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Special Board of Aldermen 09-21-2021 Page 6

Jan Goodwin, Executive Director of NH Retirement System

Thank you. So we're on slide 15 now and fortunately, the past does not always repeat itself. Here are some of our key
actuarial metrics and what they mean. NHRS’s assets continue to grow and as of June 30 of this year, they're now at
$11.3 billion. Although our unfunded actuarial accrued liability the UAAL - that's the difference between the actuarial
value of assets and the benefits our members have earned continues to grow. That growth is largely attributable to the
interest accrual on the unfunded liability each year and the decreases and the assumed rate of return for the investment
portfolio.

As Marty mentioned earlier, the 30 year amortization of the unfunded liability began in fiscal year 2010. Just as with a 30
year mortgage on your home, the payments in the initial years primarily go to interest and like the amortization schedule
for your home's mortgage, we have now reached the tipping point after which the employer contributions will be
increasingly allocated to the principle on the unfunded liability.

Our funded ratio, the ratio of our actuarial value of assets to the pension benefits our members have earned is 61% as of
last June. It's important to consider the funded ratio in the context of what is expected for the retirement system. It's
possible to have two retirement systems with a 61% funded ratio and one of the plans may be significantly more sound
than the other. In NHRS’s situation, we have a plan to get to 100% funding thanks to the Board's commitment, and
statutory, and constitutional provisions that have put us on the path to 100% funding in about another 18 years.

We have about 48,500 members as of last June. This number has remained fairly constant since 2011. In contrast, the
number of our retirees and beneficiary recipients continues to grow and it was 39,600 as of last June. In 2010, there
were only 27,100 retirees and beneficiary recipients. The reason why NHRS exists is to pay pension benefits. This past
fiscal year we paid over $860 million in pension benefits and medical subsidies to our retirees and beneficiaries.
According to the National Institute on Retirement Security, these benefits help drive the New Hampshire economy.
According to their 2021 Pensionomics report, the net benefits supported 8,495 jobs that paid $493 million in wages and
salaries. As you can see, 80% of our retirees stay right here in New Hampshire. Slide 16.

The number of actives is remaining constant while the number of retirees and beneficiary recipients is steadily growing.
While the ratio of active members to benefit recipients is getting closer to a one-to-one ratio that does not mean that the
long-term viability of NHRS is threatened. There is a sound funding plan in place as Marty mentioned earlier. Slide 17.

The value of the NHRS investment portfolio continues to grow. Needless to say it is affected by the downturns in the
financial markets. However, it has improved significantly since the fiscal year 2020 downturn, which was largely caused
by the pandemic. Next slide, slide 18.

This slide shows how NHRS is funded ratio has increased overall since 2010 and as of June 30, 2020 is 61%. In
contrast, the average funded ratio for a US public pension plan has decreased over the same timeframe. And so it an
NHRS is funded ratio is the lower of the two lines and the average national plan is shown on the upper line.

As the three triangles indicate over the same time, NHRS has reduced its assumed rate of return on its investments from
8.5% in 2011 to 6.75% in in 2020. NHRS has gone from having one of the highest assumed rates of return in the 1990s
to one of the most conservative assumed rates of return today. The assumed rate of return reflects the expected
earings on the different parts of our investment portfolio. These returns and the underlying inflation assumptions may
change over time.

Slide 19. Fiscal year investment returns reflect the financial market volatility of those time periods. Fortunately, the
downturns caused by the .com bust, the great financial recession, and today's pandemic has all been followed by
recoveries that often exceed the downturns. For the fiscal year ended June 30, 2021, our net investment return is 26.8%

which is 1.4% over our benchmark. This chart illustrates why actuaries use their five year smoothing convention for
asset valuation and calculating the actuarial...

Mayor Donchess
I'm sorry. | lost where you get this 26% on one of those slides.
Jan Goodwin, Executive Director of NH Retirement System

I'm sorry. We did not update this slide banking to reflect that to 2021.

Special Board of Aldermen 09-21-2021 Page 7
Mayor Donchess
Oh okay. Sorry.

