As the partners of the NH Retirement Security Coalition, who represent nearly all 80,000 active and retired members of the NH Retirement System, we felt it necessary to add some additional information to the August 28, 2020 article: Nashua to see $5 million jump in pension costs.
First, understanding historical context regarding the cost of retirement is not only necessary but imperative to do in order to comprehend why retirement costs are what they are in 2020. In the early 1990s, a change in the funding methodology regarding employer rates created nearly two decades of underfunding the system. This created the Unfunded Actuarial Accrued Liability (UAAL), which makes up the majority of current employer costs.
Second, New Hampshire has some of the lowest retirement costs compared to the national average including the UAAL payment. As outlined in the Boston College Center for Retirement Research report provided to the Governor’s Decennial Commission in 2017, NHRS total accrued liabilities is 4.7% of payroll, while the national average is 6.8%. In addition, NHRS employers pay very little to the actual cost of the benefit contributing only 2.7%, while the national average is 5.9%. Again, the majority of the costs for employers currently pay goes towards the underfunding of the 1990s and 2000s.
This leads to our third point which is beyond the UAAL payment, the NHRS defined benefit (DB) plan provides one of the most affordable and economically sound vehicles to provide retirement benefits to public employees. If municipalities decide to leave NHRS, how do they plan to provide retirement benefits to recruit and retain the most highly qualified and skilled workers? Do they plan to replace it with a 401(k) plan? If the issue is cost, research shows defined contribution (DC) style plans like 401(k)s are much more expensive than defined benefits plans to provide comparable benefits. The National Institute on Retirement Security (NIRS) provides research that shows DB plans costs 46% less than DC plans to implement and maintain. If this decision is made, municipalities in New Hampshire will then have to decide between increasing their costs further or providing subpar benefits that will only exacerbate the recruiting and retaining issues NH public employers are facing these days.
We would suggest that it is counterproductive to leave NHRS for many reasons, and would implore municipalities to enter into conversations with the New Hampshire legislature around new funding mechanisms to enhance their ability to cover the costs. The UAAL will be paid off one day and employers will be left with very little to cover for retirement benefits. These benefits are a crucial tool to recruit and retain employees, it’s important we discuss how to protect them rather than dismantle their effectiveness and impact they make on the local and state economy.
NH Retirement Security Coalition representing:
American Federation of State County and Municipal Employees Council 93
American Federation of Teachers – New Hampshire
National Education Association – New Hampshire
New England Police Benevolent Association
New Hampshire Retired Educators Association
New Hampshire School Administrators Association
New Hampshire Higher Education Union – a division of IBEW Local 2320
New Hampshire Troopers Association
Professional Fire Fighters of New Hampshire
State Employees Association of New Hampshire – SEIU Local 1984
Teamsters Local 633