CONCORD, N.H. - The state's underfunded state pension system is getting healthier, but solutions have to be found to provide annual cost-of-living increases and healthcare subsidies for retirees, lawmakers have been told.
Former state Senate president William Bartlett and economist Lisa Shapiro told the House Finance Committee yesterday that legislative efforts last year to shore up the $6 billion pension system appear to be working.
But they said that serious, costly issues must be dealt with soon or taxpayers will pay for the Legislature's inaction.
Bartlett chaired a special commission that just released a report on the pension system. Shapiro headed a subpanel dealing with the sticky issues of how to fund cost-of-living allowances and healthcare.
Shapiro said the state and local governments could face a 50 percent increase in their contribution rate in the next biennium if lawmakers don't rein in a subsidy given to retirees toward their health insurance premiums.
Shapiro pointed out that only half the 20,000 retirees are eligible for the subsidy, which costs about $50 million per year. Police and firefighters hired after 2000 aren't eligible, and teachers have to retire by July to qualify, she said.
Currently, local governments get about $375 per retired worker who qualifies for a subsidy toward the cost of the premium. The benefit isn't available in all communities. The cost drops once the retired worker qualifies for Medicare.
Until last year, the town or school district was reimbursed for subsidizing the retirees' health insurance cost. Though reimbursement stopped, the subsidy remains in place.
The commission recommends that lawmakers freeze annual 8 percent increases in the subsidy starting in 2010 and move $250 million set aside for benefits into the main pension fund. Shapiro said those accounting changes will dramatically soften the increase in contribution rates.
She said the state should create a new trust fund that workers can pay into so they have money for their healthcare premiums when they retire. The workers can negotiate with their employers whether the employers also contribute.
If the medical subsidy isn't restructured, the state could be liable for $130 million in the next biennium, Shapiro said. The cost to local governments would be $180 million in that two years.
"It's got to change; it has to go to a system that's more robust and treats healthcare subsidies separate from a pension," she said. "It can't all be on the employer."
The commission also recommends limiting money in a special account for cost-of-living increases to existing retirees and establishing a new account for such increases for future retirees that they fund with higher contributions.
The commission also recommends capping increases for the current retirees at 2.5 percent of the median income for each group, with a $500 minimum to protect lower-income pensioners. That means retirees in the higher salary ranges would have their increases capped at 2.5 percent of the median salary.
The fund pays pensions for retired police officers, firefighters, teachers, and other public workers. The plan is funded at 63 percent of its long-term liabilities, short by about $2.6 billion on its annuity fund alone. There are also multimillion dollar problems in funding health insurance subsidies, cost of living increases, and state retirees' health insurance.