The state budget passed by the New Hampshire House includes major increases in retirement benefits for a limited group of public employees that will cost taxpayers a minimum of $55 million of state funding in the current budget and a projected $275 million of state funding through 2034.
Four things are remarkable about this spending splurge.
First, it had little debate about the costs in the House.
Second, the benefit increase only applies to approximately 1,500 individuals, while about 9,500 other employees affected by the same changes see no similar increases.
Third, the estimated benefit increase for approximately 1,500 individuals is a staggering cost of about $180,000 per person.
Fourth, the $55 million of spending for these 1,500 people in this budget alone comes at a time when many other proposed services New Hampshire citizens depend upon are being cut.
Supporters of this increase in benefits claim it is necessary to rectify a promise made to employees that was altered by legislation in 2011. I was the sponsor of that legislation, SB-3. Here is why SB-3 was so critical.
At that time, the cost to taxpayers to pay for retirement benefits was escalating sharply, and the N.H. Retirement System had a huge unfunded future liability to pay projected benefits. Three factors led to this dire situation.
For too long, rates paid by state, municipal, school, and county employers were artificially kept too low. Second, the assumed rate of return of the invested funds in the Retirement System was set too high, and projections of fund growth did not occur. Lastly, the legislature had increased benefits further than required without adequately paying for them.
By 2011, the bills came due for these unwise past practices. The costs to taxpayers, primarily property taxpayers, were increasing dramatically. The timeframe coincided with the Great Recession, and it became harder and harder for both local and state governments to retain employees.
SB-3 made several reforms to stabilize the Retirement System. Contribution rates by employees were increased. Certain public safety employees (Group 2) would have to work 25 years rather than 20 to qualify for full benefits. An employee’s final retirement benefit was calculated over five years rather than three years. Lastly, employees would no longer be able to accumulate large amounts of unused sick and vacation time to artificially inflate or ‘spike’ their final retirement benefit.
For those of us who supported this legislation, it was a difficult vote, but a necessary one. Since 2011, rising taxpayer costs have stabilized, and the actuarial long-term health of the Retirement System has vastly improved, protecting future taxpayers.
In my view, the 2011 changes for employees were also fair when balanced against the rising costs to taxpayers and long-term health of the Retirement System.
Employees retained their defined benefit package, meaning they had a known retirement stipend that, in comparison to most private sector employees, was, and is, quite generous. Most private sector employees have a defined contribution plan subject to the vagaries of Wall Street and financial markets, that is, if they have any retirement package at all.
All of these common-sense reforms would be undone by the House-passed budget. Most egregious of all would be the ability of an employee to once again accumulate sick and vacation time to spike the value of their pension.
The Senate now has an opportunity to make changes to the House legislation.
It needs to be further noted that over the last three years, $69 million has already been appropriated by the legislature to enhance the benefits of these 1,500 employees.
The Senate could make further changes to adjust the so-called ‘multiplier’ to 10 years, addressing one of the main concerns of these 1,500 employees, and do so for a reasonable one-time cost of about $20 million.
If the Senate chooses this very reasonable path (10-year multiplier), several long-term problems are averted.
First, the perception by the public that certain employees can spike their pensions is precluded.
Second, the 9,500 other public employees will not have a credible argument to ask for benefit enhancements they are not receiving, while 1,500 employees are. Nor will it ever be likely, or even possible, to provide for cost-of-living adjustments for all retirees if $275 million of funding is dedicated to only 1,500 employees.
Third, the multi-year budget constraints that may well develop are averted. If there are any revenue shortfalls or unexpected state expenses between now and 2034, these pension changes will fall squarely on the backs of property taxpayers as the state inevitably downshifts costs.
There is a win-win opportunity here for employees, taxpayers, and the long-term health of the Retirement System.
The Senate needs to balance the interests of everyone in a fair compromise.
