The majority of the priority recommendations of the HB 876 Commission have been implemented* with one extremely significant exception: the enactment of a member-funded COLA.
Discussion of COLA for Group I employees & teachers
The Commission recommended that Group I contributions increase from 5% to 7%, in order to fund future Cost of Living Adjustments (COLAs).
Effective 7/1/09, new Group I State employees are contributing 7% of their pay to NHRS, without any increase in benefits. All other Group I members (non-state employees & teachers) contribute 5%. It is inappropriate for the State's new hires to pay more for the same benefits received by others.
Rates should increase for all Group I members, applying the additional 2% to a new COLA benefit.
Requiring the members to fund their own future COLAs is reasonable and appropriate – NHRS benefits are too low as they are and the Special Account is expected to be depleted shortly. It will become harder and harder for retirees to survive on pensions don’t keep up with inflation.
NHRS benefits for Group I employees are less than the national median for employees.
· Employees in New Hampshire contribute the same 5% median as employees in other states, while receiving a lower level of benefit. According to the National Association of Retirement System Administrators, the median benefit multiplier 1.85% of final average salary while; NH’s is 1.67. For example:
$30,000 AFC x 1.85% = 555 x 30 years = $16,650 annual pension
$30,000 AFC x 1.67 = 501 x 30 years = $15,030 annual pension
· At age 65, the multiplier is reduced to 1.5% and employees’ pensions are reduced by about 10%.
· The average pension for NH employees was $11,380 as of 6/30/08.
The extra 2% now being paid by all State Group I employees should be allocated to a future COLA.
Other policy options:
· Increase the contributions for new hires in all groups, implementing the Commission’s recommendation for a member-funded COLA for all new hires.
· Include language permitting employer contributions to enhance the COLA above 2%, if negotiated. This would also provide a vehicle for current employees to negotiate these benefits.
Passage of a prefunded COLA for new hires might also encourage current employees to support a rate increase, so they can be included in the additional benefit.
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* In the 2008 session, the New Hampshire Legislature enacted HB 1645, implementing 4 out of 6 of the priority recommendations of the Commission to Study the Long-term Viability of the New Hampshire Retirement System. HB 1645's most notable accomplishments were:
1. The preservation of the medical subsidy program for eligible members, including the following: Group II members hired as of 6/30/00, who subsequently retire on service or disability retirement; Group I state employees who retired by 7/1/04 with at least 20 years of service; and Group I teachers and political subdivision employees who retired by 7/1/09 who had at least 20 years of service by 7/1/08.
2. The establishment of an investment committee for NHRS, including non-board members with investment expertise.
1. A member-funded Cost of Living Adjustment (COLA) 2. A new medical subsidy plan which would include members not eligible for the existing plans
HB 1645 created two study commissions to propose legislation to implement the remaining two priorities.