Retirement reform bill takes shape despite opposition

Last modified: 4/30/2012 12:00:00 AM
A bill to transition the state's retirement system into a 'defined contribution' plan will be finalized by House lawmakers in the coming weeks, despite strong opposition from public employee unions and an uncertain reception in the Senate.

House Republicans have been considering the move since last year's pension reform effort, which increased contribution rates for employees and has been challenged in court by a coalition of unions. Rep. Ken Hawkins, the Bedford Republican who heads the House's special committee on pension reform, said he set up six subcommittees to consider moving New Hampshire's public employees from a defined benefit plan, under which the New Hampshire Retirement System guarantees certain pension benefits, to a defined contribution plan, a sort of mandatory 401k under which employees would invest their money in an individual account.

'The employee controls their own money,' Hawkins said, adding that the pension contributions currently required of both employees and employers would go into the individual accounts. The defined contribution system would only apply to new hires while current employees would remain in a defined benefit plan, he said.

Hawkins says a defined contribution plan 'brings certainty to the local taxpayers.' Under the current system, 'if we don't get the investment returns we need or the Legislature does something stupid, then the property taxes go up' to pay out the employees' fixed pensions, he said.

But Dave Lang, president of the state firefighter's union, says guaranteeing a fixed pension is important if the state and its municipalities want to retain qualified employees for the long haul.

'There is a desire and a need to stay and work to create that full career and commitment to the community, especially among firefighters and police,' he said.

Lang said a defined contribution plan would increase by $1.2 billion the pension system's unfunded liability, which currently sits at about $4.2 billion. Hawkins argues a long-run analysis shows the defined contribution plan would then reduce the system's costs by at least $2 billion over the following decade.

Mark MacKenzie, president of the state AFL-CIO, said 'what's pretty clear is defined contribution plans are more expensive to run.' MacKenzie said there are 'economies of scale' gained by putting all the pension contributions into a fund managed by the state retirement system board.

Hawkins said the Republicans' proposal would have the state contract with a private financial services institution that has more investment expertise than the retirement system board. But MacKenzie said the board over the years has 'done fairly well in terms of performance.'

'They look out for the system and what's in the best interest of the employees,' MacKenzie said. Under a defined contribution plan, employees are 'basically the risk-assumer.'

'I think what's really driving this committee is they want to get government completely out of the pension business and send all this responsibility over to the private sector,' MacKenzie said. 'It relieves them of the responsibility of having to manage it.'

Hawkins said under the defined contribution plan, employees would be required to put half their pension into an annuity when they retire.

'If you gave somebody the full pot, they could go out and buy a motor home and eight months later they're broke and on welfare,' Hawkins said. 'We don't want that to happen.'

Hawkins is aiming to insert the defined contribution proposal into a Senate bill that only called for a commission to study whether to go forward with such a change. Earlier this month, the Republican-controlled Senate tabled a House bill that would have started a defined contribution plan on Nov. 1.

Lang said the Senate is taking 'a much more responsible approach.'

'It says if we're going to take a look at this, then we should put it into a commission,' he said.

Hawkins said he has no assurances that the Senate will consider the plan currently being crafted by his committee. Nonetheless, committee members hope to approve a bill by May 10 that can be voted on by the full House, he said.

Upon passage by the House, Hawkins hopes Senate leaders agree to a committee of conference to work together on the House's proposal. Hawkins said he wants the House to have a fully-formed plan ready for the Senate's consideration.

'We don't want to just pass something and say, 'Okay, we'll let administrative services or somebody else figure out how to do it,' ' he said.

(Matthew Spolar can be reached at 369-3309 or mspolar@cmonitor.com or on Twitter @mattspolar.)




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