On Thursday, the House Finance Committee Division I approved an amendment to increase public employees’ payments into the New Hampshire Retirement System. Rates would rise from 5% to 7% for Group I employees, and from 9.3% to 11% for Group II employees.
This mandatory deduction from wages is nothing less than an income tax on people who choose to work for public employers.
It would apply to about 51,000 New Hampshire residents – not just state employees, but also local police, firefighters, teachers, county rest home workers, and other public employees.
It would pull more than $100 million out of New Hampshire’s economy, at a time when local retailers are already struggling.
It is a bad idea, and we need to explain that to the other members of the House Finance Committee – quickly. On Tuesday, March 31, the full House Committee will begin reviewing Division I’s budget recommendations, including both
• this proposal to take $100 million out of public employees’ pockets, and
• a new 11.5% tax on the pensions of retired state employees .
Between now and Tuesday, please contact the members of the full House Finance Committee and let them know exactly how bad an idea this is. Let them know how this will impact your personal finances. Will you stop eating out at local restaurants? Will you stop shopping in local grocery stores, and start buying bulk at warehouse chains? Will you postpone buying a "new" used car, and just hope that your current car keeps running? Will you still be able to afford to take care of your parents? To send your child to college? Will you need fuel assistance to stay warm next year?
Please help members of the full House Finance Committee understand exactly what impact this will have on New Hampshire’s economy. Contact information is available here. Or, you can click here to use our automated system to send email messages to the Committee members (using your home computer and email address only, please).
Some history
Group I and Group II public employees have been paying the same percentage of their wages into the New Hampshire Retirement System for two decades. Group I employees have paid 5% into the System, and Group II employees (who are not eligible for Social Security) have paid 9.3% of their wages toward retirement benefits.
But while workers’ rates remained stable, employers’ rates changed almost every year. For example, the employers' contribution rate for Group I hit a high of 3.15% in 1978, and a low of 1.01% in 1987, moving up and down but mostly staying under 3%.
Then in 1992, the employers’ rate spiked – for Group I, it rose to 6.79%. The impact on municipal property taxes prompted legislators to “reform” the NHRS. A switch in the accounting method minimized public employers’ contributions to the System, and the employers’ rate dropped back to 2.65% in 1993. The change benefited everyone, in the short term. Keeping employers’ contributions artificially low helped keep municipal property taxes artificially low – and that helped everyone in New Hampshire, including all of us public employees who pay property taxes.
But artificially low rates for employers also meant that less money was going into the NHRS trust fund – and over the longer term, that wasn’t such a good idea. In meant there would not be enough money in the NHRS Trust Fund to pay all the System’s future pension obligations. In accountants’ lingo, the System had a large – and growing – “unfunded liability.”
Then came the perfect storm.
The Government Accounting Standards Board applied new disclosure standards to public pension systems across the country. In 2007, the amount of “unfunded liability” suddenly became obvious – NHRS only had about two-thirds of the money it would need to pay its future pension obligations. State legislators started looking for ways to increase the System’s funding and shore up the Trust Fund.
At the same time, the nation’s financial system started to wobble, and eventually fall apart. Pension funds across the country were hit hard. Because of its traditionally conservative investment strategy, NHRS lost less money than most other pension systems – but the NHRS Trust Fund value was dropping, at the very time that State legislators wanted to see it grow. Lots of different “retirement reform” bills were filed in the Legislature in a rush to “fix” the System.
Last year, NHRS actuaries wanted public employers to significantly increase their contributions in order to put more money into the Trust Fund. The Local Government Center predicted that increasing employers’ contributions would require huge increases in local property taxes. Some municipalities threatened to sue the State, saying the contribution rate change was an “unfunded mandate”.
When the dust settled, there were no huge increases in property taxes. Instead, $250 million of public employees’ money was used to make the Trust Fund contribution, instead. Money transferred into the Trust Fund was taken from a “special account” intended to fund retirees’ Cost of Living Adjustments. The employers’ contribution rate stayed almost level.
But during last year's debate, legislators and the press noticed that a relatively small number of municipal retirees had unusually high pensions, due to benefit buybacks, contract buyouts, or “golden parachutes.” The truth is, the average NHRS retiree is 70 years old and receives a meager pension of $1,000 a month. The truth is, only a miniscule number of retirees have a substantial pension – yet this is who legislators and the media focus on.
The same legislation that transferred $250 million of workers’ money into the Trust Fund also directed municipalities to start paying the long-term costs of these special-case, extra-expensive, “spiking” retirees
Last fall, municipalities discovered the real price tag for these “special” retirees. Newspapers were filled with horror stories: $1.3 million for eight retirees in one city, $650,000 for a single retiree in a seacoast town. Local officials warned legislators that the new charge would require huge increases in municipal property taxes – and then the effective date for the “spiking charges” was postponed, to give everyone time to look for alternatives.
The Legislature can’t look to the Cost of Living “special account” for that money, because last year’s $250 million transfer essentially wiped it out.
Division I’s proposal to increase workers’ contributions to the NHRS would raise about $100 million.
What’s the impact?
Right now, only you know what the impact of the rate increase will be, on you and your family. How much money will you lose, out of each paycheck?
Yesterday, Division I voted to take that money out of your pocket and give it to the investment professionals, in order to reduce the required contributions of public employers.
Why does it matter?
The American Recovery and Reinvestment Act, passed last month by Congress, was based on economists’ agreement that the only way out of our downward spiral is to put money into the hands of consumers who will spend it.
Division I wants to pull $100 million out of New Hampshire’s economy, at the very time it’s needed most.
If this new “tax” for public employees goes through, how will it affect your family’s spending decisions? Right now, only you know what that impact will be. But our Legislature needs to know, in order to make a good decision about Division I’s recommendation.
Click here to tell the House Finance Committee about the impact of your share of this $100 million tax.