CONCORD – A superior court ruling making it illegal to draw more from the paychecks of veteran public employees to support their pensions could cost the state retirement system at least $25 million a year.

The state’s five largest public employee labor unions scored a victory with a lower court ruling, but they weren’t entirely pleased with the decision. It declared legal the Legislature’s most dramatic changes that affected all new hires, including raising the retirement age and reducing their ability to pad future pension amounts.

The court also ruled it was legal for the Legislature to use old data with the express purpose of keeping down the pension rates charged to public employers or taxpayers over the next two years.

The ruling from Merrimack County Superior Court Judge Richard McNamara strikes an expensive blow to the state retirement reform law the Republican-led Legislature passed last spring.

Legislative and union experts on retirement confirm that outlawing these contributions from veteran employees could cost the retirement system at least $25 million a year.

The retirement reform law was meant to make a small dent in the $4.7 billion unfunded liability of the New Hampshire Retirement System. The liability included more than $3.5 billion in the pension account and more than $1 billion in a medical subsidy that offers support for health insurance costs of public retirees who retired before 2003.

McNamara said changing the payroll contribution for senior public employees was not fair.

“It requires employees who have already met the requisite service and age requirements to pay additional amounts, which may be an amount reserved for other expenses like mortgages, housing and food without receiving additional benefit,” McNamara said.

A linchpin of the reform was to raise what all public employees had to contribute from their salary to support the retirement system’s pension account. These increases brought in $100 million over the next two years, pivotal to reduce how much pension costs would go up for employers or state and local taxpayers.

The lawsuit maintained it was illegal to raise these donations for all employees who had worked there at least a year.

State prosecutors defending the retirement reform law, saying the contributions could be raised for employees at any time up until they reached retirement.

McNamara ruled it was unconstitutional to increase these payroll deductions for any “vested” workers or those who served at least 10 years on the job.

Those who are vested workers make up more than 50 percent of police officers and firefighters while those with more than 10 years on the job are an even bigger slice of state, municipal and county government employees.

“We are very pleased that the court has decided that raising contributions for vested workers was unconstitutional,” said Glenn Milner, an attorney representing the Retirement Security Coalition. The coalition includes the Professional New Hampshire Fire Fighters, State Employees Association and National Education Association of New Hampshire.

Senate Majority Leader Jeb Bradley, R-Wolfeboro, was the chief architect of the retirement reform law along with Rep. Ken Hawkins, R-Bedford.

“Obviously we are disappointed we lost part of it because we felt very strongly that everyone should take part in making the retirement system more financially solvent going forward,” Bradley said. “This decision also says we can make changes to the retirement system to reduce the burden on taxpayers and that’s what we were looking for.”

Lawyers for both sides declined to rule out appealing part of the 24-page decision to the state Supreme Court.

“I’m going to urge the attorney general to vigorously pursue this appeal,” Bradley said.

There’s no telling whether the loss of payroll contributions from more veteran public employees could affect future pension costs paid by the taxpayers, Bradley said.

Gov. John Lynch’s office declined to comment on the court’s ruling. Lynch had originally proposed employee contributions only be raised for new hires and not affect those who are already on the job.

Starting last July 1, all local government and school workers would contribute 7 percent of their salary to pensions, up from 5 percent.

The payroll deduction for police officers went to 11.55 percent, up from 9.3 percent prior to that.

The rate for firefighters would go up to 11.3 percent from 9.3 percent.

New firefighters and police officers hired after last July 1 have to work 25 years and reach age 50 before collecting a pension.

Prior to that, they could retire after 20 years and collect at age 45.

Kevin Landrigan can reached at 321-7040 or klandrigan@nashuatelegraph.com.

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