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NH retirement system sues over pension reform

By Norma Love
Associated Press / July 12, 2011

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CONCORD, N.H.—The public New Hampshire Retirement System asked a court Tuesday to block implementation of the part of a new pension reform law dealing with setting employer contribution rates.

The system's Board of Trustees filed the suit in Merrimack County Superior Court. It is the second lawsuit filed aimed at blocking parts of the law from being implemented.

Associate Attorney General Richard Head said he is reviewing the lawsuit and had no comment about it.

At issue is whether the Legislature or the board controls the rates employers pay. The public pension system covers more than 50,000 active and nearly 26,000 retired state and municipal workers, teachers, police and firefighters. Contributions from employers -- the state and local governments -- and employees plus money earned through investments make up the pension fund.

A coalition of employee groups has a hearing scheduled for Thursday on the same rate-setting issue as well as on another section of the law that raises employee contribution rates.

The system's board argues the Legislature is violating the constitution by requiring it to recertify employer rates. It points to a clause in the constitution adopted by voters in 1984 to protect the pension fund from raids by lawmakers. The board argues the clause gives it the fiduciary responsibility to set employer rates independently.

The board voted in June to move ahead with $50 million in higher annual rates for employers on top of already planned rate increases. The Legislature voted to block the board and stick with the planned rate increases.

The board argues in its lawsuit that its decision is based on the latest actuarial economic and demographic assumptions.

"The difference is not trivial, but substantial: It translates directly into an expected annual decrease in employer contributions equal to approximately 2 percent of the entire membership payroll. In dollar terms, the difference is equal to approximately $100 million," the board said in its suit.

The board said if the Legislature prevails and lower rates are in place, employer rates will have to be increased for fiscal years 2014 and 2015 and beyond to make up for the reduced employer contributions and any decrease in the plan's funding. The fund is about 58 percent funded with a $3.7 billion unfunded liability in the pension fund and almost a $1 billion unfunded liability in its health insurance subsidy.

The Legislature included pension reform provisions in the budget package enacted last month that -- among other things -- increase the contribution rate for employees. The employees' higher contributions are intended to replace a subsidy the state paid to communities to cover part of their workers' retirement costs. Employee groups are suing to block implementation of that increase.

Lawmakers said the goal was to prevent spikes in local property taxes to pay rising retirement costs. The state also saved money under the new law by no longer subsidizing communities.

Employee groups and the board argue actions by the Legislature nearly 20 years ago contributed to the fund's problems. Employee contributions have been fixed, but employer rates were set artificially low from 1992 through 2009, the board's lawsuit said.

The board isn't taking a position on the employee groups' lawsuit, but noted in Tuesday's court filing that the outcome could affect its lawsuit.

The new law also changes the composition of the board to shift control away from employee groups. Republican legislative leaders are urging Democratic Gov. John Lynch and the Executive Council to appoint members to the restructured board as quickly as possible to prevent the board from moving ahead with the higher rates. Lynch plans to nominate some members at Wednesday's council meeting.