Jan Goodwin, Executive Director of NH Retirement System

No worries. Without this five years smoothing, the employer contribution rates would experience significant swings every
few years. Slide 20. The employer contribution rate for NHRS has three separate components: normal cost, unfunded
liability amortization, and the medical subsidy. Let's look at these one at a time.

The normal cost is the percent of payroll that is necessary to pay the current cost of the pension benefits as they accrue
for our members. As you can see in the text below the chart, NHRS members pay a substantial proportion of the total
normal costs of their pension benefits. The largest part of the employer contribution rate is the pay down of the unfunded
liability over time. As Marty mentioned earlier, the employer contribution rate has to be sufficient to amortize the
unfunded liability over the remainder of the 30 year closed amortization period. This combined with changes in the
actuarial assumptions can make for significant increases in employer contributions every two years. As you well know,
when the NHRS board sets the employer contribution rates to fulfill its fiduciary, statutory, and constitutional duties.

The medical subsidy is the smallest part of the employer contribution rate for a couple of reasons. First, those eligible for
the subsidy are essentially a closed pool of slightly less than 10,000 individuals either currently receiving the subsidy or
eligible to receive it upon retirement. And second, the funding of the subsidy is on a pay as you go or solvency basis
similar to Social Security so there is no amortization goal of reaching 100% funding as there is with the pension benefit.
Slide 21. So how do NHRS's practices line up with best practices for well-funded public pension plans? In 2011, the
National Institute on Retirement Security examine several well-funded public pension plans to identify what elements
they all have in common. As you can see, these are the six different items and I'll compare how NHRS stacks up against
each one. Employer contributions that pay the full amount of the annual contribution. Yes. And that maintains stability
over time. Not so much because they do vary a great deal from one year to the next.

Two - employee contributions help pay plan costs. And yes, they definitely do here in New Hampshire. Do the benefit
improvements are they actuarially valued before adoption and properly funded upon adoption? Yes. That's also true in
New Hampshire. Costs of living adjustments are granted responsibly. Yes. That happens. Anti-spiking measures are
in place. Yes. And the economic actuarial assumptions can be reasonably expected to be achieved over the long term.
Yes. Based on this, | would give NHRS a 5.5 out of a possible score of six.

President Wilshire

Alderman O’Brien did you have a question?

Alderman O’Brien

Yes. May | ask a question please?

Jan Goodwin, Executive Director of NH Retirement System

Yes, Sir.

Alderman O’Brien

You say cost of living adjustments have been granted responsibly. When was the last one and when was the last one
prior to that so that the public knows what the definition of responsibility is with this?

Jan Goodwin, Executive Director of NH Retirement System

The last one was granted in 2019 and took effect in 2020. And as to the one before that, I'm going to have to defer to
Marty on that.

Marty Karlon, Director of Communications and Legislative Affairs

In 2010.

Special Board of Aldermen 09-21-2021 Page 8
Alderman O’Brien

So there’s about nine years difference between approximately with that. Okay. And can you also define what is anti-
spiking measures?

Jan Goodwin, Executive Director of NH Retirement System

Yes. Anti-spiking is when someone, a member deliberately tries to increase their salary so they will have a higher
pension. So the way we do that is the changes that were made in 2011 and the access of compensation over base was
considered when determining what someone's pension benefit is so that has been (inaudible).

Alderman O’Brien

All right. If | may follow up, you know, not to get into any debate but | always felt that this kind of hurts the pension
system because if you take in the example of a police officer who was working overtime at a construction site, when he
used to get paid, you know, in the back, part of that overtime from that detail was cut out into the pension system. So by
these anti-spiking measures have they crippled the pension system by allowing what the police officer in my example, by
contributing to the pension system? | wonder how many hundreds of 1,000s of dollars that could have could have been
lost here.

Marty Karlon, Director of Communications and Legislative Affairs

| can jump in. | think with the issue of spiking, and it is a very fraught, you know, issue, you know, politically in some
States. You know, it's more the timing of the payments. You know, if someone was working detail or over time
throughout their career, you know, that money is coming in on a regular basis throughout, you know, a 20 or 30 year
career we've got. We're investing that money for decades or as someone who only works and gets extra money in their
final years, you know, when it's going to reduce their permanent lifetime benefit significantly but that money hasn't been
growing for them over that time. So even before the changes in 2011, back in 1990, the legislature did put a cap on the
members last year of earnable compensation and anything more than 150% of the next highest year...

