Cities and towns will save money as state retirement system rates drop for the first time in 20 years


Concord Monitor

Published: 01-09-2023 8:41 PM

Towns, cities and schools across the state will save a little money next year due to decreasing contribution rates to the state retirement for the first time in 20 years.

The rates employers pay into the system on behalf of government workers, which are set every two years, are lower this year as a result of strong investment performance over the last five years, said Marty Karlon, director of communication and legislative affairs for the New Hampshire Retirement System. The more money made through investments, the less employers have to contribute.

In addition, the retirement system’s unfunded liability to cover the pensions promised to current and future retirees, surpassed $5.7 billion last year, but has fallen by more than $100 million since then.

Karlon said the unfunded liability is expected to steadily decline, while contribution rates are projected to remain near their current levels through 2039.

“It’s similar to a mortgage or a credit card bill; as long as you make your required payments, you will eventually pay off the debt,” Karlon said.

Anything to lower costs is welcome news ahead of municipal budget season.

“Any reduction amount is going to help the city overall and city taxpayers,” said Brian Lebrun, Concord’s deputy city manager of finance. “Any dollars we can save by reducing the amount we’re paying is helpful to the city budget.”

While the reduction is positive news, next year’s reductions pale in comparison to 20 years of increases government employers were forced to pay into the system to pay down the unfunded liability.

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The amount of money paid into the system has more than tripled on behalf of the state’s police and firefighters in two decades. For example, in 2003, a town would have paid $8,200 a year into the retirement system for a police officer making $100,000 annually. In 2023, the pension contribution has grown to $33,880 for an officer making the same amount of money. Over the same period of time, contributions from individual employees have increased by about 20%.

While retirement costs spiked, contributions from state government stopped, making matters worse. Until 2011, the state paid 35% of pension obligations on behalf of local employees. Over time, these costs began to add up.

Cities, towns and schools had no choice but to cut their budgets elsewhere or pass these growing costs onto residents in the form of tax increases.

Concord paid around $8 million to the retirement system last year, which is more than 10% of the city’s total general fund, said Brian Lebrun, the city’s deputy manager of finance.

If the state was still contributing at the rate it did in 2011, the city of Concord would have saved nearly $3 million based on the 2023 budget.

One bill filed for this upcoming legislative session (HB 50) would reinstate state contributions to 7.5% to offset some of the city and town government costs.

Next year’s decreased contribution rates will save the city around $430,000 for police and fire retirement contributions and $95,000 for other city employees, LeBrun said.

The contribution rate for employers will go from 14.53% to 13.85% for regular government workers, 21.01% to 19.64% for teachers, 33.88% to 31.28% for police and 32.99% to 30.35% for firefighters.

“The reduction in overall contribution to the amount of dollars being paid is a good amount of money for both police and a similar contribution for the fire department,” LeBrun said.

Concord officials have begun looking at both the city and school budgets for next year and will hold public hearings in the spring to collect feedback from residents. The city budget is approved by the City Council, while the school budget is determined by the independent Concord School Board.

Towns across the state have already started their budget process with budget public hearings beginning as early as next week. Spending will be set in March at the conclusion of Town Meeting season.

Editor’s note: This story has been clarified to reflect the unfunded liability is projected to continue to decrease while contribution rates are expected to remain near current levels though 2039.