Revision: Dec. 16, 2011, midnight
SB 229-FN – AS INTRODUCED
2012 SESSION
10/03
SENATE BILL 229-FN
AN ACT establishing a defined contribution retirement plan for public employees.
SPONSORS: Sen. Groen, Dist 6; Sen. Boutin, Dist 16; Sen. Bradley, Dist 3; Sen. Bragdon, Dist 11; Sen. De Blois, Dist 18; Sen. Forsythe, Dist 4; Sen. Gallus, Dist 1; Sen. Lambert, Dist 13; Sen. Stiles, Dist 24; Sen. White, Dist 9; Rep. Hawkins, Hills 18; Rep. Winter, Merr 3; Rep. Hill, Merr 6; Rep. O'Brien, Hills 4; Rep. Bettencourt, Rock 4
COMMITTEE: Executive Departments and Administration
This bill establishes a defined contribution retirement plan for public employees and requires the issuance of a request for proposals for plan administration. Beginning November 1, 2012, all new hires by employers participating in the retirement system shall be enrolled in the public employee defined contribution 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Matter which is either (a) all new or (b) repealed and reenacted appears in regular type.
12-2876
10/03
STATE OF NEW HAMPSHIRE
In the Year of Our Lord Two Thousand Twelve
AN ACT establishing a defined contribution retirement plan for public employees.
Be it Enacted by the Senate and House of Representatives in General Court convened:
1 Participation by Members; Retirement System. 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] prior to November 1, 2012, working in a position for an employer under this chapter as determined by common law standards, shall become a member of the retirement system as a condition of employment. In addition, employees appointed to an unclassified position with no fixed term on or after July 1, 2011 shall become members of the retirement system as a condition of employment, if they are receiving benefits from the retirement system. Any retirement benefit collected by such an unclassified employee shall be suspended during the period of employment. Employees, teachers, permanent policemen, and permanent firemen beginning service on or after November 1, 2012, working in a position for an employer under RSA 100-E as determined by common law standards, shall as a condition of employment participate in the public employee defined contribution plan established under RSA 100-E. Until November 1, 2012, membership in the retirement system shall be optional in the case of elected officials, officials appointed for fixed terms, employees appointed to an unclassified position with no fixed term prior to July 1, 2011, 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:
2 New Chapter; Public Employee Defined Contribution Plan. Amend RSA by inserting after chapter 100-D the following new chapter:
CHAPTER 100-E
PUBLIC EMPLOYEE DEFINED CONTRIBUTION PLAN
100-E:1 Authorization of Plan. The public employee defined contribution plan authorized in this chapter is intended as a qualified retirement plan established and maintained by the state with contributions treated as provided in 26 U.S.C. section 414(h).
100-E:2 Definitions. In this chapter:
I. “Earnable compensation” means earnable compensation as defined in RSA 100-A:1.
II. “Employer” means all employers participating in the New Hampshire retirement system under RSA 100-A on October 31, 2012, and any new employers electing to participate in the plan on and after November 1, 2012.
III. “Group I members” means employees and teachers as defined in RSA 100-A:1.
IV. “Group II members” means permanent policemen and permanent firemen as defined in RSA 100-A:1.
V. “Member” means any person included in the membership of the plan, as provided in RSA 100-E:3.
VI. “Plan” means the public employee defined contribution plan established in this chapter for members who begin service on and after November 1, 2012.
100-E:3 Membership. Any person who is first employed, or reemployed after separation from service, by an employer and entered on the payroll on a full-time basis on or after November 1, 2012 shall be a member of the plan established in this chapter; except that membership shall be optional in the case of elected officials, unclassified state employees appointed for fixed terms, or full-time employees of the general court.
100-E:4 Member Contributions.
I. Mandatory member contributions shall be at the following rate percent applied to the member’s earnable compensation:
(a) Group I members, 7.00.
(b)(1) Group II permanent fireman members, 11.80.
(2) Group II permanent police members, 11.55.
II. Additional voluntary employee contributions shall be allowed to the extent permitted by the federal Internal Revenue Code and Regulations for qualified governmental retirement plans.
100-E:5 Employer Contributions.