Alderman O’Brien
Right. Correct.
Marty Karlon, Director of Communications and Legislative Affairs

...doesn't count against the pension. These folks get all the money that they earn. They just wouldn't put in pension
contributions nor would the employer or any of these, you know, above the cap level. So, yeah, so that it's more of a
timing issue with this spiking then...

Alderman O’Brien

And | thank you. | mean, the thing is when does that member get that money back out of the system his first pension
check or the one before he dies? | don't know. You know what | mean. But...

Marty Karlon, Director of Communications and Legislative Affairs

On average what the folks who are involved with the numbers tell me that, you know, the first five to seven years for a
typical member, you know, their benefit is their money coming back to them and then, you know, for however long they
live beyond that it's money from the overall trust fund funding their benefit. If a member does pass away before all of
their money is paid back to them, their beneficiary is going to get it back one way or the other either as a lump sum or if
they chose a survivorship option to leave some of that benefit to a beneficiary. They get the money back. You know the
IRS frowns on us keeping members money. So sometimes we have to hunt down people in their 70s with a required
minimum distribution and start paying the money even though they haven't come to us.

Alderman O’Brien
Okay. | thank you both because | think we both agree that if a person is paying some of their shift coverage or overtime

pay into the pension system, it benefits the pension system, you know, then not doing it. So anti-spiking, | have a little
problem with that definition or what it's actually doing. | think its taking money out of the system. Thank you.

Special Board of Aldermen 09-21-2021 Page 9

Mayor Donchess

Well, of course, we're trying not to shoot the messenger here because | know...
Alderman O’Brien

Right and | hope you understand that.

Mayor Donchess

| know that most of the policies are set by the legislature and you carry out those mandates by and large. But just to get
some basic facts. So you said that last year, the pension system paid out $860 million in benefits. What did you take in
from employers and employees? Do you know that?

Marty Karlon, Director of Communications and Legislative Affairs

Fiscal 20 was cash flow negative because we had a 1.1% investment return? So the trust fund was essentially flat it
went from like 9.18 to 9.34. It was a slight loss. This past year, you know, we had a large investment return. So you
know, it's a much more cash flow positive.

Mayor Donchess

| see.
Marty Karlon, Director of Communications and Legislative Affairs

Actually speaking of the pension benefits, | did a little crunching just for the benefit of this body. | thought you might find
it interesting. You are our second largest employer - the City of Nashua because Manchester city employees are in a
separate plan. So you are number two to the State with about 1,900 active members as the last fiscal year. There were
about 17,050 Nashua city and school retirees currently receiving a benefit or the beneficiary is receiving that benefit out
of our nearly 40,000 folks and the average Nashua pension benefit for somebody who retired from the city is 28,500
which is a little bit larger than the overall average benefit statewide, which is 20,841. So you know, the 285 times, you
know, about 17,850 people. That's about 15 million in pension benefits paid to Nashua retirees last year.

In terms of city residents, and this could be you know folks who work for Nashua and still live here or folks who work in
Hollis, or Hudson, or wherever. You know just folks in the Nashua zip codes, we paid out $25.4 million in Fiscal 20 to
folks living in the city limits.

Mayor Donchess

So | think Mr. Karlon your predecessor - | just wanted to see if you said still think this is correct - your predecessor |
heard state a few times that 80% of the money being paid in by municipal employers such as us is to help with the
unfunded liability as opposed to meet the obligations that you expect from the current employees and that's still the
case?

Marty Karlon, Director of Communications and Legislative Affairs
That is still the case. Unfortunately, this generation of elected officials is bearing the brunt of, you know, bad policy

decisions 30 years ago. Honestly, | think if either one of us were in any of your seats, we would feel the same way you
do about...

Alderman Lopez

| think some of us has been around that long.

