(December 11, 2011) – New Hampshire is looking into switching its state employees from a defined benefit to a defined contribution retirement system—but a new report is raising surprising issues of cost.
While many Republican legislatures from across the country have indicated their willingness to move public employees into 401(k)-style retirement systems, the New Hampshire legislature is actively investigating the option for the New Hampshire Retirement System (NHRS) and employees hired after November 1, 2012. However, according to a report—produced by actuaries Gabriel, Roeder, Smith and Co., and reported by SeaCoastOnline—such an action would actually increase the plan’s $3.45 billion unfunded liability of the plan by $237 million, to $3.7 billion.
Whether or not the added and unexpected costs hinder any switching of plans has yet to be seen, but they do seem to throw a curveball at legislatures and commentators who view public employee defined contribution plans as a panacea for state funding problems. Arizona, Tennessee, Oklahoma, Kansas, and Kentucky are among those states considering a move similar to that of New Hampshire.
According to the news agency with access to the report, shortfall is “based on current language in the proposed legislation.” Lawmakers stressed that the eventual bill passed is likely to be substantially different, negating the accuracy of the actuarial report.
A small number of states have, in fact, made the switch from defined benefit to defined contribution pension plans for their public employees. One—Michigan—did so in 1997, a move which has saved the state upwards of $4 billion, according to at least one study. Other states that have some form of 401(k)-style retirement plan for public employees include Alaska, Colorado, Georgia, Utah, and Ohio.
American corporations, in contrast, long ago abandoned retirement systems with set benefit levels, with few exceptions.