The Legislature was justified in 2011 when it increased the amount of money government employees have to pay into the New Hampshire Retirement System for their pensions, the New Hampshire Supreme Court ruled yesterday.
Several state employees argued lawmakers did not have the authority to increase the contribution rates for members already paying into the retirement system. Last year, Merrimack County Superior Court Judge Richard McNamara agreed that changing contribution rates for vested members of the system without additional benefits was unconstitutional.
But the state Supreme Court did not see the argument the same way and unanimously reversed that decision yesterday.
“Courts in other jurisdictions have concluded that a legislature is not constitutionally prohibited from increasing member contributions to a state retirement system,” justices wrote in their decision.
The ruling means that government employees enrolled in the state retirement system must continue to contribute a greater portion of their paychecks toward their pensions. Before the legislative change, police officers and firefighters contributed 9.3 percent of their paychecks to the retirement system. Now, police officers must contribute 11.5 percent of their pay, while firefighters contribute 11.8 percent. The rates for teachers and state workers increased from 5 percent to 7 percent.
If the court had ruled the increases to be unconstitutional, the decision could have had a huge impact across the state as the retirement system would have had to refund millions in contributions to government workers and pushed those costs on to taxpayers in the form of increased rates on municipalities.
The increased contributions total about $25 million a year, and have been collected for three years, meaning as much as $75 million hung in the balance of this decision, said Marty Karlon, spokesman for the New Hampshire Retirement System.
Karlon said if less money was coming in to the system from employees, it would have been made up over time by employers.
Facing an unfunded liability of about $4.5 billion, the amount of money paid into the system by municipal employers has already more than doubled in a decade (between 2003 and 2013) and continues to go up.
Rates set for the coming years require municipalities to pay 26 percent of a police officer’s salary into the retirement system and 29 percent for a firefighter. School districts will continue to contribute about 15 percent for teachers and other educators, while the state will contribute about 12.5 percent of pay for the pensions of its workers.
That means taxpayers are on the hook to the tune of $30,000 per year for a police officer earning about $80,000 – the municipality will pay $20,800, and $9,200 comes from the officer’s tax-funded paycheck.
Members of the New Hampshire Retirement Security Coalition, which is made up of officials from organized labor groups, said they were concerned about the long-term effect of the ruling.
“The court’s decision today unfortunately allows public employers to renege on their promise of security in retirement,” the coalition said in a statement.
“The ruling sends a strong negative message to younger workers who are required to join the retirement system, but do so without any protections against ever increasing costs that are deducted from their pay,” the coalition said later.
Members of the coalition said they are hoping rulings on two other cases will “be more definitive and better explain” the state’s authority to change the system for active members.
Two other cases challenge changes to benefits for vested members of the system.
“This was all unplowed ground legally in New Hampshire,” said Karlon, the retirement system spokesman. “In the future, these cases will draw a brighter line for legislators about what they can and can’t do.”
Republican leaders in the Legislature hailed the ruling as a victory in their ongoing efforts to reform the retirement system.
“I’m encouraged that the Supreme Court has upheld the right and duty of the Legislature to amend and improve the New Hampshire Retirement System,” Senate Majority Leader Jeb Bradley, a Republican from Wolfeboro, said in a statement. “Unless we can address the $5 billion unfunded liability in our state pension system, both taxpayers and workers would be left with a huge financial burden. This decision affirms the Legislature’s ability to make the changes we’ll need to preserve the New Hampshire Retirement System, protect taxpayers and maintain employee jobs.”
Others said the next Legislature would continue to reform the retirement system.
“This decision gives us confidence that future legislative reforms are possible and permissible,” said House Majority Leader Jack Flanagan. “House Republicans will continue to offer reasonable proposals, without increasing taxes, to strengthen our pension system and reduce the unfunded liability.”
Several pieces of proposed legislation filed by lawmakers target reforms of the retirement system, including establishing a committee to study alternative public employee retirement plans, creating a defined contribution retirement plan for public employees, changing the cost of living adjustments for retirees and regulating the amount of hours worked by part-time employees in a government job while collecting a pension, a practice known as double-dipping.
(Jonathan Van Fleet can be reached at 369-3303 or [email protected]. Follow him on Twitter @CMonitor_JVF.)