Mayor Donchess

Now of course the frustration here, in part and I'm sure you've heard this many times, comes from the fact that Nashua
pays - | believe our budget for Fiscal 2022 is, which we just began, is $29 million which really is, you know, nearly 15% of
the tax burden. So, you know, on a person who's paying, say, $6,000 or $7,000, $1,000 of that is, you know, in property
taxes. $1,000 of that is going to the pension issue which, you know, is difficult and painful, and reduces the ability of the

Special Board of Aldermen 09-21-2021 Page 10
city to deliver basic services, schools and everything else. | mean, it's just drives property taxes so high.

But let me let me ask this kind of basic question. Why does it matter so much that we go to 100%? And | pose the
question with this context. You know if GM has a, you know, a big pension system with a huge unfunded liability, |
believe, if they go bankrupt, which could happen, the pensioners don't get paid. | mean, that's a problem, obviously.
Now this New Hampshire retirement system has $11 billion in its coffers, so to speak but with the amount of money you
have coming in and with some degree of investment retum, it seems that you will always have enough to pay current
benefits. The situation | just suggested for GM is never likely going to happen. | mean, the State will never go bankrupt
or never end its existence. And therefore, will never be in a situation where it cannot - even if we just stayed at 61%,
we'll never be in a situation where it actually has to pay out everyone with nothing coming in because the only way that
this system would ever end is if the State ended, which means the United States ended, which means that there is no
pension. Pension assets are worth nothing. You know - stock market. If the country ends, none of this stuff is worth
anything. So aren't we sort of, you know, taking all this pain and all the money that we're putting in to achieve basically
when we're talking about a government entity such as this, a kind of an academic result, which is this idea that we have
to go to 100%. But is that really necessary in the context of a State that is, you know, one of the 50 that comprises the
United States?

Jan Goodwin, Executive Director of NH Retirement System

Yes Alderman, you are correct. We can continue to pay all of the benefits as they come due while being 80% funded.
However, that's not good fiduciary practice. The standard that any actuary will tell you is that you want to be 100%
funded. And one of the reasons why you want to be 100% funded is when you look at your own - the City of Nashua’s
financial statements, you have to pick up a proportion of the unfunded liability of NHRS on the face of your financial
statements. And...

Mayor Donchess

Well that's true but we can deal with that. | mean you're not ask, yeah okay there's this theory put forth by the actuaries
that we should be at 100%. Yes but they don't have to pay the money and they don't have to, you know, it's an
academic issue. That doesn't address the basic question | asked, which is the only way this system would ever end
even if we stayed at 60%, or 65, the only way that it would ever end is if the State went out of existence. | mean and
when that happens, it doesn't matter if we’re at 60% or 80, or at 100 because none of the assets will be worth anything.
So why is it So necessary in the context of a State? For the reasons that I've indicated, why is it so necessary to go to
100%? You'll always be able to pay the benefits as long as the country is still in existence.

Jan Goodwin, Executive Director of NH Retirement System

Right that is correct. However, | would point out to you that one of the things that makes a difference is that the more
fully funded a pension fund is the better it can withstand market downturns. We know they're inevitable. Every few years
- every 10 or 15 years, there's a major correction in the market and the lower your funded ratio is when that financial
event happens, the greater the hit to your funded ratio.

Mayor Donchess
Well yes, that's certainly the case. Now, | think you said that the return for the year ended this past June 30 was 26%.

Jan Goodwin, Executive Director of NH Retirement System

26.8% yes, that's correct.

Mayor Donchess

What impact did that have on the percentage funded, you know, did it drive that up or what happened?

Jan Goodwin, Executive Director of NH Retirement System

At this point, our actuaries are just beginning their work because our books are not yet closed for June 30 because we’re
still awaiting the results of the investments of some of our alternative investments. So those take a bit longer to come in

and so our actuaries are right now are working on assessing what additional liabilities were added during the past year
and the valuation of the assets.

Special Board of Aldermen 09-21-2021 Page 11

Earlier, you asked what the contributions were that came in during the past year. There was a total of $722 million in
contributions. Yes this is less than the benefits that were paid and as Marty said, we are in a negative cash flow position.
But | would like you to know that this is very typical of what is referred to as a mature pension plan. That's why we have
the assets to pay the benefits.

