a significant unfunded liability. There is no reason to cast blame for what happened in the past. There is enough to go around.
During the past legislative session, we looked to the future and made significant progress toward stabilizing this fund, keeping in mind both the commitments made to employees and the burden on taxpayers. We enacted many important and long overdue changes to the retirement system to protect its future. It is the Legislature’s and the NHRS’ responsibility to make sure that contributions made over time and the revenue generated by their investments is sufficient to fund employees’ pensions.
As part of the restructuring, the Legislature wanted to ensure that all employers, especially municipalities, were assessed fairly. An employee’s retirement benefit is based on the last three years’ average salary, including overtime pay. This may include, in some municipalities, end-of-career benefits, which can include vacation pay, unused sick time and early retirement incentives.
Not all municipalities offer the same end-of-career benefits. Because these end-of-career additions do not have the ability over time to generate investment returns, NHRS charges all employers an additional amount every year, somewhere between 7 percent and 11 percent, to accommodate the additional funds required. All municipalities have been assessed this additional charge, whether or not they offer these end-of-career benefits to their employees.
Section 33 of the overhaul legislation, House Bill 1645, was the Legislature’s attempt to ensure that each community paid its fair share for the end-of-career additions.
With any complex issue or complicated legislation, there exists the possibility of an unintended consequence. Section 33 was intended to ensure the costs of those end-of-career benefits were paid only by the communities that offer them. But the legislation didn’t adequately take into account additional contributions municipalities had already made in the early years of an employee’s career.
The Legislature realizes that the municipalities did not have a long time to prepare for this provision and that some contributions may have been made by municipalities for which they would not have been given credit.
A bill has been filed for the upcoming session of the Legislature to delay the implementation date of this provision. A second bill has also been filed to provide an alternative model to address this concern. Other states use a variety of methods to address this issue, and this second bill will provide us the opportunity to further explore better options while keeping our feet to the fire to ensure all municipalities are fairly assessed.
In the big picture, we are proud of the progress and the positive changes we’ve made on the retirement system and we are looking forward to hearing from all interested parties as we resolve this issue.