Special Board of Aldermen 09-21-2021 Page 2
President Wilshire
No you’re fine seated. That’s fine.
Marty Karlon, Director of Communications and Legislative Affairs
Just for the record, my name is Marty Karlon and I’m the Director of Communications and Legislative Affairs at the
Retirement System. I’ve been there about 11 years. I’m going to do the first half of the presentation which deals with
some of the issues that occurred in the past and how they brought us to where we are now. Then Jan is going to take
the presentation home with a look at some current numbers and where we’re headed. I'll be glad to take questions from
the panel if at the will of the Chair during or we can take them at the end, whichever you all prefer. Whatever your style
is.
Really you know especially with the New Hampshire Retirement System and the timescales it works on — you need to
sort of understand the past and some decisions that were made back then to see — to get a better picture of where we
are now, and how we got there, and what’s been done about it by both the Retirement System, the legislature, and
everyone else. So I'll go to slide two which is just the beginning. NHRS is an entity and has been around since 1967.
There were separate retirement plans for the four member groups that we independently governed by different boards
and the legislature combined and consolidated those plans at the NHRS back in ’67. As it is now when the plan was set
up, there were two membership categories. Group | which is employees and teachers, and Group II which is police and
fire. Our plan is for full-time employees only.
At the time the plan was set up, the State contributed 40 percent of the employer contributions for teachers only. That
was a holdover from the predecessor teacher plan that the State had at least since the early ‘50s as far back as | could
confirm and always contributed 40 percent of the employer costs towards teachers.
In 1977 on slide 3, that employer subsidy was modified and expanded. The State reduced the teacher contribution from
40 percent to 35 but at the same time created a 35 percent contribution subsidy for police officers and firefighters for the
cost of the communities contribute to the retirement system for those positions. | believe in 1974 there were
improvements to the Group 2 police and fire plan and the bills were coming due on that with the ‘77 rates and | think was
one of the reasons that spread the legislature to take this action. That subsidy had been in place for many years until it
was reduced in 2009 and then eventually eliminated a couple years later.
So moving to slide 4 - 1983. We call this one heads | win, tails you lose and the issue here and the decision was that it
was a relatively young plan. There were far more active members than retirees than in cost of living adjustments were
being paid for either through the general fund or through some other employer assessment formula. But you know in the
long term, policymakers looked at that and said you know as the retiree population grows, you know, we need to have a
better, more stable source of funding for COLAs - cost of living adjustments - than the general fund. So they created
what was called, “the special account” at the time and this was funded by, and it's in quotes, “excess earnings”. This
was essentially when our investment return exceeded a certain point. Any funds over and above that, that return were
segregated in the special account to pay other COLA or post-employment benefits. So it was seemed like a good idea
when you were exceeding your assumed rate of return as a model, but it did not prove to be the case over the long term
and that was the funding particularly for the medical subsidy benefit was determined to be an IRS issue with the special
account In the early mid 2000s and it was repealed in 2011. So this is one of the first steps to creating a structural
unfunded liability with the retirement system and it plays into some decisions in the ‘90s and then some economic
impacts in the 2000s is one of the sort of the legs of how we got to where we are liability wise.
1984 - a Constitutional amendment was passed in New Hampshire by referendum Article 36A and that did three things
essentially. It established the pension funds in the trust are for the exclusive benefit of NHRS members not to be
diverted for any other purpose. It required the trustees to set actuarially sound employer contribution rates so they, you
know, then would have any leeway on what the actuary crunches the numbers and they go with that. Then it also
required employers to pay those rates in full each fiscal year.
Now, this distinguishes NHRS from several States around the country that you might have heard about if you follow
pension issues where funding levels are and liabilities are much greater than in New Hampshire, such as Illinois, New
Jersey, Kentucky, and in those jurisdictions, there is no Constitutional provision. So the legislature grants as much
money as it feels like you can afford that year. So they're not necessarily fully funding their pension obligations as
they’re accrued and that's a hole that you just keep digging and it gets harder and harder to get out. We had 36A in New
Hampshire and | think there was a Constitutional convention a few years earlier and this was one of the proposals that
came out of that. There were some unsuccessful attempts by governors in the ‘70s and ‘80s to borrow against the trust
fund for other State priorities or defer payments of their State's pension obligation. So that's where 36 A came from.