I. For group I employees and teachers, the employer shall contribute on behalf of the member an amount equal to 10 percent of the member’s earnable compensation, minus the sum of the following:
(a) Mandatory contributions of the member under RSA 100-E:4, I.
(b) The cost of the required premium contributions for long term disability insurance and life insurance attributable to the member.
II. For group II members, the employer shall contribute on behalf of the member an amount equal to 16 percent of the member’s earnable compensation, minus the sum of the following:
(a) Mandatory contributions of the member under RSA 100-E:4, I.
(b) The cost of the required premium contributions for long term disability insurance and life insurance attributable to the member.
100-E:6 Employer Payments for State Retirement System Unfunded Accrued Liability.
I. Each employer participating in the New Hampshire retirement system under RSA 100-A on October 31, 2012 shall pay to the retirement system a sum, calculated as the percentage of earnable compensation of its members participating in the plan, in an amount equal to the employer contribution rate determined under RSA 100-A:16, II minus the employer contribution determined in RSA 100-E:5 for the respective member.
II. Employer payments under this section shall continue until the New Hampshire retirement system actuary determines that the funded ratio of the consolidated retirement system in RSA 100-A as of June 30 of any given year is equal to or greater than 100 percent. Provided, however that employer payments under this section shall resume if for any subsequent period the retirement system under RSA 100-A incurs new unfunded accrued liability.
100-E:7 Adjustment of Contribution Rates.
I. The sum of the employer contributions under RSA 100-E:5 and the employer payments under RSA 100-E:6, expressed as the rate percent of a member’s earnable compensation, shall be the “total employer rate.”
II. Upon attainment of the reduction in the total employer rate to 7 percent for group I, 11.80 percent for group II permanent fireman members, or 11.55 percent for group II permanent police members, the contribution rates under RSA 100-E:4 and RSA 100-E:5 shall, upon further reductions in required contributions, both be adjusted and reduced equally until the sum of the total employer rate and the employee contribution rate equals 10 percent for group I members or 16 percent for group II members.
100-E:8 Employer Costs for Long Term Disability and Life Insurance Benefits. The employer shall pay the costs for long term disability insurance benefits and life insurance benefits which shall be provided at benefit levels to be determined.
100-E:9 Plan Administration.
I. The governor and council shall contract according to the procedure in RSA 100-E:13 with an administrator for the public employee defined contribution plan for the administration of assets accumulated under each member’s account.
II. The plan shall include a range of investment options and a procedure for election of options by the member. If a member exercises control over the assets in the individual account, the member is not considered a fiduciary for any reason on the basis of exercising that control.
III. No member-in-service loans, hardship withdrawals, or other in-service withdrawals shall be permitted.
IV. The plan shall include the requirement that at least 50 percent of funds in an individual member account at the member’s retirement be converted to a life annuity contract to provide income during retirement. The plan shall include life annuity options which may be elected by the member upon retirement.
100-E: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. Twenty percent of funds in an account after 4 years total of active service by a member.
II. Forty percent of funds in an account after 5 years total of active service by a member.
III. Sixty percent of funds in an account after 6 years total of active service by a member.
IV. Eighty percent of funds in an account after 7 years total of active service by a member.
V. One hundred percent of funds in an account after 8 years total of active service by a member.
100-E:11 Disbursement of Funds. Upon retirement of a member:
I. At least 50 percent of funds in an individual member account shall be converted by the administrator to a life annuity contract.
II. Up to 50 percent of the vested balance in an individual member account shall be available for withdrawal by the participant at retirement.
100-E:12 Retirement Age. The age at which a member first becomes eligible for receipt of disbursed funds held in the member’s individual account shall be as follows:
I. Group I members, age 60.
II. Group II members, age 50.
100-E:13 Selection of Administrator.
I. The department of administrative services shall issue a request for proposals (RFP) to qualified entities engaged in retirement and pension plan management. In addition, the New Hampshire retirement system may bid on management of the public employee defined contribution plan.
II. The RFP shall be issued requesting 3 options for plan management and administration, as follows:
(a) Investment management and plan administration for the public employee defined contribution plan only.
(b) Investment management and plan administration for the public employee defined contribution plan, plus investment management for the retirement system corpus fund under RSA 100-A pending legislative authorization for such management.