Mayor Donchess

Just so I'm clear on this, so the 61% is as of June 30, 2020 as opposed to 21?
Jan Goodwin, Executive Director of NH Retirement System

That is correct.

Mayor Donchess

So you don't know yet whoever does this hasn't figured out yet what the percent funded is right now given a very strong
investment return for the last year?

Jan Goodwin, Executive Director of NH Retirement System

That's correct and | will remind you as we said earlier, our actuaries look at the value of the assets over the past five
years to average them rather than just look at the number for one year. As you can see on slide 19, the individual year’s
investment performance do vary a great deal. That's why they smooth them over time so that we can have a funded
ratio that reflects the past as well as the current.

Mayor Donchess

You know the most painful thing that has happened the last few years, this one was, you know, now and then that was
four years ago, | think, is the reduction in the assumed rate of return. Because that drives up the contributions without,
you know, the employer seeing really any benefit from it really.

So now you're at 6.75%. | noticed that Maine is at the same amount. The small pension that the Nashua runs - small
compared to yours for Public Works like, you know, they're 100 some employees now but, you know, they're more
beneficiaries. There’s actually 99%, funded as of June 30, 2021. And | sort of forgot where | was going with that, but we
are, you know, we are 99% funded and so we're happy about what has been achieved by the trustees of the Nashua
pension fund. Anyway, | will try to think of a few more questions, but I'm sure others have them.

President Wilshire

Yes. You stated in your presentation that you're very conservative and, you know, that's amicable. That's good as far as
the pension plan is concerned. But two things bother me. One is does the pension plan ever take into consideration
when they change the rules the impact that's having on the cities and towns of Nashua which may cause people to lose
their jobs that are part of the pension plan? You know, you said in one year, you get 1% on $11 million, right, billion?

Jan Goodwin, Executive Director of NH Retirement System
11,038
Alderman Dowd

I'm retired and | have a retirement investment with a company and I've never get below 7% even in the down year. So |
don't know how we make 1% with that amount of money. | certainly don't have $11 billion in my account. So that's one
thing.

The other thing is that | have a pension from a major company and they are in about any high 80s, mid to high 80s all the
time and the end goal keeps getting moved out. Why are we so locked in on one certain year because that kills us as
well? So there's several points that that impact cities that | feel should be taken into account by the pension plan. It's a
State pension plan and the State doesn't contribute anything anymore. | Know that's a legislative thing but to me that's a
slap on the cities and towns in the State of New Hampshire. They started the plan with a high percentage and went to
zero. And | know you mentioned several times about mismanaging in Concord so | can understand that but a) the
percentage of monies that the State pays for the pension plan should be changed. | guess it just missed this past

Special Board of Aldermen 09-21-2021 Page 12
season.

Also, it appears to me that the only reason you get to 100% funding is so you can close down the pension system. You
pay everybody off, and have a nice day, go another way. | don't see why anybody has to get to 100%. There's nothing
that | can see that drives that. So | think the investments are too conservative. The State's not paying their share and
the implications of the percentages that we have to pay as a city and town based on the fact that we're not making out
money and our investments which seem to be far too conservative even for a pension plan are costing cities and towns
significantly. | think someone needs to look at that and change it. For instance, you just said you made 26% this past
year. When is that going to be sent down to the city so we don't have to pay as much? Is that going to impact us in 22?
Are we gonna wait and see what happens in ‘23 and it's always way behind?

You know as Chair of Budget, | can tell you that hugely impacts when we start looking at city spending. Quite frankly if it
hadn't been for the pension plan and something else, we probably wouldn't have had a tax increase this year in property
taxes. It's all being driven from Concord, which I'm including a pension plan. Those are questions | have | have others
but I'll just go with that one.

Jan Goodwin, Executive Director of NH Retirement System

| just like to add another reason to get to 100% funding is that we no longer will have to pay off the unfunded liability at
that time and at that point, the total contributions for the employer and the members can be closer to the normal cost
which is significantly less than what they are now. The normal cost for the different plans is shown on page 20.

