HB 779-FN – AS INTRODUCED
2007 SESSION
10/04
HOUSE BILL 779-FN
AN ACT relative to funding of retirement system benefits and supplemental allowances.
SPONSORS: Rep. Baroody, Hills 13
COMMITTEE: Executive Departments and Administration
This bill changes the allocation of funds into the special account of the retirement system, adds a cost of living adjustment to the employer contribution rate, and changes the funding of supplemental allowances.
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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Matter which is either (a) all new or (b) repealed and reenacted appears in regular type.
07-0382
10/04
STATE OF NEW HAMPSHIRE
In the Year of Our Lord Two Thousand Seven
AN ACT relative to funding of retirement system benefits and supplemental allowances.
Be it Enacted by the Senate and House of Representatives in General Court convened:
1 Retirement System; Special Account; Allocation. RSA 100-A:16, II(h) is repealed and reenacted to read as follows:
(h) There shall be a special account for additional benefits held by the board of trustees. The special account shall be subdivided into components representing the 4 retirement system member classifications, as defined in RSA 100-A:1, with each component subdivided proportionally between employees of the state and employees of the political subdivisions of the state. The amount credited annually to the special account shall be determined as follows:
(1) Each component of the special account shall first be credited with all the earnings of that component for the fiscal year.
(2) If at any time the total funding ratio for the retirement system is determined to be less than 80 percent funded, all excess earnings over the assumed rate of return shall be held in the general account for increasing the system’s funding ratio. If the total funding ratio for the retirement system is determined to be at least 80 percent and less than 100 percent funded, the excess of the assumed rate of return plus 2 percent added to such rate of return shall be allocated to the 4 member classifications. If the total funding ratio for the retirement system is determined to be at least 100 percent and less than 115 percent funded, the excess of the assumed rate of return plus 1 percent added to such rate of return shall be allocated to the 4 member classifications. If the total funding ratio for the retirement system is determined to be at least 115 percent, the excess of the assumed rate of return plus one-half percent added to such rate of return shall be allocated to the 4 member classifications. The assumed rate of return shall be determined by the board of trustees.
(3) None of the assets held in the special account shall be used in the actuarial determination of the rate percent of normal contribution as set forth in subparagraphs (b), (c) and (d).
(4) The actuarial cost of all legislation enacted during each fiscal year and calling for funding from the special account shall be withdrawn from the respective components of the special account, as of June 30 of each year, after funds are credited to the special account as provided in this subparagraph. The special account shall be used only to fund or partially fund additional benefits.
2 New Subparagraph; Employer Contribution Rate. Amend RSA 100-A:16, II by inserting after subparagraph (i) the following new subparagraph:
(j) In addition to the employer normal contribution rate calculation under subparagraphs (b), (c), and (d), beginning July 1, 2007, a 3 percent cost of living adjustment for all member classification groups shall be included in the employer normal contribution rate.
3 Supplemental Allowances. RSA 100-A:41-a, II and III are repealed and reenacted to read as follows:
II. No later than May 31 of each year, the fiscal committee of the general court shall approve COLAs for the July 1 thereafter upon certification from the actuary of the amount of the COLA which shall be granted to each member classification based on the change in the Consumer Price Index-Urban for the year prior to the year in which the allowance is granted. Any such supplemental allowance when granted by the fiscal committee of the general court shall become a permanent addition to the beneficiary’s base retirement allowance, and shall be included in the monthly annuity paid to the retired member, or to the member’s beneficiary if the member is deceased and the beneficiary is receiving an allowance under RSA 100-A:8, 100-A:9, 100-A:12, 100-A:13, 100-A:19, the provisions of former RSA 100-A:16, I(c)(2) relative to additional contributions, or similar provisions of predecessor systems.
III.(a) For the fiscal year ending June 30, 2008, the granting of any such supplemental allowance, or of any increase in supplemental allowances, shall be contingent on terminal funding of the total actuarial cost thereof at the time of granting from the special account established under RSA 100-A:16, II(h). Beginning July 1, 2008, the granting of any such supplemental allowance, or of any increase in supplemental allowances, shall be contingent on terminal funding of the total actuarial cost thereof at the time of granting from the retirement system general account.
(b) No supplemental allowance shall be granted or increased if such grant or increase would reduce the funds in the respective component of the special account to an amount less than zero.
(c) Cost of living adjustments granted by the fiscal committee shall be retroactive to the member’s eligibility date pursuant to paragraph I, beginning July 1, 1999, and for every year thereafter.
4 Effective Date. This act shall take effect July 1, 2007.
LBAO
07-0382
Revised 04/18/07
HB 779 FISCAL NOTE
AN ACT relative to funding of retirement system benefits and supplemental allowances.
FISCAL IMPACT:
The New Hampshire Retirement System indicates this bill may increase state, county, and local expenditures by an indeterminable amount in FY 2008 and each year thereafter. There is no fiscal impact on state, county, and local revenue.
METHODOLOGY:
The New Hampshire Retirement System states this bill will change the allocation of funds into the special account, add a cost of living adjustment (COLA) of 3 percent to the employer contribution rate, and change the funding of supplemental allowances. This bill states the amount to be invested into the special account is as follows:
Funded Ratio |
Portion of Investment Income Placed into Special Account |
Less than 80 % |
None |
80 % to 100 % |
All income in excess of 2.0 percent above the assumed rate of return |
100 % to 115 % |
All income in excess of 1.0 percent above the assumed rate of return |
More than 115 % |
All income in excess of 0.5 percent above the assumed rate of return |
The actuary, using an assumed rate of interest of 8.5 percent, wage inflation at 5.5 percent a year, and the entry age normal cost method, not the open aggregate normal cost method required in statute, determined the employer contributions for valuation results as of June 30, 2005 would be as follows:
Employees |
Teachers |
Police |
Fire | |
No COLA |
9.72% |
9.75% |
19.32% |
26.97% |
With 3% COLA |
14.84 % |
16.00% |
32.65% |
44.51% |
The actuary states in a closed 30 year period with employer contributions including the 3 percent COLA, it will take 20 to 25 years before the 80 percent funded ratio is achieved. If the statutorily required open aggregate normal cost method was used, the employer contribution rates would be lower but it would lengthen the time to reach the 80 percent funded ratio.