HB 708-FN – AS INTRODUCED
2005 SESSION
10/03
HOUSE BILL 708-FN
AN ACT establishing a new state defined contribution retirement plan for new state employees and establishing a committee to study the transition of current employees into the new plan and administration of the new plan.
SPONSORS: Rep. Wendelboe, Belk 1
COMMITTEE: Executive Departments and Administration
This bill establishes a state retirement plan for new state employees which is structured as a defined contribution plan. All new employees of the state of New Hampshire after the effective of the bill will be required to be in the new retirement plan. The bill establishes a committee to study the transition of current and other employees into the plan and examine issues in the administration of the retirement plan.
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Explanation: Matter added to current law appears in bold italics.
Matter removed from current law appears [in brackets and struckthrough.]
Matter which is either (a) all new or (b) repealed and reenacted appears in regular type.
05-0119
10/03
STATE OF NEW HAMPSHIRE
In the Year of Our Lord Two Thousand Five
AN ACT establishing a new state defined contribution retirement plan for new state employees and establishing a committee to study the transition of current employees into the new plan and administration of the new plan.
Be it Enacted by the Senate and House of Representatives in General Court convened:
1 New Subdivision; Retirement Contribution Plan. Amend RSA 100-A by inserting after section 55 the following new subdivision:
State Employees Retirement Contribution Plan
100-A:56 Definitions. In this subdivision:
I. “Board” means the benefits advisory board established in RSA 100-A:59.
II. “Member” means a person employed by the state who is required or chooses to participate in the plan established in this subdivision.
100-A:57 Retirement Plan Established. There is hereby established a retirement benefit plan for members required to be or voluntarily enrolled in the retirement system who began service as a state employee on or after January 1, 2006, and which is established pursuant to provisions of the United States Internal Revenue Code regulating tax-exempt governmental defined contribution retirement plans. All qualifying contributions shall be held and invested by the state treasurer. All such contributions and all investments, reinvestments, interest, or other moneys held by the treasurer shall not be assets of the retirement system administered by the board of trustees or subject to control of the board of trustees of the retirement system.
100-A:58 Membership. Any group I or group II member under RSA 100-A who is first employed, or reemployed after leaving service, and entered on the payroll on or after January 1, 2006 shall be a member of the retirement contribution plan established in this subdivision.
100-A:59 Benefits Advisory Board Established.
I. A retirement benefits advisory board is hereby established consisting of the following members:
(a) The state treasurer who shall be a nonvoting member.
(b) The commissioner of administrative services or designee.
(c) The insurance commissioner or designee.
(d) The banking commissioner or designee.
(e) The director of the office of securities regulation, department of state.
(f) The attorney general or designee.
(g) Two members of the New Hampshire retirement system board of trustees, appointed by the board.
II. Four members shall constitute a quorum for the transaction of business and may act on behalf of the board.
100-A:60 Administration; Rulemaking.
I. The administration of the state employees retirement contribution plan shall be the state treasurer, who shall have the assistance and services of the commissioner of administrative services and the department of administrative services for all duties and responsibilities under this subdivision.
II. The state treasurer with the advice of the board shall adopt rules pursuant to RSA 541-A for the procedure for administration investment choices of members and beneficiaries, and forms necessary for the administration of this subdivision. The board of trustees of the retirement system shall not have the authority to adopt rules under RSA 100-A concerning implementation, operation, investment, or distribution under this subdivision.
100-A:61 Administration of Plan.
I. The state treasurer shall have the authority to contract with an administrator or custodian of retirement plans for the administration of assets accumulated under each employee participant’ s account.
II. The board shall provide advice to the state treasurer on the provision of investment options and services by an administrator under a plan contract.
100-A:62 Contributions by Member.
I. The member participating under this subdivision shall contribute the percentage of gross pay as follows:
(a) For group I members, 5 percent or more as permitted by the Internal Revenue Code and applicable regulations.
(b) For group II members, 9.3 percent or more as permitted by the Internal Revenue Code and applicable regulations.
II. A member who is a part-time employee and not eligible for a match of contributions may participate in the option under this chapter even if there is no right to employer contributions. The employee shall contribute the percentage of gross pay provided in paragraph I.
