By GARRY RAYNO, InDepthNH.org
CONCORD — New state employees would have a different state retirement program under a bill that had a public hearing Wednesday before the House Executive Departments and Administration Committee.
House Bill 559 would require all state employees hired after July 1, 2024, to be in a new group III with a defined contribution system, like a 401K plan, instead of the current defined benefit system.
The prime sponsor of the bill, Rep. Dan McGuire, R-Epsom, said the current retirement system has an unfunded liability of about $6 billion, and the provision of his bill would help reduce any more unfunded liability going forward.
“This is a very small step to introduce a defined contribution pension plan to the public employees of New Hampshire,” he said, “by carving out a very tiny portion.”
McGuire characterized the current defined benefit plan as out-of-date and dependent on speculation of future liabilities, while his proposal is more flexible, gives employees greater control over their investments and would be more attractive to today’s mobile workforce.
Under the current system, an employee’s wages over the highest five years of earnings, and the length of service determine the retirement benefit, but under the new plan the employee would contribute a minimum 5 percent of salary and the state would match a minimum 50 percent of employee’s contribution.
The employee would be subject to federal limits on the amount of salary that could be contributed to the plan.
McGuire said the contributions would be the same as the current plan with employees contributing 7 percent of their salary while the state would continue to contribute 13.75 percent, which is about 2.5 percent to the pension fund and the remainder to cover the cost of the unfunded liability.
Most states contribute more than New Hampshire to employees’ retirement plans.
McGuire said the state would still be contributing to the unfunded mandate under his proposal.
Under the proposal some Group I personnel would be able to opt out of the new defined contribution system including elected officials, officials appointed for fixed terms, unclassified state employees, or those employees of the general court.
But for other state employees in Group I which is everyone except police and firefighters, the new system would be mandatory for new hires.
McGuire said the plan would be portable so that employees who work only a short period for the state could take their contributions and put into another retirement plan and it would also be available to their heirs if the person dies, which is not the case for the defined benefit system.
He said the current system provides a fixed benefit for years, does not account for inflation and requires 10 years of service before a person is fully vested. He said a small percentage of the people who go to work for the state remain for that length of time to collect their full benefits.
And he noted the plan would take taxpayers off the hook for unfunded liabilities as well as help state workers.
But Rep. Jeffrey Goley, D-Manchester, noted there is a difference on who bears the risk, noting in the current system the risk lies with the employer, but in the defined contribution system, the risk is with the employee.
Several members of the committee questioned what safeguards would be in place to protect an employee’s investment.
McGuire and others said outside administrators who routinely handle these kinds of accounts have insurance and federal obligations to protect the resources.
Most people testifying at the hearing backed the plan including several representatives like Ken Weyler, R-Kingston, who retired from American Airlines with two pensions, one from a contribution system and one from a fixed benefit system. He told the committee the contribution pension plan outperformed the other system significantly.
The plan also had the backing of a number of Koch Foundation and other Libertarian affiliated organizations including American Legislative Exchange Council, Americans for Prosperity and the Josiah Bartlett Center for Public Policy.
Several people testified, including Greg Moore of AFP-NH, that a defined contribution system would be more attractive to younger workers who did not stay in a job for the length of time older workers did.
He said today’s young people would like the portability and are more strategic investors.
He said the change in the retirement system could be a recruiting tool for the state, as it tries to find workers today.
Goley asked him if the issue may be pay, noting Gov. Chris Sununu proposed a 10 percent pay increase in his budget address the day before.
Moore said there are a range of issues that would bring young people to state government work including pay and retirement and benefits.
Goley asked if Moore thought the state’s 2.5 percent contribution was on the low side, and Moore noted it is usually higher than that.
Marty Karlon, director of communications and legislative affairs for the NH Retirement System, said his agency was originally concerned the bill did not address the issue of the unfunded liability which would have shifted the costs to other members of the retirement system.
But he said that was addressed in the new amendment introduced Wednesday.
Karlon said the retirement system would have little to do with the new proposal as it would be done by a third party administrator, but the system’s actuaries would need to look at the bill and see if there are other provisions that might impact the system.
Under the bill, current members of Group I would be able to join the new system and take what they contributed to the system with them, and there was some concern that might need review.
Karlon said there are federal requirements that need to be met to establish the proposed plan.
The retirement system has a deferred plan that allows members to determine their own investments.
A sub-committee of the House Executive Departments and Administration Committee will work on the bill before the committee makes a recommendation.
Garry Rayno may be reached at garry.rayno@yahoo.com.
