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Another View -- Ken Peterson: Change must come to the NH Retirement System

June 23. 2014 11:55PM

RECENTLY FORMER state Supreme Court Chief Justice John Broderick Jr. opined on this page that, regarding the New Hampshire Retirement System (NHRS), it would “not be fair or just to change the rules after the game begins.” His metaphor of a “game” is actually quite apt. Games and plans change as information and circumstances change, and since that is the current case with the NHRS, it needs to do the same.

The State of New Hampshire has one of the lowest-rated retirement systems in the country (it is underfunded by $4.5 billion). When the near financial collapse of the country happened in 2008-2009, many of the “rules” were modified to keep the country itself financially afloat. We need action now to resolve the NHRS mess. Many people in the private sector have lost jobs they will never get back. Private pension systems have gone bankrupt and individuals have lost all of their saved retirement benefits. There are virtually no defined benefit plans (annuities) any more in the private sector. They have all been converted to defined contribution plans (DCP). A DCP would have the advantage for the municipalities and other governments to know exactly how much they will have to pay each year (no million-dollar bills arriving on the doorstep from the state). Individuals have total control over their money, and can take 100 percent of it with them if they move from job to job. How did the NHRS get into this financial mess?

Years of largesse by both parties and self-serving individuals on the retirement committee(s) at the state level have brought us to this brink. Projected rates of return on the investments that were (and are) to “cover” this expense were not modified as it became apparent they were not valid. The state “promised” to fund 35 percent of this cost to the individual towns. That 35 percent has dwindled to zero percent. Last year the Town of Bedford received a $1 million bill from the state to partially cover this shortfall. Larger bills are expected in the future, as the state continues to be unable under the current “rules” to make that 35 percent reimbursement to towns. The state’s operating reserves are considered extremely low at about 3 percent of revenues, and the pension system is roughly 57 percent funded, among the lowest levels of any state. How often do we see the state (read: those we elect) set aside the law when it is “expedient?” By law, all of the gasoline taxes the state collects are to be used for maintenance and repair of the roads and bridges in the state. They have not, and never have been. The gas tax “piggy bank” gets raided year after year, and now there is an added four cents per gallon tax increase going into effect on July 1. How long will it be before all that new money generated is “dipped into” for other causes?

Only the federal government has the ability to print money out of thin air to satisfy its thirst to spend. State and local governments receive virtually all of their operating money from the private sector in the form of taxes. As the private sector is financially affected, so is the state.

Broderick claims that “public employees are paid less than their private company employees are.” That is not true, according to an American Enterprise Institute report from April. (Its analysis is restricted to state government workers employed in non-public safety positions, as fire and police skill sets are not generally replicated in the private sector.)

Most observers hold that a fairly paid public employee is one who receives salaries, benefits, and job amenities equal in total value to what he or she would likely receive in a private-sector job. New England states pay particularly generous retiree health benefits. In Connecticut, retiree health benefits are equivalent to receiving an additional 18 percent of wages every year of the employee’s working life. In Massachusetts, the figure is 18 percent; in New Hampshire it is 19 percent.

Public employees have greater protection against layoffs and terminations for cause than private-sector employees do. This greater job security acts as an insurance policy against unemployment. If state government employment offers greater job security, then these positions should pay lower overall compensation than similar private-sector positions.

In two categories, physical environment and physical demands, private-sector jobs are less pleasant than state government occupations. In the most generous states, such as California, New Hampshire and New York, annual benefits — including accrual of future pension and health entitlements — are nearly as valuable as wages. New Hampshire employees enjoy a 6 percent to 10 percent premium total compensation package over their private employee counterparts. (American Enterprise Institute).

We believe that all employees, both public and private, should be paid wages and benefits commensurate with their education, job skills, and their employers’ ability to pay. No group of employees lives in a vacuum. All, public and private employees, must be willing to adapt to changes in our employment environment and be a part of the overall solution.

The Legislature, with strong leadership from the governor, must come to terms with the immense size of the $4.5 billion unfunded obligation and the future consequences of not taking responsible action now. Yes, the solution will be difficult, but ignoring the growing deficit is not an option. Private sector businesses have taken responsible actions to protect both their employees and their stakeholders. New Hampshire has similar responsibilities to our employees and our taxpayers. We anticipate our NHRS vested employees will become willing partners in seeking an equitable solution to our problem.

Ken Peterson, a retired Air Force brigadier general, is chairman of the the Trustees of the Trust Funds in Bedford. This column is jointly signed by Bill Dermody, Ken Hawkins, Henry A. Bechard, Bill Foote, Mac McMahan, Kent Messamore and Ed Moran, all of Bedford.

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