HB 346-FN-LOCAL – AS INTRODUCED
2007 SESSION
10/01
HOUSE BILL 346-FN-LOCAL
AN ACT establishing a defined contribution retirement option in the New Hampshire retirement system.
SPONSORS: Rep. L. Christiansen, Hills 27
COMMITTEE: Executive Departments and Administration
This bill establishes an option under the New Hampshire retirement system for members to participate and contribute in a defined contribution plan. Members transferring are treated as a vested deferred retirement system member and retain any vested benefits under the current defined benefit 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Matter which is either (a) all new or (b) repealed and reenacted appears in regular type.
07-1003
10/01
STATE OF NEW HAMPSHIRE
In the Year of Our Lord Two Thousand Seven
AN ACT establishing a defined contribution retirement option in the New Hampshire retirement system.
Be it Enacted by the Senate and House of Representatives in General Court convened:
1 Purpose. The general court finds that an enhanced retirement benefit option established as a defined contribution plan allows for employee self direction of retirement funds and potential for greater earnings on invested contributions. The investment of the retirement funds under the direction of the employee-member, and the management of the invested funds by a contracted administrator, remove the state’s liability for poor market performance and result in a cost savings for the state.
2 Name and Date of Establishment; Inclusion of Defined Contribution Option. Amend RSA 100-A:2 to read as follows:
100-A:2 Name and Date of Establishment. The retirement system hereby created shall be established as of July 1, 1967. It shall be known as the New Hampshire retirement system, and by such name all of its business shall be transacted, all of its funds invested, and all of its cash, securities and other property held in trust for the purpose for which received, and is intended for all time to meet the requirements of a qualified pension trust within the meaning of section 401(a), and to qualify as a governmental plan within the meaning of section 414(d) of the United States Internal Revenue Code of 1986, as amended. The enhanced retirement benefits option established in RSA 100-D shall not be a part of the retirement system under this chapter, but participation in RSA 100-D shall be considered as satisfying the requirement that an employee be a member of the state retirement plan.
3 Membership. 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, working in a position for an employer under this chapter as determined by common law standards, shall become a member of the retirement system under this chapter or RSA 100-D 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. Elected officials and officials appointed for fixed terms shall, however, be eligible for membership in the retirement system only under the following conditions:
4 New Paragraph; Vested Deferred Retirement. Amend RSA 100-A:10 by inserting after paragraph II the following new paragraph:
III. A group I or group II member who has completed 10 years of creditable service and who subsequently elects to participate in the enhanced retirement benefit option under RSA 100-D shall be deemed in vested status and upon meeting the eligibility requirements of subparagraph I(b) or II(b) may collect a vested deferred retirement allowance. In lieu of a vested deferred retirement allowance, the member may make application on a form prescribed by the board of trustees and receive a return of the member's accumulated contributions under RSA 100-A:11.
5 New Paragraph; Medical Insurance Coverage. Amend RSA 100-A:50 by inserting after paragraph II the following new paragraph:
III. Participation in medical insurance coverage under this subdivision shall include any retired employee participating in the enhanced retirement benefits option under RSA 100-D.
6 Medical Benefits; Authorized Deductions. Amend RSA 100-A:51 to read as follows:
100-A:51 Authorized Deductions.
I. Upon request in writing of any retired former policeman, fireman, teacher, or employee member or beneficiary of the New Hampshire retirement system who participates in a group medical insurance or health care plan under the sponsorship of a political subdivision of the state as the retiree's former employer, the retirement system shall deduct from the monthly retirement allowance of such retired member or beneficiary the cost to the retiree or beneficiary of such medical insurance or health care coverage. The amounts so deducted shall be paid over by the retirement system for the benefit of the retiree or beneficiary, either directly to the insurer or health care provider or to the employer, as may be determined by agreement between the trustees of the retirement system and the employer.
II. For retired employees participating in the enhanced retirement benefits option under RSA 100-D, the employee may elect to have the cost of inclusion in medical benefits under this subdivision deducted from the disbursements from the employee’s account.