(c) Investment management and plan administration for the public employee defined contribution plan, plus investment management and plan administration for retirement system corpus fund under RSA 100-A pending legislative authorization for such management and administration.
III. The governor and council shall contract to provide for a fully bundled retirement plan including investment management and plan administration that will include full services to employer and employee participants in the plan. Plan management shall provide educational services for employer and employee participants.
IV. The selection of an administrator for plan management shall be based on the best combination of contracted management and administrative costs and proposed services.
3 Effective Date. This act shall take effect July 1, 2012.
LBAO
12-2876
12/14/11
SB 229-FN - FISCAL NOTE
AN ACT establishing a defined contribution retirement plan for public employees.
FISCAL IMPACT:
The New Hampshire Retirement System states this bill will have an indeterminable impact on state, county, and local expenditures in FY 2013 and each year thereafter. The Department of Administrative Services states this bill will increase state general fund expenditures by $188,616 in FY 2013 and have and indeterminable impact on state expenditures each year thereafter. There will be no impact on state, county, and local revenues.
METHODOLOGY:
The New Hampshire Retirement System (NHRS) states this bill establishes a defined contribution retirement plan for public employees, requires all new employees hired after November 1, 2012 by employers that participate in the retirement system to participate in the defined contribution retirement plan, and requires the Department of Administrative Services to issue a request for proposal for plan management and administration. NHRS’ actuary estimates the following increases (decreases in parenthesis) to employer contributions using an assumed rate of interest of 7.75%, an assumed rate of wage inflation of 3.75%, and estimated costs of long-term disability and life insurance benefits:
Member Classification |
FY 2013 |
FY 2014 |
FY 2015 |
FY 2016 |
Employees: |
||||
State |
($47,091) |
($111,207) |
($268,242) |
($394,417) |
Political Subdivisions |
($51,083) |
($120,634) |
($290,981) |
($427,851) |
Teachers |
($529,502) |
($1,306,653) |
($2,532,267) |
($3,538,554) |
Police: |
||||
State |
$111,981 |
$275,567 |
$280,626 |
$264,150 |
Political Subdivisions |
$290,197 |
$714,703 |
$727,823 |
$685,093 |
Fire: |
||||
State |
$5,833 |
$15,016 |
$19,887 |
$23,367 |
Political Subdivisions |
$162,719 |
$418,928 |
$554,804 |
$651,900 |
Total: |
||||
State |
$70,633 |
$179,376 |
$32,271 |
($106,900) |
Political Subdivisions |
($127,669) |
($293,656) |
($1,540,621) |
($2,629,412) |
NHRS states under this bill, the estimated employer contribution toward the unfunded actuarial accrued liability (UAAL) is lower for group I members and higher for group II and with no change to these estimated employer rates, the amortization period will be longer than 26 years for group I and less than 26 years for group II employers. NHRS states the present value of the shortfall of contributions as of June 30, 2011 is approximately $237 million as detailed in the table below. NHRS expects the shortfall to be made up by increasing employer defined benefit contribution rates over time.
Impact of Pension Funded Status as of June 30, 2011 | ||
Member Classification |
Present Value of (Shortfall)/Excess |
Percent of Actuarial Liability |
Employees |
($49,111,005) |
(1.5)% |
Teachers |
($172,134,009) |
(4.4)% |
Police |
($21,259,770) |
(1.1)% |
Fire |
$5,120,900 |
0.6% |
Total |
($237,383,884) |
(2.4)% |
The Department of Administrative Services states this bill requires the state to issue a request for proposal (RFP) to qualified entities engaged in retirement and pension plan management and administration. The Department assumes it would need to hire consultants as well as hire an additional purchasing agent (labor grade 24, step 5) on a temporary basis for a minimum of six months. The Department states it estimates consulting services to cost approximately $150,000 in FY 2013. The Department projects a hire date of October 1, 2012 for a purchasing agent, which would total $38,616 in salary and benefit costs in FY 2013. The Department states continued contract management and administration will be required in FY 2013 and each year thereafter, however those costs are indeterminable at this time. This bill does not include authorization or appropriation for any new personnel.