Cash Balance Plan: An Alternative for New Hampshire

The information contained in this article is not intended as legal advice and may no longer be accurate due to changes in the law. Consult NHMA's legal services or your municipal attorney.

As with many public pension systems across the country, the New Hampshire Retirement System (NHRS) has undergone a significant number of changes from 2008 through 2014 to address concerns over the long-term sustainability of its defined benefit pension plan in light of its $4.3 billion of unfunded liabilities. Statutory retirement reform measures, primarily enacted in 2009 and 2011, put a plan in place to amortize the unfunded liabilities over thirty years, increased employee contribution rates, and revised the benefit calculation provisions for newly hired employees, along with other changes. One indication that these reform measures are working to stabilize the system is the fact that the biennial employer rate increases that went into effect July 1, 2015 were much less than the biennial rate increases experienced over the past ten years.

While things seem to have settled down in terms of statutory changes to NHRS in 2015, legislators continue to look at alternative means of providing pension benefits to public employees at reasonable (and predictable) costs to the public employers (and ultimately the taxpayers) who fund those benefits. The NH House Special Committee on Public Employee Pension Plans, chaired by Representative David Hess from Hooksett, retained two bills from the 2015 session for further study and consideration: HB 369 establishing a defined contribution plan and HB 556 establishing a cash balance plan.

At the time of writing this article, the committee had yet to make final recommendations on these bills, (either ought-to-pass or inexpedient-to-legislate), or to recommend amendments to the bills as introduced. However, the committee seems particularly interested in learning more about cash balance plans, which combine elements of both a traditional defined benefit plan (such as that administered by NHRS) and a defined contribution plan (a 401(k)-type plan). The accompanying article “Somewhere in the Middle: Cash Balance Plans” by Paul Zorn, explains the mechanics of a cash balance plan including the advantages and disadvantages compared to both defined benefit and defined contribution plans. 

We cannot predict what the House Special Committee on Public Employee Pension plans will recommend regarding their retained bills, or what the 2016 legislature will do with the committee’s recommendations. However, NHMA’s long-standing policy has been to support the continuing existence of a retirement system for state and local government employees that is secure, solvent, fiscally healthy and sustainable. Understanding possible alternative means of achieving those goals, such as implementing a cash balance plan for new hires, is an important part of that policy position.

Barbara Reid is the Government Finance Advisor with the New Hampshire Municipal Association. Barbara can be reach at 800.852.3358 or breid@nhmunicipal.org.