7 New Chapter; Enhanced Retirement Benefits Option. Amend RSA by inserting after chapter 100-C the following new chapter:
CHAPTER 100-D
ENHANCED RETIREMENT BENEFITS OPTION
100-D:1 Definitions.
I. “Commission” means the enhanced retirement benefits commission established in RSA 100-D:4.
II. “Group I” means group I as defined and interpreted under RSA 100-A:1.
III. “Group II” means group II as defined and interpreted under RSA 100-A:1.
IV. “Member” means an employee, firefighter, law enforcement personnel, or teacher employed by the state or any political subdivision authorized to participate in RSA 100-A.
V. “Retirement system” means the defined benefit plan of the New Hampshire retirement system under RSA 100-A.
100-D:2 Enhanced Retirement Benefits Option Established. There is hereby established an enhanced retirement benefit option for members required or voluntarily enrolled in the retirement system, which is established pursuant to the United States Internal Revenue Code. All qualifying contributions shall be held and invested by an administrator chosen through competitive bids by the state treasurer. All such contributions and all investments, reinvestments, interest, or other monies held by the administrator shall not be assets of the retirement system or subject to control of the board of trustees of the retirement system.
100-D:3 Right to Elect.
I. 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, 2008 shall be eligible to participate under this chapter.
II. Any active member of the retirement system prior to January 1, 2008, who elects to participate in the contribution plan shall terminate under the provisions of paragraph III.
III. Except as otherwise provided, the retirement system board of trustees under RSA 100-A shall provide an opportunity for each member who is a member on December 31, 2007, to elect in writing to terminate membership in the retirement plan established in RSA 100-A and elect to become a qualified participant in the enhanced retirement benefit option under this chapter. An election made by a member under this section shall be irrevocable. The retirement system shall accept written elections under this section from members during the period beginning on January 1, 2001 and ending on April 30, 2008. A member who does not make a written election or who does not file the election during the period specified shall continue to be a member of the retirement system. If the member is married at the time of the election, the election shall not be effective unless the election is signed by the individual's spouse. A member who makes and files a written election under this section elects to do all of the following:
(a) Cease to be an active member of the retirement system effective May 1, 2008 and become eligible for a vested deferred retirement allowance if the member was vested on the date of written election or otherwise receive a return of contributions pursuant to RSA 100-A:11. No return of contributions may be rolled over or otherwise included in contributions under this chapter.
(b) Become a qualified participant under this chapter effective May 1, 2008.
IV. Election or participation under this section shall not affect a person's right to participate in and receive medical insurance and health benefits provided under RSA 100-A:50-55.
100-D:4 Qualification. If notification is received from the United States Internal Revenue Service that this chapter or any portion of this chapter will cause the retirement system, or the enhanced retirement benefits option under this chapter to be disqualified for tax purposes under the Internal Revenue Code, then the portion that will cause the disqualification shall not apply.
100-D:5 Commission Established.
I. An enhanced retirement benefits commission is hereby established consisting of the following members:
(a) The state treasurer or designee.
(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) One member 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 commission
100-D:6 Administration; Rulemaking.
I. The administration of the contribution plan shall by an administrator, who shall be qualified and experienced in the administration of governmental retirement and employee benefit plans established within Internal Revenue Code requirements.
II. The commission shall adopt rules pursuant to RSA 541-A for the eligibility of and procedure for members for transfer to participation under this chapter, and for the forms for the investment contract, choice of beneficiaries, and other forms necessary for the administration of this chapter. 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 chapter.
100-D:7 Administrator of Program.
I. The commission shall contract with an administrator or custodian of retirement plans for the administration of assets accumulated under each employee participant's account. The commission shall appoint the administrator, custodian, or trustee through competitive bidding. The commission shall issue requests for proposals at such times as is deemed appropriate but in no case shall any contract with an administrator, custodian, or trustee exceed 5 years without approval of the governor and council.
II. The commission shall provide advice and consent to the administrator on the provision of investment options and services by the administrator under the program contract.
III. The administrator is authorized to impose a reasonable fee for the duties of administration. The amount of the fee shall be subject to approval by the commission.
100-D:8 Contributions by Member.
