By MICHAEL KITCH, LACONIA DAILY SUN
LACONIA — Property taxpayers will be contributing more toward funding the pensions of municipal employees — school teachers, police officers, firefighters and other workers — following the decision of the trustees of the New Hampshire Retirement System to raise the employer contribution rates for fiscal years 2018 and 2019.
At the same time, City Manager Scott Myers said that "significant increases in contributions to the retirement system continue to be a challenge in budgeting to meet other municipal needs. While we support our employees and want to ensure them a secure retirement, the costs place severe restrictions on spending to address other needs in the budget. As the New Hampshire Retirement System takes a bigger share, there is less to go around."
The retirement system is funded from three sources: investment earnings, employee contributions and employer contributions. The employee and employer contribution rates represent the percentage of employee's annual compensation, including overtime, contributed by employees and municipalities.
The employee contribution rates are set by statute; the rate for school teachers and other employees is 7 percent and the rates for police and firefighters are 11.5 percent and 11.8 respectively. the municipality contributes to the retirement system. These rates have changed only once in the past 20 years.
The employer contribution rates are adjusted every two years based on a number of factors, chiefly the assumed rate of return on the system's investment portfolio as well as the expected life span of current retirees and projected growth of employees' earnings. With the biennial adjustment of rates, municipal employers not only contribute toward the retirement of their current employees, but also bear the entire cost of any shortfalls in the system arising from poor returns on investments or losses from actuarial assumptions, such as when employees retire, how long they live and how much they earn.
This year, the trustees traced the rate increase to a reduction in the assumed rate of return on investments, which represents the bulk of the system's revenues and weighs most heavily on employer contribution rates. At the same time, the expected life span of retirees was extended and the projected growth in payroll for school teachers was reduced. The anticipated rate of return on investment was lowered from 7.5 percent to 7.25. As retirees live longer, they collect benefits The longer retirees live, the more pension benefits they collect. Finally, with declining school enrollment the number of teachers contributing to the system has shrunk, from 18,709 in 2009 to 17,732 in 2015, or by 5 percent, which drove a 10.78 percent increase in the employer contribution rate for school teachers.
The current employer contribution rates are 29.16 percent for firefighters, 26.38 percent for police officers, 15.67 percent for school teachers and 11.17 percent for other employees. The new rates, effective July 1, 2017 are 31.89 percent for fire fighters, 29.43 percent for police officers, 17.36 for school teachers and 11.38 percent for other employees. For example, the employer contributions will increase from $14,915 to $16,311 for a firefighter earning $51,149, from $13,740 to $15,328 for a police officer earning $52,085, from $6,465 to $7,162 for a school teacher earning $41,259, and from $4,449 to $4,532, for a light equipment operator earning $39,832.
With 184 employees, the city has budgeted $1,975,875 in retirement contributions for the current fiscal year. More than 70 percent of employer contributions are applied against the unfunded liability of the pension plan, which was $4.2 billion as of June 30, 2015. The unfunded liability arose from several factors. A flawed funding methodology that masked the financial condition of the system led to low employer contribution rates from 1991 to 2007. Some $900 million was diverted from the pension fund to finance a special account applied to cost-of-living adjustments and subsidies for health insurance. And investments underperformed, especially during the recessions of 2001-2002 and 2008-2009.
While pressures on the system have mounted, the state has shed its share of the employer contributions for municipal employees. Beginning in 1940, the state shouldered a portion of the contributions for teachers, police and firefighters, which in 1977 was set by statute at 35 percent, with municipalities, school districts and counties paying the balance of 65 percent. In 2010 the state trimmed its share to 30 percent and a year later to 25 percent before scrapping it altogether in 2013.
"Since the state walked away from its commitment, it's added to the problem," Myers said. He remarked that even if the city could leave the retirement system, it would be billed for its share of the unfunded liability, which would amount to several million.
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