100-A:63 Contributions by State. Subject to applicable federal limitations, the state shall contribute the following sums as a 2 to one, member to employer, match against the contributions by the member:
I. For group I members, up to 2.5 percent of the member’ s gross pay.
II. For group II members, up to 4.65 percent of the member’ s gross pay.
100-A:64 Vesting. Member contributions and investment return attributable to member contributions shall be 100 percent vested as of the date of contribution or accrual. Employer contributions and investment return attributable to employer contributions held in an account of a member by the administrator shall be vested under this subdivision according to the following schedule:
I. 20 percent of funds in an account after one year of continuous participation by a member.
II. 40 percent of funds in an account after 2 years of continuous participation by a member.
III. 60 percent of funds in an account after 3 years of continuous participation by a member.
IV. 80 percent of funds in an account after 4 years of continuous participation by a member.
V. 100 percent of funds in an account after 5 years of continuous participation by a member.
100-A:65 Withdrawal of Funds. Distributions from an account of a member shall be permitted in the following circumstances, subject to applicable limitations under federal regulations:
I. Termination of employment.
II. Retirement.
III. Upon turning age 59-1/2 and still employed as limited by federal regulations.
IV. If the member becomes disabled.
V. If the member dies.
VI. Based on financial hardship as defined in applicable federal regulations.
100-A:66 Health Insurance Group Insurance Inclusion. Any retrial group I or group II state employee members shall be eligible to participate in the group hospitalization, hospital medical care, surgical care, and other medical and surgical benefits provided under RSA 100-A:50 through RSA 100-A:55.
2 Participation by Members; State Employees. Amend the introductory paragraph of RSA 100-A:3, I(a) to read as follows:
I.(a) Any person who becomes an employee, teacher, permanent policeman, or permanent fireman after the date of establishment, except for state employees who begin service on or after January 1, 2006, shall become a member of the retirement system as a condition of employment; except that membership shall be optional in the case of elected officials, officials appointed for fixed terms, unclassified state employees, or those employees of the general court who are eligible for membership in the retirement system. State employees beginning service on or after January 1, 2006 shall as a condition of employment participate in the retirement contribution plan under RSA 100-A:56 through RSA 100-A:66. Elected officials and officials appointed for fixed terms shall, however, be eligible for membership in the retirement system only under the following conditions:
3 Committee Established. There is established a committee to study the administration and expansion of the retirement contribution plan for new state employees.
4 Membership and Compensation.
I. The members of the committee shall be as follows:
(a) Four members of the house of representatives, appointed by the speaker of the house of representatives.
(b) Two members of the senate, appointed by the president of the senate.
II. Members of the committee shall receive mileage at the legislative rate when attending to the duties of the committee.
5 Duties. The committee shall study the retirement contribution plan established in this act as RSA 100-A:56 through RSA 100-A:66 and look at options for the inclusion of other classes of employees, procedures for the transition from the defined benefit plan to a defined contribution plan, buyout options including tax consequences, issues related to vesting, and any other matters deemed relevant by the committee
6 Chairperson; Quorum. The members of the study committee shall elect a chairperson from among the members. The first meeting of the committee shall be called by the first-named house member. The first meeting of the committee shall be held within 45 days of the effective date of this section. Four members of the committee shall constitute a quorum.
7 Report. The committee shall report its findings and any recommendations for proposed legislation to the speaker of the house of representatives, the president of the senate, the house clerk, the senate clerk, the governor, and the state library on or before November 1, 2005.
8 Effective Date.
I. Sections 3-7 of this act shall take effect upon its passage.
II. The remainder of this act shall take effect January 1, 2006.
LBAO
05-0119
Revised 2/2/05
HB 708 FISCAL NOTE
AN ACT establishing a new state defined contribution retirement plan for new state employees and establishing a committee to study the transition of current employees into the new plan and administration of the new plan.
FISCAL IMPACT:
The New Hampshire Retirement System states this bill will increase state expenditures by an indeterminable amount, and will have an indeterminable fiscal impact on county and local expenditures in FY 2006 and each year thereafter. This bill will have no fiscal impact on state, county, and local revenue.
