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Cash balance plan for public employees?

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Next year the New Hampshire Legislature will consider whether to allow new public employees to switch to a cash balance retirement plan.

Right now the New Hampshire Retirement System (NHRS) offers pensions - regular payments for life - for workers who retire from public jobs. A worker's pension is calculated based on several factors, particularly how long he or she served and how much he or she was paid.

Rep. Neal Kurk is the primary sponsor of a bill that would allow public employers to offer new employees a "cash balance" plan.  Under a cash balance plan, the employer and employee contribute a set amount to the same retirement account, which is managed by the NHRS. When the employee leaves the job or retires, he or she is entitled to all of the money in the account. Kurk's bill has some other restrictions and regulations.

Supporters of a cash balance plan point to the unfunded liability in the NHRS. They argue that a cash balance plan would never create such an unfunded liability, since a cash balance plan is funded on a pay-as-you-go basis. Retirees would also have more power over their own retirement savings, including the right to withdraw half of their funds as soon as they retire, in a lump sum. While the NHRS has a plan to pay off that unfunded liability over the next few decades, New Hampshire should act now to ensure public employee retirement accounts are secure.

Opponents of a cash balance plan argue that it will harm the ability of the state to retain workers in the long-term. Right now the pension system rewards long-term employees for their knowledge and experience. A cash balance plan offers no extra benefit to employees that stay in public service, since employees can leave with the money from a cash balance account long before retirement. Many employee advocates also believe that a cash balance plan would result in lower retirement payouts for employees in the long-run.

Do you think New Hampshire should switch public employees to a cash balance retirement plan? Let us know in the comments below.

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