Mayor Donchess

| remembered what | was going to ask you which is very related to the assumed rate of return. Do you anticipate another
reduction? | mean, it's 6.75%. Isn't that good enough? | mean it seems to be what Maine is doing. It's close to what
we're doing. | mean do you really anticipate a drop to six and a quarter or do you think we can stay at six and three
quarters?

Jan Goodwin, Executive Director of NH Retirement System

That's hard to say. It depends on what happens. Our actuaries go through a very detailed process of assessing what
they think our assumed rate of return is. The first thing that they do is they look at what are the expectations for inflation
in the future. And once they do that, then they also look at what they think the different elements of our portfolio will
eam. So they come up with a number for what percent return will US stocks have. What percent will US bonds have?
International stocks? International bonds? Real estate? Private equity? And they come up with a weighted average
that reflects our portfolio and that's how they come up with 6.75%.

So if there are changes in the expectations in the next few years over where inflation is going or what the expected rates
of return for different investments if that changes, then the actuary will develop a recommendation for the Board to
consider and the Board members are fiduciaries and they have to do what is the right thing for the pension plan and its
members. That's their sole responsibility as fiduciaries. Did you want to add anything?

Marty Karlon, Director of Communications and Legislative Affairs

If | can sort of address somewhat Alderman Dowd's question and kind of loop back to the Mayor's question as well about
the 100% funding, and | think it's a very reasonable question to ask us that okay, we're going to be paying, you know,
15% of the city budget until 2039, and then we're going to be paying 2%. How is that, you know, make any sense? And
that question did come up during the Decennial Commission back in 2017. That's where the layered amortization that |
mentioned earlier in brief, you Know, came into account and what that is, is, you Know, the Commission looked at it from
the perspective of, you know, we're reaching, you know, if we get to our 100% funding target, you know, that's, you
know, all fall steam ahead. The rates are gonna be what the rates are going to be get there. Then they're going to be
extremely low, you know, going forward when we reached that funding level and they felt that well what happens after
2039? What if we have another downturn? What if we are over 100% funded? The rates could, you know, become
extremely low. So in the 10 years since 2007 when they put in the 30 year amortization and 30 years seem like a long
time to, you know, people 30 years in the past, they, you know, actuarially this concept of layered amortization has come
into favor and a lot of States have done this where you freeze the lot - your old liabilities and you pay those off by a hard
stop.

They passed the layered amortization language in 2018. So the liability as of July 1° of 2017, which is 5 of the 6 billion,
so it's not a small number, that's going to be paid off by 2039 under the current funding plan but the additional billion in

Special Board of Aldermen 09-21-2021 Page 13

liabilities we've added since then primarily due to the rate decrease. To the Mayor's point is going to be paid off in a 20
year layer between 2023 and 2043. So basically we won't be 100% funded by 2039. We don't have to ever be 100%
funded again unless the markets, you know, put us over the top, but this layered amortization sort of creates a future
buffer so that, you know, the liabilities can't grow to the extent that they have that you all are having to pay for in this
moment in time.

Taking 20 year layers of two year, you know, funding return increments going forward - and that includes gains - so this
2021 is going to probably be a gain that we'll be recognizing over 20 years as well. Some of that 26.8%. So it has
smoothed it out. It doesn't take away any of the short term pain, you know. We're not saying that but it was a
recognition, you Know, by the Commission, and legislators, and our Board supported the idea as well that this is a way to
get closer to 100% funded but not having to have this, you know, audit, this holy grail of 100% you know I'm July 1* of
39 or June 30" of ‘39 | should say. So you know there is a little more wiggle room in that now because future gains and
losses are going to be spread out. This will be the fourth year since 2017. So it’s not smoothing anything much out yet.
Most of that debt is still being paid off on top of the existing debt. But the layered amortization, again, it's a very good
circuit breaker to keep the liabilities and the funding from getting to where they were in the past. So you know if we can
get into a 90 plus percent funded, as Jim pointed out, it's a lot easier to withstand a market downturn. In that case, you
know, we lost probably 8 to 10% of our funding ratio and from the low 60s to the lower 50s back in 2009.

State of Wisconsin, which is one of the sort of gold standard plans out there, they were 100% funded in 07. They went
down to like 94, you know, and then they got back to full funding fairly quickly in the early 2010. So, you know, the closer
you are to full funding, the easier it is to absorb those market swings.

