HB265 (2011) Detail

Redefining earnable compensation in the retirement system for new and non-vested members in service.


HB 265-FN – AS INTRODUCED

2011 SESSION

11-0367

10/09

HOUSE BILL 265-FN

AN ACT redefining earnable compensation in the retirement system for new and non-vested members in service.

SPONSORS: Rep. Hawkins, Hills 18; Rep. Reagan, Rock 1; Rep. Harding, Graf 11; Rep. Kurk, Hills 7; Rep. Bouchard, Merr 11; Sen. Bradley, Dist 3; Sen. White, Dist 9

COMMITTEE: Special Committee on Public Employee Pensions Reform

ANALYSIS

This bill redefines earnable compensation in the retirement system for new and non-vested members in service.

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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Matter which is either (a) all new or (b) repealed and reenacted appears in regular type.

11-0367

10/09

STATE OF NEW HAMPSHIRE

In the Year of Our Lord Two Thousand Eleven

AN ACT redefining earnable compensation in the retirement system for new and non-vested members in service.

Be it Enacted by the Senate and House of Representatives in General Court convened:

1 Retirement System; Definition of Earnable Compensation. Amend RSA 100-A:1, XVII to read as follows:

XVII. “Earnable compensation” shall mean for all members who begin service or who are not in vested status on and after July 1, 2011 the full base rate of compensation paid plus any overtime pay, holiday and vacation pay, sick pay, longevity [or severance] pay, cost of living bonus, additional pay for extracurricular and instructional activities [or for other extra or special duty], and any military differential pay, plus the fair market value of non-cash compensation paid to, or on behalf of, the member for meals or living quarters if subject to federal income tax, but excluding other compensation except [cash incentives paid by an employer to encourage members to retire,] supplemental pay paid by the employer while the member is receiving workers’ compensation[,] and teacher development pay that is not part of the contracted annual salary. Earnable compensation shall not include incentives to encourage members to retire, severance pay, and pay for unused sick or vacation time. However, earnable compensation in the final 12 months of creditable service prior to termination of employment shall be limited to 1-1/2 times the higher of the earnable compensation in the 12-month period preceding the final 12 months or the highest compensation year as determined for the purpose of calculating average final compensation, but excluding the final 12 months. Any compensation received in the final 12 months of employment in excess of such limit shall not be subject to member or employer contributions to the retirement system and shall not be considered in the computation of average final compensation. Provided that, the annual compensation limit for members of governmental defined benefit pension plans under section 401(a)(17) of the United States Internal Revenue Code of 1986, as amended, shall apply to earnable compensation for all employees, teachers, permanent firemen, and permanent policemen who first become eligible for membership in the system on or after July 1, 1996. Earnable compensation shall not include compensation in any form paid later than 120 days after the member’s termination of employment from a retirement eligible position[, with the limited exceptions of disability related severance pay paid to a member or retiree no later than 120 days after a decision by the board of trustees granting the member or retiree disability retirement benefits pursuant to RSA 100-A:6 and of severance pay which a member was entitled to be paid within 120 days after termination but which, without the consent of the member and not through any fault of the member, was paid more than 120 days after the member’s termination. The member shall have the burden of proving to the board of trustees that any severance payment paid later than 120 days after the member’s termination of employment is earnable compensation and meets the requirements of an asserted exception to the 120-day post-termination payment requirement].

2 Application. The definition of earnable compensation for new and non-vested retirement system members as amended by section 1 of this act shall apply to compensation paid by retirement system employers beginning July 1, 2011.

3 Effective Date. This act shall take effect July 1, 2011.

LBAO

11-0367

Revised 02/23/11

HB 265 FISCAL NOTE

AN ACT redefining earnable compensation in the retirement system for new and non-vested members in service.

FISCAL IMPACT:

      The New Hampshire Retirement System states this bill may decrease state, county, and local expenditures by an indeterminable amount in FY 2014 and each fiscal year thereafter. There will be no fiscal impact on state, county, and local revenues.

METHODOLOGY:

    The New Hampshire Retirement System states this bill redefines earnable compensation for members who begin service or who are not in vested status on and after July 1, 2011. The System states currently employers do not separately report the various elements of earnable compensation paid to individuals they employ and therefore the System is unable to determine the fiscal impact resulting from the elimination of unused sick pay, vacation pay, severance pay, extra and special duty pay and incentives to retire early from the definition of earnable compensation. The System states in the long-term this bill will result in lower retirement benefits and lower employer costs. The System’s actuary estimates the lower pension costs will materialize very gradually over the next 10 to 15 years as the population of members subject to the definition of earnable compensation under current law decreases due to retirement, death, or other termination of employment and the population of members of the new definition of earnable compensation increases. The actuary further states although the dollar amount of the contributions will likely decrease under this bill it is possible the contribution rate may actually increase over the next 4 to 6 years. The actuary states this could happen if the valuation payroll decreases faster than the accrued liabilities, which may not immediately decrease depending on the magnitude of grandfathering and the rate of active member turnover. The System states there will be no fiscal impact until FY 2014 and FY 2015 as it is assumed there will be no change in the employer contribution percentage rates for FY 2012 and FY 2013.