House panel may support some form of 401(k)-style defined-contribution plan
The special House committee charged with studying New Hampshire’s retirement system for public employees took a test vote yesterday that split along party lines and indicated support for introducing some form of 401(k)-style defined-contribution plan.
The 11-member panel’s three Democrats voted in favor of abandoning the committee’s study of a defined-contribution plan to replace the existing defined-benefit pension plan for newly hired state and other public workers. Seven Republicans voted to keep the study going; one Republican committee member, Rep. Gary Azarian of Salem, was absent yesterday.
The straw poll, which came toward the end of a nearly three-hour meeting, isn’t a final vote. The committee will meet again to iron out its recommendations to the full House; who chairs the committee, didn’t set a date for its next meeting.
But Smith and other Republicans on the panel said switching to a defined-contribution plan could stem growth of the state pension system’s multibillion-dollar unfunded liability as well as protect retirement benefits from legislators tempted to contribute less than needewd into the fund in order to help balance the state budget, as has happened in past years.
“Part of the reason this is so difficult is that the way we’ve operated, that most of these plans are operated, essentially amounts to a Ponzi scheme. . . . Indeed, that is the characteristic of these kind of plans, that if you do not have a mechanism for enforcing the contributions to be made – and certainly the state does not, Congress does not – it’s problematic, therefore, to ever solve the problem going forward without a fundamental reform,” Smith said yesterday. “And that’s what we’re addressing.”
But panel Democrats pointed to a study by the New Hampshire Retirement System’s actuary that said switching to a defined-contribution plan for new employees would cost the state an additional $1.2 billion. A subsequent review of that study for the panel by a consulting firm said the transition cost could be smaller than $1.2 billion, depending on the details of the new plan.
“I think it’s going to cost less to stay where we are than to go to the defined contribution,” said Rep. David Campbell, a Nashua Democrat.
Campbell said he wouldn’t be opposed to convening a larger group, including Senate members and whoever is elected governor Nov. 6, to discuss other alternatives to the current pension system. Republican gubernatorial nominee Ovide Lamontagne has said he favors a defined-contribution system, while Democrat Maggie Hassan has said she wants to stick with the current pension system.
Speaker Bill O’Brien created the special House committee in July to study how a defined-contribution plan could be implemented. Yesterday’s meeting delved deep into actuarial calculations, employer-contribution rates and the like as committee members wrestled with the details of a possible plan.
Rep. Neal Kurk, a Weare Republican, said the panel has heard testimony indicating that a defined-contribution plan could involve minimal costs if it were mandatory for newly hired state workers but optional for other public employees. The cost would vary depending on how many public-sector employers opt to participate in the new system, he said.
“If we design a plan in a certain way . . . we can be reasonably comfortable that there will be no transition costs, or very modest,” Kurk said.
A draft report distributed by Smith at yesterday’s meeting includes a recommendation that the state implement a defined-contribution plan for state workers hired after Oct. 31, 2013, with employees hired between July 1, 2011, and that date given the option of converting their pension plans to defined-contribution plans.
Participation in the defined-contribution plan would be optional, not mandatory, for other governmental bodies such as school districts, towns and cities, according to the draft report.
(Ben Leubsdorf can be reached at 369-3307 or bleubsdorf@cmonitor.com or on Twitter @BenLeubsdorf.)
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