High-cost retirements

LACONIA — As city leaders try to live under a restrictive tax cap, they have no choice but to increase one particular line item by more than 15 percent.

Police retirement expense goes from $771,413 in the current budget to $888,889 in the 2017-2018 budget proposed by City Manager Scott Myers.

The Laconia School District is also seeing an increase in its retirement costs. That expense is expected to increase from the current $2.13 million to $2.31 million in the new budget.

The Fire Department’s retirement expense is to go from $695,545 to $780,319.

These increases are primarily determined by the Board of Trustees of the New Hampshire Retirement System, Myers said.

“Their focus is on making sure the system remains solvent,” Myers said. “It limits what we can spend elsewhere.”

The problem has been compounded in recent years by the Legislature’s refusal to contribute state funds to the system.

Starting in 1977, lawmakers, in order to entice municipalities to agree to a single, statewide public employee pension system, committed the state to picking up 35 percent of the tab. That bargain held until 2009, when the commitment was reduced to 30 percent. By 2012 the state’s contribution was down to zero, where it remains.

Laconia School Superintendent Brendan Minnihan said increased pension costs have been a growing problem.

“Cities and towns have had to pick up some of that unfunded liability,” he said. “Certainly within the tax cap structure, there’s only so much money, and if we’re paying an additional amount into the retirement system, we can’t use it to do other things.”

Marty Karlon, a spokesman for the New Hampshire Retirement System, said a number of structural issues are driving increases in what cities and towns must contribute to the system.

In the 2016-2017 fiscal year, these employers were required to pay in to the system an amount equal to 15.67 percent of teacher salaries, which will grow to 17.36 percent in the new fiscal year.

For police, that percentage is 26.38, growing to 29.43. The percentage for firefighters is 29.16, growing to 31.89.

These increases are driven by the fact the system did not collect enough money between 1991 and 2007 and now must catch up to reduce the pension’s program unfunded liability, or retirement benefits that have been earned but are not yet funded.

Also, lawmakers decided to divert $900 million in investment earnings from the pension trust into a special account over the same period. This account, which was repealed in 2012, funded other post-employment benefits such as cost-of-living adjustments.

Finally, investment performance was hurt by global economic declines in 2001-2002 and 2008-09.

Most private companies have gone away from defined benefit pension plans in favor of defined contribution plans like the popular 401(k). Many in government service say they would like to keep their traditional pension plans, arguing their yearly compensation is less than those in the private sector.

In New Hampshire, retirement benefits for public employees are governed through the state system.

Benefits for police and fire retirees vested before 2012 are calculated on a formula based on years of service and an average salary of the retiree’s three highest years.

Years of service are multiplied by 2.5, and this provides the percentage of final salary one would receive in retirement. For example, someone who retires after 40 years of service would receive 100 percent of final salary, 30 years of service would provide 75 percent and 20 years would yield 50 percent.

The three-year average can be skewed by a final year in which an employee realizes a large lump sum by cashing in on unused time off. For those vested after 2012, a five-year average is used.

The top-paid retiree for Laconia is Thomas J. Oetinger. The retired police chief has a yearly pension benefit of nearly $87,924. He earned $161,685 in 2007, his final year, while making $94,324 in 2006. An attempt to reach Oetinger on Friday was unsuccessful.

Eight of the top-paid retirees in Laconia worked for the police department. The other two worked for the fire department:

1. Thomas Oetinger, $87,924, police

2. Michael Moyer, $80,953, police

3. Steven Clarke, $80,340 , police

4. Timothy Cavanaugh, $75,916, police

5. Alfred Lessard, $65,853, police

6. John MacLennan, $65,027, police

7. Robert Champlin, $62,117, school

8. Michael Drake, $60,436, fire

9. Sharon Cavanaugh, $58,044, police

10. Michael Shastany, $57,920, fire

The complete list of costs as provided by the New Hampshire Retirement System can be see online at www.laconiadailysun.com in the online version of this story.

The complete list of costs follows, as provided by the New Hampshire Retirement System: