Pension Reform a.k.a. Pension Decimation

The continuing assault on public workers’ retirement

The idea of pension reform remains a hot topic here in the Granite State, and a committee created by House Speaker Bill O’Brien is continuing to explore shifting state workers from a defined-benefit pension plan to a defined-contribution 401k-style plan.

Retirees such as Barbara Lillios, who worked as a nurse at the State Hospital for 36 years, speak of the importance of the defined-benefit pension.

“There’s no way my husband and I could maintain a house, live — even renting an apartment — we couldn’t even do that,” she said. “Because you need your food, electricity, all your basic things for life … we couldn’t do it.”

Lillios said she’s keeping O’Brien’s efforts in mind on Election Day: “I vote the way I feel, and I feel right now that O’Brien and other legislators are out to put the screws to us.”

Earlier this year, the Senate had taken up and ultimately rejected the idea of creating a commission to study the retirement change for public workers. Despite that rejection by the Republican-dominated Senate, O’Brien created the new Special House Committee on Defined Contribution Retirement Plans for Public Employees and placed Republican Rep. Will Smith, of New Castle, in charge. This committee is looking for the change to affect only state employees leaving towns and cities to participate in the change if they choose to do so – thus making the reach system wide.  It is very likely cash strapped towns will jump at the chance to shift the burden onto workers.

At a committee meeting in September, Smith seemed to expect that the defined-contribution plans would outperform defined-benefit plans. “If the stock market soars, people on a defined-contribution plan might be envied by those on a defined-benefit plan,” he said.

Research, however, doesn’t support Smith’s hopefulness. Typically, the average investor in a 401k plan sees worse returns than the average return seen with defined-benefit plans.

Under a defined-benefit plan, workers receive a set amount based on salary and years of service; under a defined-contribution plan, workers and employers put aside a set amount to be invested. The defined-contribution plan passes the investment risk on from the state to employees, because the state would no longer be handling investments. Instead, workers would have to decide where they want to invest their money, in funds managed by Wall Street banks. Some officials presume the switch will cost less money and allow the state to shore up the $4 billion unfunded liability in the Retirement System.

But an actuarial report prepared in January at the request of the Retirement System found that “transition to the proposed defined contribution plan will be more expensive for employees and employers than the current defined benefit plan.” Transitional costs from the switch would add another $1.2 billion to the unfunded liability, according the report by Gabriel Roeder Smith & Co.  That burden would then be passed on to younger workers and their families.

Some remain skeptical about the government’s motives when it comes to pensions. Charles Koontz, a retired state worker and active union member, said the pension fund is very attractive to politicians.

“They really would like to use that, and we’ve fought off all kinds of attempts to raid the pension fund over time,” Koontz said.

“They try to divide and conquer,” Koontz said. “It looks like they’re trying to divide people and groups, but what they’re actually trying to do is divide you from your money.”

Gail Kirouac, who is on disability from her job at the Department of Health and Human Services, said her father, a state retiree, gets a modest pension and depends on it.

“(If he didn’t have the pension) he’s already said he wouldn’t get his medicine, and he has heart problems,” Kirouac said. “How much can you do on such a small income? It feels like the legislators feel like you can just forget about the average person.”

“It’s sad because I just feel like they’re gonna do what they’re gonna do and they don’t care who they trample on,” she said.

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