"If they are wrong, and I believe they are, the chickens won’t come home to roost until long after they retire." – Warren Buffet
This is not Wisconsin but the symptoms are similar. We have, for instance, a huge unfunded liability in our state retirement fund. As the Clerk of the Special Committee on Retirement Reform in the NH House, I planned to write this week’s column on the problems of our current retirement fund. I quickly decided that it would take more than one column.
Retirement funding is a specialized field and most readers will find this discussion about as exciting as watching grass grow. But in order to understand our future tax liabilities, it is important to know that we have both short-term and long-term liability problems. And if you are or were an employee of this state or one of its sub-divisions, you may want to follow along.
We have all heard about the short-term problem associated with the budget. We have a $900M+ gap facing the two budget committees. The current legislature has pledged to do whatever is necessary to fill that gap without new or increased taxes and without cost shifting down to the municipalities, counties and school districts of this state.
But the Speaker also wisely recognized that our problems go beyond the
short-term problem. The long-term consequence of our underfunded
retirement system is the Sword of Damocles that hangs over our heads well
into the future. Our committee was formed to study and fix the long-term
problems. But we found out that we must simultaneously work on the
short-term problem too.
The NH Retirement System fund is divided into two groups. Group II is for firefighters and police. Group I is for teachers and all other employees. The NHRS pays the retirement of all public employees in the state with a defined benefit plan. The state funds all state employees and contributes to a portion of the retirement of teachers and workers in the counties, municipalities and school districts..
The Center for Retirement Research at Boston College says that 30% of all current workers have a defined contribution plan [think 401(k)] while only 8% have a defined benefit plan. 9% have both. Private industry has been switching over to defined contribution plans because they are "pay as you go" plans and thus cannot be underfunded. You get what the market gives you over 30-35 years, historically a handsome amount. What about the rest of the workers? 53% have no retirement benefit at all.
In my former profession as an airline pilot, our union always worked with the company when there were problems such as spiking fuel costs, the 9-11 attack, severe recession, etc. We did not want to kill the golden goose. If we drove the company into bankruptcy, we would be on the street.
Our public employees seem to have no such fear. No constructive suggestions are coming from their membership even though we have eliminated the most onerous bills.
We’ll delve into more specifics in next week’s column.
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Contact: ken.s+sunacom.com (replace "+" with "@")