I. The member participating under this chapter 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 the chapter even if there is no right to employer contributions. The employee shall contribute the percentage of gross pay provided in paragraph I.
100-D:9 Contributions by Employer. Subject to applicable federal limitations, the employer of the member shall contribute the following sums as a 2 to 1, 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-D:10 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 chapter 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-D:11 Withdrawal of Funds. Distributions from an account of a member shall be permitted in the following circumstances, subject to applicable limitations under federal regulations and terms of the investment contract implemented by the administrator:
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-D:12 Ability to Borrow Funds. A member may borrow up to 50 percent of the vested funds in an individual’s account by application to the administrator. The commission shall prepare forms for use by members.
100-D:13 Health Insurance Group Insurance Inclusion. Any group I or group II employee 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:50-55.
100-D:14 Appeals. Any determination of the administrator concerning the account of a member may be appealed to the commission established in RSA 100-D:5. The member shall be entitled to a hearing within 30 days of the appeal and to the presentation of evidence on the member’s behalf. The commission shall issue a written decision of an appeal within 30 days of the hearing.
8 Effective Date. This act shall take effect July 1, 2007.
LBAO
07-1003
1/12/07
HB 346-FN-LOCAL - FISCAL NOTE
AN ACT establishing a defined contribution retirement option in the New Hampshire retirement system.
FISCAL IMPACT:
The New Hampshire Retirement System states this bill may increase state, county, and local expenditures by an indeterminable amount in FY 2008 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 establishes a defined contribution plan option for members to participate and contribute. Members of the defined contribution plan would be eligible to participate in the medical insurance and health benefits provided under RSA 100-A:50-55. Employees participating in the defined contribution plan would be required to contribute at least 5 percent of gross pay for Group I members, and at least 9.3 percent of gross pay for Group II members. Employers would be required to contribute 2.5 percent of a member’s gross pay on behalf of Group I members, and 4.65 percent of a member’s gross pay on behalf of Group II members. The System states that as of June 30, 2005, there were 51,031 active members. The following table shows a breakdown of active members by retirement group:
Members Covered Payroll Average Average Years of
Age Total Service
Group I –
Employees 26,395 $879,398,187 46.4 8.6
Teachers 18,464 $851,617,810 45.3 12.1
Group II -
Police 4,573 $221,456,362 38.9 8.4
Fire 1,599 $91,029,434 39.9 11.3
Total 51,031 $2,043,501,793
The System is unable to determine how many members will choose to participate in the defined contribution plan. Although employer contributions under the defined contribution plan would
LBAO
07-1003
1/12/07
be lower than employer contributions under the current plan, the System states this bill could increase costs to state, county, and local expenditures by an indeterminable amount. For the purposes of estimating a fiscal impact, the System’s actuary assumed there would be no new entrants to the defined benefit plan, all new hires would enroll in the defined contribution plan, and no members of the current System would transfer to the defined contribution plan. Wage inflation is assumed at 5.5 percent per year, and the assumed rate of return on investments is 8.5 percent. The actuary states that the creation of a defined contribution plan would result in the current System not receiving contributions on behalf of new hires. This would require additional employer contributions for the current System totaling $148 million, which are illustrated in the table below:
Current Employer Additional Employer New Total Employer
Contributions Contributions Contributions
Group % of Pay $ Cost % of Pay $ Cost % of Pay $ Cost
Employees 8.74% $76.9 5.52% $48.5 14.26% $125.4
Teachers 8.93% $76.0 7.12% $60.6 16.05% $136.6
Police 18.21% $40.3 12.63% $28.0 30.84% $68.3
Fire 24.49% $22.3 12.01% $10.9 36.50% $33.2
Total $215.5 $148.0 $363.5
The System’s actuary also states that transition costs, administrative costs, benefit adequacy, death and disability benefits, annuitization of defined contribution accounts, payment of COLAs to members participating in the defined contribution plan, determination of special accounts, participation in and contributions to the 401(h) medical sub-trust on behalf of defined contribution participants, vendor selection, and communications need to be considered if the plan structure is to change. The exact fiscal impact cannot be determined at this time.