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New Hampshire’s Growing Public Pension Funding Crisis. J. Scott Moody President New Hampshire Center for Economic Policy. On the web at: http://nheconomics.org/ On Facebook at: http://www.facebook.com/pages/New-Hampshire-Center-for-Economic-Policy/167461656611296

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new hampshire s growing public pension funding crisis

New Hampshire’s Growing Public Pension Funding Crisis

J. Scott Moody

President

New Hampshire Center for Economic Policy

On the web at:http://nheconomics.org/

On Facebook at: http://www.facebook.com/pages/New-Hampshire-Center-for-Economic-Policy/167461656611296

On Freedom Connector at: http://connect.freedomworks.org/groups/new-hampshire-center-for-economic-policy

Liberty in economics

what is the new hampshire center for economic policy
What is the New Hampshire Center for Economic Policy?
  • Founded in 2010
  • A 501(c)3 non-profit, non-partisan organization.
  • Dedicated to pursuing public policies that are focused on “Liberty in Economics.”
  • Constitutional Government—setting limits to government activism
  • Fiscal Federalism—clearly defining the roles between state and local governments
  • Balanced Budgeting—debt should be used only as a last resort
  • Introduce Martin Sheehan, Director of Communications

Liberty in economics

but pension liability is understated
BUT, Pension Liability is Understated ! !
  • Economist Robert Novy-Marx (University of Chicago) and Joshua Rauh (Northwestern University) dispute the “discount rate”
  • According to the Government Accounting Standards Board, the discount rate is based on the long-term return of a 60 percent mix in stocks and 40 percent in bonds which is around 8 percent.
  • Novy-Marx and Rauh argue it should be the default-free rate of return—proxied by the 10 year yield on Treasuries or currently about 3.43 percent.
  • New Hampshire uses an 8.5 percent discount rate.

Liberty in economics

nh s pension liability could nearly double
NH’s Pension Liability Could Nearly Double
  • NH’s total pension liability, in 2008, was $7.8 billion.
  • Novy-Marx and Rauh estimate that the pension liability is at least $9 billion and could be as high as $14.2 billion.
  • This means the annual pension payment should be much larger.
  • Rauh estimates that the pension payment should be at least 75 percent higher.
  • In 2011, that means a payment of $486 million versus the actual payment of $277 million.

Liberty in economics

conclusion
Conclusion
  • Only serious reforms of the pension system will bring down the pension liabilities to sustainable levels.
  • Another study will examine reforms in more detail . . . complicated by court-mandated pension property rights.
  • But . . . the one obvious solution is to move from a defined-benefit system to a defined-contribution system for all new employees.
  • The OPEB liability is a lost cause and should be eliminated as WV recently did.

Liberty in economics