CONCORD, N.H. (AP) — Critics of a proposal to create a new public pension system urged New Hampshire lawmakers Thursday to spend more time studying the idea, warning that the planned changes could make it more difficult to recruit and retain good employees.
State Sen. Fenton Groen's bill to create a defined contribution plan for workers hired beginning Nov. 1 could dilute pensions that police and firefighters received, Assistant Safety Commissioner Earl Sweeney warned.
"Fewer people today choose to go into an occupation where they know they will have to go to work every day wearing a bulletproof vest; will be required to work Saturdays, Sundays and holidays; will miss important events in the lives of their families and children; will deal with hours of boredom punctuated by sudden, extreme stress; bear up under constant scrutiny and criticism; and face lawsuits and potential death around the next corner," Sweeney said.
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Groen's bill would create a mandatory plan similar to a 401(k) where contributions by employees and employers are invested and the worker's retirement payment depends on the total investments when he or she retires. The current system provides a guaranteed retirement payment based largely on the employee's years of service and final salary.
The existing system covers more than 50,000 active and nearly 26,000 retired state and municipal workers, teachers, police and firefighters. It is funded by contributions from employees and employers and by the return on the $5.9 billion fund's investments.
Labor groups pointed to a study by the New Hampshire Retirement System's consultants that concluded that transitioning to a defined contribution system would be more expensive for employees and employers than maintaining the current system. The study said closing the old defined benefit system to new members would change its demographic makeup and require changing to a more conservative investment strategy. That would mean less investment income and require higher employer contributions.
The existing public pension system is only 57 percent funded. The study estimates that the unfunded liability would increase from $4.3 billion to $5.5 billion if the system is closed to new members and a parallel defined contribution system is implemented.
Groen, R-Rochester, defended the plan as a way to insulate new workers from the politics that have caused problems with the existing system. After 10 years of service, he said, the workers would own the money in their defined contribution account and could take it with them if they changed jobs.
After 10 years, he said, about half the state's public employees would be members of such a plan if his bill passed, reducing the risk to employers and taxpayers to make up any shortfalls, which is the case with the current defined benefit system.
"At some point, we have to get out of the risk business as a state," he said.
Groen said there would never be an unfunded liability with a defined contribution plan because all the money and risk would belong to the employees.
State Rep. Ken Hawkins, R-Bedford, urged the senators to support passage.
"We can't kick the can down the road. It isn't working. We need a substantial change," he said.
But critics noted that the study estimated that Groen's bill would increase the defined benefit plan's unfunded liability by about $1.2 billion. They said that's because there would be fewer active workers to support the old system once new state workers moved into the new defined contribution system. They said employers might balk at paying higher rates.
Senate Republican Leader Jeb Bradley, a bill co-sponsor, said he could not support the bill unless a solution is found to fill the fill the $1.2 billion gap. He recommended creating a commission composed of employers, employee groups and others to study creating a defined contribution system rather than passing the bill.
And Senate Democratic Leader Sylvia Larsen, a committee member, said reforms that the Legislature has put in place over the past four years to deal with the unfunded liability should be allowed to work.
"It is wise to go slowly and allow our existing reforms to work and continue the dialogue" about a defined contribution plan, said Larsen, who represents Concord.
Spokesmen for labor groups agreed with Bradley, as did the New Hampshire Municipal Association, which represents the state's cities and towns.
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