CONCORD, N.H. — A special legislative committee studying the current public pension system is pushing to start shifting workers out of the plan by the end of 2012.
“My goal is to have something in place by the end of 2012,” Sen. Fenton Groen, R-Rochester, said Tuesday after a committee meeting.
The plan being discussed would have two systems in place at once, one for all current workers, and one for those hired after the new plan goes into effect.
The current New Hampshire Retirement System would continue to operate for decades. As membership shrinks, all its assets would be paid out to retirees as annuities, Rep. Gregory Hill, R-Northfield, said.
Employee representatives said the proposal is so far-reaching that the committee should slow down and take a closer look at its long-term implications.
“It’s an awfully messy thing they’re talking about doing, but they’ve presented no figures, no facts whatsoever to support the position they have,” said Diana Lacey, president of the State Employees Association.
Groen said the plan is to pass a law in the spring that switches all new public workers into a type of 401(k) plan meant for public employees. Known as a 414(h) plan, it would be a defined contribution plan, where only the level of money going into the plan is pre-determined, compared to the defined benefit plan the New Hampshire Retirement System now operates. A defined benefit plan delivers a set of promised benefits in retirement no matter how the financial winds change over time.
Rep. Kenneth Hawkins, R-Bedford, said the 414(h) plan would end legislative tinkering with the retirement issue. An employee would have an account that no one could reach into but the worker.
However, the contribution rates for employers could be changed by the Legislature from one session to the next, Groen admitted.
Workers, Groen said, “would have a predictable and reliable retirement plan … not as susceptible to us messing with it.”
Hawkins said the switch would be a major shift in state policy.
“If we go forward with this, we have now begun in effect the phasing out of the defined benefits system,” he said.
The committee wants to require all employers in the current New Hampshire Retirement System to participate, and to make mandatory contributions to both the new plan, as well as the existing plan.
There would be no extra cost for employers, Groen said. He estimated that a private company could begin administering the plan roughly 90 days after the state asked for bids.
Towns would continue to pay the same share of payroll toward retirement for all workers, he explained. For new workers, one share of pension contribution would go to the new plan, while another share would go to the existing NHRS defined benefit plan to defray the current unfunded long-term liability, estimated at $4.5 billion. Making a wholesale switch toward the 414(h) plan would require a massive payoff to cover the liability, and would face certain court challenges. Unanswered questions remain on death benefits, life insurance and disability pay.
Employee groups argued that the state passed a reform plan four years ago to fully fund the NHRS over 30 years. It followed that up with more reforms this year.
Rick Trombly of NEA-New Hampshire said the state has to make good on its promises to existing teachers. As ranks of active workers shift into the new plan, he wondered about pensions for NHRS members.
Under the committee’s latest outline, all new workers would have to join the 414(h) plan, and all NHRS member employers would have to participate. Employees could not borrow from their account.
Towns would continue to pay higher contributions for police and firefighters, known as Group 2 in NHRS, than they do for other workers, in Group 1. That is because Group 2 workers do not participate in Social Security, so they get higher state pensions than teachers and other workers.
Groen estimated employers would contribute 5 to 6 percent for Group 1 workers, which includes teachers, and between 8 and 9 percent for Group 2.
The Josiah Bartlett Center for Public Policy Studies released a report Tuesday on defined contribution plans, outlining steps about a dozen other states have taken to make complete shifts or gradual transitions to defined contribution plans.
Several models are available, but the report noted, “No two states are exactly alike, so simply taking what one state has done and doing it here in New Hampshire, without modification, would be ill-advised.”
(c)2011 The New Hampshire Union Leader (Manchester, N.H.)
Distributed by MCT Information Services