Recently, a growing number of articles have outlined the impending increases in New Hampshire’s retirement contribution rates and the low investment performance of the New Hampshire Retirement System (NHRS). Cities and towns are reaching out to Gov. Chris Sununu, the state’s education commissioner, and the state’s House and Senate for help with these projected costs. Too often, hardworking public employees are unfairly made the scapegoat for these costs when they’re the ones paying their share with each and every paycheck. In fact, employee contribution rates increased in 2011, from 5% to 7% for Group I members (teachers and state employees), from 9% to 11.55% for police, and from 9% to 11.8% for firefighters. Employees cover nearly 80% of their actual benefit, and employers only pay 20% of the actual cost of providing retirement benefits to public employees.
It’s important to understand the historical context when considering why New Hampshire retirement costs are what they are. In the early 1990s, a change in the funding methodology regarding employer rates resulted in nearly two decades of underfunding NHRS. This created the Unfunded Actuarial Accrued Liability (UAAL), which makes up the majority of current employer costs. Eighty-two percent of employer costs currently pay toward the UAAL and not the actual benefit to retirees. This means that when the unfunded liability is paid off, employers will be able to provide benefits at the cost of just 18% of what they pay now.
Some of the increased costs at the municipal level these recent articles highlight can be attributed to changes made by the New Hampshire Retirement System (NHRS). In FY2020, the NHRS plan net position decreased by $74 million from the prior fiscal year. This occurred at the same time the NHRS Board of Trustees voted to lower the assumed rate of return from 7.25% to 6.75%. The Independent Investment Committee, which is responsible for investing the $9 billion trust, only received a 1.1% return in FY2020. This resulted in a $388 million decrease in investment income from the prior fiscal year.
Even with these changes at NHRS, retirement rates in New Hampshire are significantly lower than other states in the country. In 2017, the Boston College Center for Retirement Research showed that NHRS’ total accrued liabilities is 4.7% of payroll, while the national average is 6.8%. Additionally, NHRS employers pay very little to the benefit’s actual cost, contributing only 2.7%, while the national average is 5.9%.
While considering these changes and their results, it’s worth noting that the New Hampshire legislature voted to decrease employee representation on the NHRS Board of Trustees by 50% in 2011. In 2021, there are no voting retired or current members serving on the Independent Investment Committee, meaning that these hardworking Granite Staters have no say in how NHRS invests. Research from David Webber at Boston University shows that retirement systems whose investments are managed by those who rely on those benefits will often report higher returns than when political appointees manage those systems.
Rather than being blamed for current fiscal issues resulting from decades of underfunding the system, public employees should be involved in the decision-making at the strategic and investment level. Increasing voting representation on both the NHRS Board of Trustees and the Independent Investment Committee is the first step in that process.