Senate to hear union-backed bill on pension reform
Backers of a pension reform bill that would provide new teachers, firefighters, police officers and state employees with greater benefits down the road will make their case to a Senate committee tomorrow at 9 a.m.
The New Hampshire Retirement Security Coalition, made up of 12 unions statewide, is presenting the bill as “real pension reform” that will give employees better benefits, which will in turn attract quality candidates, without significantly adding to the estimated $4.6 billion unfunded liability in the state’s public employee pension system. Through increased employer contributions enacted in 2007, that liability is projected to be paid off in 2039.
“This gives us an ability to recruit and train high-quality people that do the essential functions of government, which is protect our streets, respond to our fires and our emergencies, teach our kids and make sure government runs effective and efficient. We think it makes sense,” said Dave Lang, president of the Professional Fire Fighters of New Hampshire and chairman of the coalition.
If passed, this bill would increase the defined benefit firefighters and police officers receive upon retirement for anyone hired after Jan. 1, 2012, and would create a new supplemental savings plan for teachers and state employees. There are about 77,000 retired and active members in the state retirement system, according to data provided by Lang. The majority are state employees, followed by teachers, police officers and then firefighters.
Right now, any firefighters and police officers hired before the 2012 date get a pension equal to 2.5 percent of their average final pay multiplied by how many years they’ve served, up to 40 years. But firefighters and police officers hired after June 11, 2011, have pensions equal to 2 percent of their pay multiplied by years worked up to 42.5 years. This bill would bring anyone hired after Jan. 1, 2012, back to the 2.5 percent multiplied by service of up to 40 years.
Under current practice, Lang said, police officers and firefighters who retire in the year 2043 could be eligible for social services. He said the bill would give police officers and firefighters pensions of 75 percent of their ending salaries, which is enough to live on but not to live lavishly.
“In 2043, you’re not going to have stories about cops and firefighters retiring with ungodly pensions,” he said. But the bill also ensures “that they’re not waiting in line for food stamps.”
But Josh Elliott of the conservative-leaning Josiah Bartlett Center for Public Policy said increasing benefits isn’t the right move.
“At a time when the pension system is only 57 percent funded, the last thing policymakers should consider doing is sweetening benefits,” he said in an email.
Teachers and state employees have a separate, defined benefit plan, and that wouldn’t change. Instead, the bill would add a “supplemental savings plan,” to which employers would put 4 percent of employee base pay. This additional money, on top of the defined benefit plan, would provide for cost of living adjustments and medical expenses, Lang said.
The supplemental plan would not add anything to the unfunded liability, Lang said, because it is a defined contribution plan. But it will increase employer costs annually. A fiscal note on the bill estimates that in 2018, for example, employer contribution costs will be $15 million higher for state employees, $12.3 million more for teachers, $670,000 higher for police and $140,000 for firefighters. That will increase annually as more new employees enter the system.
Right now, how much employers pay toward the unfunded liability is based on total payroll. A school district, for example, takes the sum total of its payroll costs, and must put 9.95 percent toward paying down the unfunded liability. It puts only 2 percent of that amount toward teachers’ pension plans, according to information provided by Lang.
Lang argues that added payroll costs to employers from this bill will eventually be made up because by 2039 the unfunded liability will be gone and employers will no longer have to put money toward it. But until 2039, employer payments toward the unfunded liability will remain at a flat rate, said Marty Karlon, public information officer for the New Hampshire Retirement System. That means the savings from increased costs now won’t be recognized until nearly 30 years down the road.
For the New Hampshire Retirement Security Coalition, this long-term outlook is better than the quick fixes created in the past.
“At the heart of this thing is, it’s real pension reform with a 30-year outlook,” Lang said.
Elliott, of the Josiah Bartlett Center, disagrees.
“The reforms made in the last few years have finally gotten pension liability growth under control. Chipping away at these reforms and adding completely new benefits on top will only create more problems down the road,” he said.
The decision will be up to the Legislature.
“It really comes down to a policy issue. Does the Legislature feel that the benefits for the folks in that class are too low, and can they afford to raise them?” Karlon said.
Senate Minority Leader Sylvia Larsen, a Concord Democrat, is the prime sponsor of the bill. In a statement, she said changes made to the pension system in the last legislative session will create a “substantial social cost” in the future because firefighters and police officers will need social services to supplement their pensions. She also said the supplemental plan for teachers marks a compromise from workers who have been opposed to this type of contribution plan.
“If we don’t pass real pension reform now,” she said, “it will cost the state and taxpayers more in the future.”
(Kathleen Ronayne can be reached at 369-3309 or firstname.lastname@example.org or on Twitter @kronayne.)