A Senate bill to replace our defined-benefit system with a defined contribution program has hit the news.
The proposal would increase the System's unfunded liability starting in 2014; and over the long term it would increase costs to employers.
Read the bill here.
State Sen. Fenton Groen, a Rochester Republican, is sponsoring legislation to create a mandatory defined contribution plan for public employees hired starting Nov. 1. Such plans are relatively rare in state governments, though more states are looking at them as a way to shift the financial risks of traditional defined benefit plans from employers to employees.
Read the Associated Press story here.
Here in New Hampshire, thousands of retirees rely on the financial security provided to them by a Defined Benefit pension plan. Last year alone, NHRS supported more than 27,000 retired teachers, firefighters and police officers with more than $579 million in benefits. Could you imagine the impact on our local economy if those benefits were gambled in risky investments, or were badly mismanaged?
Read "We need to protect retirees," an op-ed published in the Portsmouth Herald here.
"Defined Benefit pensions are the most economically efficient retirement plans available and are a better bargain for taxpayers."
Read the New Hampshire Retirement Security Coalition Fact Sheet here.
The New Hampshire Retirement System actuary has analyzed how the bill would impact the System over the next 30 years.
"In all areas, over time, transitioning to the proposed Defined Contribution plan will be more expensive for the employees and employers than maintaining the current Defined Benefit plan based on the recent changes made by the legislature to the Defined Benefit plan. Incorporating the proposed Defined Contribution plan into the NHRS would increase the funding obligations of the employers over the life of the plans."
Read the report here.
Testimony before the
House Special Committee on Pension Reform
"Expenditures made by retirees of state and local government provide a steady economic stimulus to New Hampshire communities and the state economy."
"...Retirees' expenditures from [pension] benefits supported a total of $454.6 million in total economic output [in the state of New Hampshire in 2006.]"
Read "Measuring the Economic Impact of State and Local Pension Plans" here.
The Defined Benefit plan provides the best bang for the retirement buck. ...The DB plan provides the same retirement income at nearly half the cost - 46% less than individual 401(k)-type defined contribution accounts.
Read "The Economic Efficiencies of Defined Benefit Pension Plans" here.
"Defined contribution plans are costly to establish and maintain. ... In several cases, states have replaced defined contribution plans with defined benefit plans because of the inadequacy of plan benefits or increased costs."
Read the testimony of Hank Kim, Executive Director of the National Conference on Public Employee Retirement Systems
here.
"AARP believes all workers need access to a retirement plan that supplements Social Security's foundation. For those workers who do not participate in Social Security, such as New Hampshire's own Group II police and fire personnel, their retirement plan becomes their main source of income during retirement and often their sole source of inflation protection in retirement."
Defined Contribution plans "force employees to bear most if not all investment risk, inflation risk, and longevity risk, the risk of outliving one's retirement nest egg. The shift of all these risks to individual employees in concert with other factors could leave many retirees financially unprepared for retirement."
Read the testimony of Geraldine Madrid-Davis, Director, Financial Security & Consumer Affairs, AARP
here.
"The advantages of defined benefit pensions are especially clear in the public sector, where there's a large and stable workforce and where good pensions partly make up for lower pay. Teachers, for example, typically earn about 20% less per hour than comparable college-educated workers but at least they can count on a secure retirement."
"Though public pension funds were hit hard by the stock market downturn, this is more a political problem than a practical one, since these pensions are designed to ride out market fluctuations. In any given year, pensions pay out only a small fraction of their reserves in benefits."
"In short, the proposed legislation will greatly lessen the retirement security of New Hampshire public employees without improving the finances of the state's public employers in any meaningful way."
Read the testimony of Ross Eisenbrey, Vice President of the Economic Policy Institute, here.