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Wednesday, June 29, 2011

Pension board plans challenge

The New Hampshire Retirement System board voted Tuesday to file a court challenge against a section of the Legislature’s pension reform plan set to become law this week.

In a 7-5 vote, the board decided to seek an injunction that stops the Legislature from requiring the retirement system to hold off until the 2014-15 biennium to assume a lower rate of return on investments to the pension fund.

The rest of the reform plan, which includes an increase in contribution rates for employees and changes to the retirement age for receiving full benefits, would still take effect as planned.

The seven board members in favor of requesting a superior court injunction were all union representatives.

Diana Lacey, president of the State Employees’ Association, said the Legislature is exceeding its constitutional authority by telling the retirement system when to lower its investment return assumptions.

The board voted earlier this month to lower the assumed rate of return from 8.5 percent to 7.75 percent effective Friday, instead of starting July 1, 2014. In response, the Legislature included a provision in a budget bill that requires the assumed rate of return to remain unchanged over the next biennium.

“You don’t get to order (the board) as to what the rates of return would be,” Lacey said.

Not lowering investment expectations now would lead to a spike in the system’s unfunded liability, she said.

Sen. Jeb Bradley and Rep. Ken Hawkins, who both chaired the pension reform committees in their respective chambers, are the two members of the Legislature on the board. Both opposed a court challenge to the plan they helped create.

“What they’re trying to do is put a monkey wrench in the pension reform efforts,” said Bradley, a Wolfeboro Republican.

Bradley said lowering the expected rate of return for the next biennium would mean about $50 million more must be raised from elsewhere in the system, namely public employers and employees.

Legislators had worked long and hard to reduce the system’s impact on public employers in light of the state simultaneously eliminating its 25 percent contribution toward employers’ retirement costs.

Bradley said normally at least a year of lead time is provided to employers before the assumptions on investment return rates are changed.

That way towns and school boards have time to adjust their budgets accordingly, he said.

“It should happen . . . but in two years so everyone has fair warning as to what is happening,” he said. “All we said is: Do your normal process, don’t accelerate it.”

But Lacey said that, given the coming impact of the Legislature’s wide-ranging reform plan, it is only appropriate to look at whether the assumed rate of return on investments is appropriate.

“They changed everything,” she said.