METHODOLOGY:
The New Hampshire Retirement System states this bill would require state employees hired on or after January 1, 2006 to participate in a defined contribution plan under RSA 100-A:56 through RSA 100-A:66 in lieu of the current retirement program. Group I state employees would be required to contribute at least 5% of salary, and Group II employees would be required to contribute at least 9.3% of salary each year. The State would contribute 2.5% of salary for Group I employees and 4.65% of salary for Group II employees each year. Assuming an effective date of January 1, 2006, and that the demographics of those hired on or after January 1, 2006 are similar to the demographics for those hired during July 1, 2002 through June 30, 2003, the System estimates the cost of the defined contribution plan as follows:
Membership Classification FY 2006 FY 2007
Employees $ 302,000 $ 603,000
Police 790,000 1,581,000
Fire 4,000 7,000
Total $1,096,000 $2,191,000
The estimated costs of the defined contribution plan will increase each year as new members join.
This bill would also have an indeterminable fiscal impact on the current System (defined benefit plan). The funding methodology used for the current defined benefit plan is the open group aggregate (OGA) funding method with target funding (TF) as a minimum. Under both OGA and TF, the System reflects future entrants. OGA rates and TF rates are determined in aggregate for state employees and employees of political subdivisions. The establishment of a defined contribution plan for new employees may raise concerns for the System’s Board of Trustees, since state employees hired on or after January 1, 2006 will no longer participate in the defined benefit plan, and the OGA and TF rates would no longer reflect future state employees in valuations. This will increase the normal rates (employer contribution rates) which would be applied to the compensation of the employees remaining in the current retirement plan. Also, the System’s Board of Trustees would need to consider whether to continue to develop rates in aggregate for state employees and employees of political subdivisions, or whether separate contribution rates should be determined, since determining the rates in aggregate would also increase political subdivision rates although they will not be participating in the defined contribution plan. The Board will also need to address transfers between the state and political subdivisions if separate valuations are prepared. Below are tables comparing the FY 2006 OGA and TF normal rates (employer contribution rates) for the current system with potential normal rates for the proposed system assuming one rate is developed for each membership classification (combined valuation), and assuming rates are determined separately for state employees and employees of political subdivisions (separate valuations):
Open Group Aggregate (OGA) Rates
FY 2006 Combined Separate
Membership Classification Rates Valuation Valuations
Employees
State 6.37% 7.46% 13.22%
Political Subdivisions 6.37% 7.46% 5.58%
Teachers
Political Subdivisions 5.24% 5.24% 5.24%
Police
State 13.20% 14.74% 23.80%
Political Subdivisions 13.20% 14.74% 13.26%
Fire
State 17.17% 17.44% 26.92%
Political Subdivisions 17.17% 17.44% 17.30%
Target Funding (TF) Rates
Membership Classification
Employees
State 6.81% 8.06% 12.94%
Political Subdivisions 6.81% 8.06% 6.03%
Teachers
Political Subdivisions 5.70% 5.70% 5.70%
Police
State 14.90% 16.66% 23.09%
Political Subdivisions 14.90% 16.66% 15.30%
Fire
State 22.09% 22.42% 29.83%
Political Subdivisions 22.09% 22.42% 22.27%
Assuming target funding (TF) as a minimum, the normal rates would result in estimated employer contributions as follows:
FY 2006 Combined Separate
Employer Rates Valuation Valuations
State $42.1M $49.0M $77.7M
Political Subdivision $126.2M $135.3M $123.2M
Administrative costs associated with this bill would include the costs to modify the system’s mainframe (Pension Gold), establish a defined contribution recordkeeping system, and additional actuarial valuations and CAFR (Comprehensive Annual Financial Report) fees of $100,000 and $30,000, respectively, if the valuation and CAFR need to be prepared separately for the State and political subdivisions. Assets will need to be treated separately for the State and political subdivisions if separate valuations are performed. The CAFR template may need to be modified to incorporate the defined contribution plan as well as potential allocation between State employees and employees of political subdivisions.
The System’s actuary performed calculations based on the same data, actuarial assumptions, and methods as were used in the June 30, 2004 actuarial valuation of the System, including a 9% interest rate. In addition, for purposes of determining the actuarial value of assets when preparing separate normal costs for state employees and political subdivisions, the market value of assets, special account, medical special account and 401(h) assets were allocated in proportion to the projected benefit obligation.