Pensions, as a worker benefit, have existed for almost 150 years in the United States, dating back to when the big railroad companies needed a way to engender employee loyalty.
Those early pensions, however, were entirely in the hands of the employer: the benefit could be terminated at any time, even if a worker had been contributing to it for years. The rise of workers unions changed the dynamic, by offering their own retirement options. Companies had little choice but to alter the playing field by essentially promising workers the money would be there when the time to retire arrived. It also helped that the IRS began allowing firms to write off pension contributions.
Eventually, a good pension became one of the best perks a worker could find, and public workers with strong unions joined the party. That included not only workers in school districts and cities and towns, but state and federal employees as well.
In New Hampshire, public employee pension plans began in 1940. By 1977 — a decade after the Legislature formally created the N.H. Retirement System, lawmakers had struck a deal with municipalities, counties and school districts — what it terms “political subdivisions”: in exchange for allowing all the pension contributions to be combined with those for the state’s employees, thus allowing for greater market leverage and growth, the state would pay 35 percent of the contributions for the employees of those political subdivisions.
Fast forward to 2009: While most — not all, but most — private companies have done away with pensions in favor of less-costly 401(k) or IRA-style retirement plans, contributing or matching a set (usually small) percentage toward the plan, public sector employers are still on the hook for much costlier contributions. So lawmakers decide to give the state a break, on the back of those political subdivisions. They reduced the state’s share of contributions to 30 percent for 2010, and to 25 percent for 2011. That helps balance the biennial budget, after which — ha, ha — the state would resume its previous share of the burden.
That was bad — a broken promise — but at least it was temporary, and the state was still paying most of what it had been. But come 2012, trying to slash all state spending by record numbers, the Legislature decided not only to not return to its previous level of financial responsibility, but to stop paying anything at all.
And more than a decade later, here we are, the promise still broken.
Except in 2022, with state coffers burgeoning with federal COVID aid, lawmakers actually agreed to have the state make a one-time 7.5 percent payment. It was a pleasant surprise and, emboldened, advocates have put forth this session a bill to make that 7.5 percent state payment an annual thing.
House Bill 50 — the Property Tax Relief Act of 2023 — aims to help reduce local taxes. Every bit helps in that respect, and according to the N.H. Municipal Association, between 2010 and 2017, school districts, cities and towns had paid $90 million more than they would have if the state had kept paying at the rate it had agreed to decades before.
What can school districts, municipalities and counties do? Well, the Legislature shelved a bill in 2009 that would have allowed them to withdraw from the retirement system and seek their own path forward. A subsequent lawsuit failed when the N.H. Supreme Court somehow ruled that for the state to violate the N.H. Constitution’s “unfunded mandate” clause, it must do more than renege on its financial obligations and promises.
The chances for HB 50 are slim. It already faces opposition from an incredulous GOP majority and the chairwoman of the House Executive Departments and Administration Committee.
“(They keep) talking about promises made 50 years ago which are not being met,” said said Chair Carol McGuire, an Epsom Republican. “Well, fine, that was 50 years ago.”
Keep a promise? Pay your share? Perish the thought.
Far better to feign fiscal responsibility while downshifting the costs to local municipal, county and school property taxpayers, such thinking goes.
So perhaps we’ve heard the last from legislators about the federal government not paying its “fair share” of programs such as the Individuals with Disabilities Education Act?
Sadly, as seen with the Meals and Rooms tax over the years, state lawmakers have a penchant for striking deals, and making promises, they don’t intend to keep.
“I don’t think that we should burden the state by subsidizing local payrolls,” McGuire added. That ignores the original deal, but also that the state benefits in meeting its own pension commitments by having the cities, towns, counties and school districts participate. Its why the deal was struck in the first place and why lawmakers won’t let the school districts and municipalities out of the retirement system. Combining the contributions allows for better growth of the investments, which allows the state to contribute less than it would otherwise.
Even if legislators don’t buy the argument for HB 50, they have another broken — or at least, severely cracked — promise to deal with, to the pensioners themselves. During the early 1990s, in the midst of a recession, lawmakers made some sketchy decisions that have left the retirement system’s pension fund $5.7 billion short, according to a N.H. Bulletin report. Trying to cover that gap is part of what’s driving up pension costs for those political subdivisions.
Consider it just another promise by the Legislature, teetering on the edge.
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