President Wilshire

Attorney Bolton.

Steve Bolton, Corporation Counsel

Is it possible to do more layers and extend things out further? And what | mean is, you started you had a 6 billion
unfunded mandate. And you say, okay in 30 years, we're going to take care of 5 billion of that and then we're going to
give ourselves another four years to deal with that last 1 billion. Could you said okay in 30 years, we'll take care of the
first half - 3 billion - and then over the next 10 years, we’ll take care of the next 1 billion, and then 10 years further to take
care of another billion, and then 10 years further, another billion? So it will take 60 years instead of 30 years but it
spreads it out further. You're always making progress and you don't get these big hits and then dramatic drop off at
some point. Maybe at 60 years you get a drop off but the drop off is being gradual and presumably the increases to
municipalities would be more gradual than there they are under the current plan. So would that work?

Marty Karlon, Director of Communications and Legislative Affairs

From perspective of actuarial standards, you know, and accounting standards, they promote this theory of generational
equity so that the debts that are accrued, you know, the same generation of taxpayers is paying for it as, you know, who
were there at the time that the liabilities were accrued. Standards are like 15 to 20 years is what they would consider a
generation for the purpose of funding liability. So it would be...

Steve Bolton, Corporation Counsel

It would be certainly not what's happening under the present plan.

Marty Karlon, Director of Communications and Legislative Affairs

Absolutely. You folks in New Hampshire are the poster child for what happens when there isn't generational equity
because honestly, you know, anybody who, you know, bought a house 10 years ago, the person who was living there 20
years ago had a pretty sweet deal and you're paying for it now. We need to get away from that.

Steve Bolton, Corporation Counsel

But stretching it out over time seems to be fair in other circumstances. But anyway, so it could be done. You're just
saying it would deviate from the principle of generational equity.

Special Board of Aldermen 09-21-2021 Page 14

Marty Karlon, Director of Communications and Legislative Affairs

The auditors may have an issue with it as well.

Steve Bolton, Corporation Counsel

It seems like there's a willingness to deviate from that principle in the other direction. Thank you.

Alderman Dowd

Yes. | could be wrong and correct me if I'm wrong but it appears to me like you're making your investment decisions on
a very short term basis and because of a downturn in the market. The other thing that happens over that period of time
is spikes in the market. And if you look at the Standard and Poors the stock market over the last 40 - 50 years, it's ona
pretty even growth. | mean there are spikes one way or the other but it's growing. Same thing with the bond market. So
why are you not using the average return? You know, like 1% last year, 26% this year, somewhere in between because
the numbers that you're using and the goals that you're shooting for are hurting cities and towns. We can't take any
more hits like we've had in the last four years. | don't know if you have any plan but, you know, I'm hoping that things are
going to either stay the same or get better as far as the pensions concerned going forward.

Jan Goodwin, Executive Director of NH Retirement System

Mr. Alderman, | can assure you that NHRS is a long-term investor. We have a very long-term horizon for our
investments. And because we are a long-term investor rather than a short term investor, we can invest in assets like real
estate and private equity which have a long-term horizon so that we can get the excess returns that those investments
have. Stocks - you are correct. They have done very well over time, but they have had, as you noted, significant peaks
and valleys. That's why we are committed at NHRS to have a diversified portfolio so that when one type of investment
doesn't do well, another type typically does so we can have good risk adjusted returns over time.

Alderman Dowd

But across the board, how can you with $11 billion come up with 1%? To me that your investments should be drawing
far more than that. You can get 1% on a savings account. | mean, so why are we reflecting the 1% back on the cities
and towns for that year? And why aren't we now saying we got 26% in this past year, let's change with the cities and
towns owe now because we've made a lot more money?

Jan Goodwin, Executive Director of NH Retirement System

Well this year's valuation will be part of the next rate setting process. And so it will be included in that.

Alderman Dowd

But not til ‘23.

Jan Goodwin, Executive Director of NH Retirement System

Correct because we set rates on a two-year basis.

Alderman Dowd

That's one of the things that servings and...

