"We are asking them to pay for the failure of the state and local municipalities to pay their fair share over the years," said Larsen, D-Concord.

State Rep. Neal Kurk, R-Weare, complained during a brief House debate that the bill did not go far enough to reduce the system's costs.

"We shifted from employer to employee, but that is rearranging the deck chairs on the Titanic. It doesn't change the direction of the ship," said Kurk.

Lynch had called on lawmakers to make changes to the system, but has not said if he will sign the bill.

"The governor is going to be reviewing the bill very carefully," Lynch spokesman Colin Manning said.

Lawmakers believe that by raising employees' contribution rates the state can stop a longstanding practice of subsidizing local public employee pension costs without causing municipal contribution rates to spike. The compromise calls for the New Hampshire Retirement System to recalculate employer rates to be sure that happens.

The state had been paying 35 percent of local pension costs, a longstanding practice meant to encourage municipalities to participate in the system. The state reduced its share to 25 percent in the current budget. The budget for the upcoming two years passed by the Senate last week eliminates the state's share. At the 35 percent rate, the state's share would be about $87 million in each of the next two years.

The bill notes that legislation was enacted in 2007 to deal with the system's unfunded liability, $2.7 billion at the time, but changes since make the reforms in the bill necessary. The system's current unfunded pension liability is $3.7 billion plus an estimated unfunded medical insurance liability of nearly $1 billion.

Vested employees are defined as those with 10 years in the system, contrary to arguments by some employee groups that workers with less than 10 years should have the same protections.

Concern over losing benefits has led to hundreds of employees filing for retirement this year. Negotiators attempted to allay their fears by giving employees until Jan. 1 to become vested and escape many of the changes that would affect new hires and workers with less time on the job.

Vested workers would pay higher pension contributions beginning July 1, but most changes would only apply to those hired after that date.

Starting July 1, teachers, state and municipal workers would pay 7 percent instead of 5 percent. Firefighters' contribution would rise from 9.3 percent to 11.8 percent. Police would pay 11.55 percent, up from 9.3 percent.

Workers hired after July 1 would work longer besides paying higher contribution rates and not be able to boost their pensions like current workers.

For example, newly hired state workers, municipal workers and teachers could not collect full retirement benefits until age 65. They could receive reduced benefits at age 60, if they have 30 years of service.

Newly hired police and firefighters could not begin collecting a full pension until age 52½. They could retire at age 50 and receive a reduced pension with 25 years of service. Currently, they can retire at age 45, and that would not change for vested workers.

Newly hired workers and workers who don't have 10 years in the system on Jan. 1 would see earnings used in pension calculations averaged over their five highest paid years instead of three years, which is the current practice.

Negotiators limited spikes in pension benefits paid to police who are paid for extra special duty assignments. The compromise would limit those earnings for police vested on Jan. 1 to the average paid over the previous seven years. New hires could not count any special duty pay in their pension calculations.

Non-vested and new hires could not include buy-out or severance payments.

The bill limits part-time workers to 32 hours a week before they would have to contribute to the pension system. An exception was made for retired police officers hired by communities seasonally for events such as motorcycle week in Laconia. The provision is intended to prevent double-dipping where retired police officers return to work and collect both a pension and a full-time salary.

Negotiators agreed to stick with current law and allow retired workers to return to work if they suspend their pensions.

The public pension system covers more than 50,000 active and nearly 26,000 retired state and municipal workers, teachers, police and firefighters.