proposed legislation aims to reform NH’s retirement system

Proposed legislation to reform the New Hampshire Retirement System recently glided through the House of Representatives, but the bill is expected to encounter greater resistance in the Senate. Irked by language that would force police and firefighters to add five years to their careers, many public employees are calling for the bill to be quashed. 

House Bill 1645, known as the Omnibus Reform Bill, includes several provisions designed to improve the state’s retirement system. Among the most significant changes is a provision increasing the age and number of years police and firefighters must work before they are eligible for retirement. Advocates of the bill say the provision would make the retirement system fairer and would put New Hampshire more in line with other states. But opponents say forcing police and firefighters to stay in uniform longer would lead to more on-duty injuries and safety risks.

In order to be eligible for pensions, police and firefighters currently must work for at least 20 years and be at least 45 years old. HB 1645, sponsored by state Rep. Daniel Eaton (D-Stoddard), would require police and firefighters to work for at least 25 years and be at least 50 years old before retiring.

According to Maura Carroll, general counsel for the N.H. Municipal Association, New Hampshire’s current age requirements for retiring police and firefighters are among the lowest in the nation. Most police and firefighters in New Hampshire, she said, work well beyond the age of 45, amassing excessively hefty pensions as they continue to work.

Officer Jon R. Garvin, a master patrolman with the Newington Police Department and president of the N.H. Police Association, said the majority of officers who continue working beyond the age of 45 are detectives or administrators rather than full-time patrolmen in cruisers. If police are forced to keep patrolling the streets until they are 50 years old, he said, there is bound to be an increase in injuries.

“I think that 20 and 45 should just stay the way it is,” Garvin said. “If you get guys out there working 25 years, age 50, it will eventually lead to more workers’ comp claims.”

The N.H. Police Association is one of a number of labor groups that have united to form the N.H. Retirement Security Coalition. The coalition, which represents about 77,000 workers in the state, opposes HB 1645.
The N.H. House overwhelmingly approved the bill on March 18, but Carroll does not expect it to coast through the Senate. She said the Senate will likely hold several meetings about the bill before putting it to a vote. Hearings are scheduled to begin on Wednesday, April 9, Garvin said.

The bill is aimed at protecting benefits for current retirees and ensuring that existing employees will have funds available for their pensions. It also modifies governance of the NHRS, adding more financial professionals to the Board of Trustees.

Of all the bill’s provisions, the age requirement for police and firefighters is likely to stir the most debate. Public employees are divided into two separate categories. Police and firefighters make up Group 2, while Group 1 is comprised of teachers and other state and municipal employees. Group 2 employees contribute 9.3 percent of their pay toward retirement, enabling them to build a pension equivalent to half their salaries after 20 years. If they work more than 20 years, their pensions continue to grow. In some cases, Carroll said, they end up making more in retirement than they did while working. A provision of HB 1645 would cap pensions at 100 percent of final salaries.

“Right now, people can get a pension that is in excess of 100 percent of their final compensation,” Carroll explained. “You can’t be paying out more than folks have paid in over time, so that could be problematic into the future.”

Group 1 employees, by contrast, contribute 5 percent of their salaries toward retirement, enabling them to build a half-salary pension after 30 years. Teachers and other employees in Group 1 must be at least 60 years old to receive pensions.

Garvin believes the disparity in age and year requirements between Group 1 and Group 2 employees is justified by the physically demanding nature of the work. Police and firefighters often must work fluctuating shifts that alternately force them to work late at night or early in the morning, he said. Plus, police must sometimes chase suspects and execute dangerous arrests that involve physical confrontations unbefitting of 50-year-old men and women.

“If I was a teacher, I could work 30 years and be age 60,” Garvin said. “There are people out there that think that (police) can work to age 60, but that’s crazy.”

But the implications of failing to reform the NHRS could be staggering, Carroll said. Most of the provisions included in HB 1645 were recommended by the Retirement Study Commission, which was established last year to study the long-term viability of the state’s retirement system. The Commission issued a 175-page report on Jan. 2, which can be viewed at www.nhlgc.org. The study indicates that, if nothing is done to reform the retirement system, employer contributions to the pension fund will increase by roughly 50 percent by 2011.
“Increases in costs for property taxpayers are going to be immense,” Carroll said.

The retirement system fell into this perilous state because of a variety of factors. Foremost among them, according to Carroll, were poor investment returns in the early 2000s. More than 60 percent of the system’s funding comes from investments managed by the NHRS Board of Trustees. In the late 1990s, the Board implemented a policy called “gain-sharing,” which Carroll feels is a flawed strategy. The Board set a projected rate of return on investments and diverted any income above the projected rate into a Special Account. Funds from the Special Account are used to cover cost of living adjustments and medical subsidies for eligible retirees.  

“What that did was to artificially inflate the value of the system and, therefore, artificially decrease employer contributions,” Carroll said. “When we had those down years in the early part of this century, we had no way to make them up because it went into the Special Account. Even when the market came back, we weren’t able to capture the good returns.”

From 2001 to 2003, investment returns fell well under the projected rates, and, by 2005, the pension fund had dwindled to about 66 percent of what was needed to cover all benefits. If the funding shortfall continues, employers could be required to pay for medical subsidies.

To correct this shortfall, HB 1645 proposes transferring $250 million from the Special Account back into the corpus of the pension fund. Carroll believes that this transfer and other provisions of the Omnibus Reform Bill, coupled with changes that were instituted last year, will put the NHRS on the road to recovery.

As for Garvin, he plans to get out while he still can. The officer has been patrolling for 22 years and is now 45 years old, making him eligible for a pension under current law. He plans to retire soon.

“I’ve done my time,” he said. “It takes a toll on your body.”