Mayor Donchess

Do you adjust the assumed rate of return every two years or every four?

Marty Karlon, Director of Communications and Legislative Affairs

If it's going to change, it's part of an experience study which would be every four years. So we're not going to look at that
again short of, you know, major economic disruptions before Fiscal ’23 and the actuarial would make recommendations

in early ‘24 on any changes to assumptions they would recommend based on their study. | think Director Goodwin may
take me under the table and the actuarial certainly would but the return that we had this year is very favorable for rates

Special Board of Aldermen 09-21-2021 Page 15

staying at least flat in the 24 — ‘25 rate cycle compared to ‘22 - ‘23. Whether they'll go down, we don't know because of
other liabilities.

The goal is trying to have relatively stable rates even if they're at a higher level than they had been in the past. You
didn't see that this year. You had a 20% increase, you know, so but this is good news but one year doesn't make or
break the pension system. The 1.1% last year, that was lower than a lot of our peers, you know, which is not usually the
case but that's a June 30" of ‘20 number, you know, three months into the pandemic and the economy and the markets
really recovered in the second half of 2020. If you had a calendar your 401k statement versus a June 30", you'd see
those single digits, you know, with other plans.

One of the reasons why our assumed rate of return is where it is and a lot of plans are we're not probably been at least a
half a dozen maybe 10 plans that have lowered it since last year since we did, is fixed income, which is about 25% of our
portfolio. Some plans it's more some or it's less by a few points, but you're not getting any interest on, you know, bonds
and fixed income anymore. Back in the ‘80s, you could have bonds paying 10 - 12% and so you have this floor and you
think you can manage the volatility in the equity markets because you know you were making X from fixed income and
that's not the case anymore. That's what's been driving rates down over the past decade for pension plans is the interest
rates have just remained near the bottom.

Alderman Dowd

| wasn’t quite sure of your answer on the - so you say that the 26% is going to be reflected and as far as our 2023
budget. So the amount we pay to the State is going to be less than we're paying in
22?

Marty Karlon, Director of Communications and Legislative Affairs
24 —’25.
Alderman Dowd

Well cities can't wait that long. You know you shouldn't be doing it that far out. You know it ought to be looked at a lot
closer because, you know, we shouldn't be paying the millions of dollars that we're paying in ‘23 when you don't need it.

| mean, you can say you need it because you're gonna add it to your $11 billion but cities like Nashua, Manchester,
Portsmouth, Dover, you know, there's a lot of things that can't be done in the city budget because we're covering for a
low percentage rate that was estimated a year ago or two years ago instead of what you're getting on a return now. That
to me seems very unfair.

Alderman Lopez

So to Alderman Dowd’s point, I'm getting the sense that we're the long-term investment. At some point, the State said
let's get all the municipalities on board and then when we're not able to invest effectively, they'll carry it. That's causing
problems for Nashua particularly. When we talk about generational equity, I'm sorry Aldermen Laws but it looks like your
daughter is going to be a voter before we actually manage to carry this 0% philosophy thing that we're looking at for a
debt. This is causing real problems for Nashua citizens today. We have to look at how we're keeping fire stations open,
whether we can keep schools open, what services you can offer because there's that interest in getting to that O%
unfunded number.

So my question is, is who's determining that number? Is that the State legislature and as a collective act of governance,
or are you determining that number? And is there any transparency in terms of what you're investing in? Because
there's some pretty big investment funds that are very long term and they do much better than what it seems like what's
happening even with the 1% return? It's not a unique situation to New Hampshire's retirement fund. Everybody's
investments recovered and were able to report that so what's different and how does the average taxpayer look at how
New Hampshire retirement invests and say that's what | want to advocate for?

Marty Karlon, Director of Communications and Legislative Affairs

We have annual reports and quarterly reports sort of listing the managers by section, you know, with historical and
quarterly returns. So the information is out there in our annual investment report. All the managers that we employ are
listed. The Independent Investment Committee typically meets monthly and in public session to review the investments
interview. Newmont managers make decisions on terminations, things like that. You know its portfolio is consistent with,
you know, most public sector investments. In some ways, you know, we don't go into hedge funds or anything like that