Bill Text - SB229 (2012)

(2nd New Title) establishing a commission to make recommendations on whether the New Hampshire retirement system should be replaced with a defined contribution plan for all new hires and to study the impact such change would have on the retirement system.


Revision: March 30, 2012, midnight

SB 229-FN – AS AMENDED BY THE SENATE

03/21/12 1265s

03/28/12 1413s

2012 SESSION

12-2876

10/03

SENATE BILL 229-FN

AN ACT establishing a commission to make recommendations on whether the New Hampshire retirement system should be replaced with a defined contribution plan for all new hires and to study the impact such change would have on the retirement system.

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

AMENDED ANALYSIS

This bill establishes a commission to make recommendations on whether the New Hampshire retirement system should be replaced with a defined contribution plan for all new hires and to study the impact such change would have on the retirement system. The bill allows the commission to accept and expend private sector grants, gifts, or donations for purposes of the duties of the commission.

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

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Matter which is either (a) all new or (b) repealed and reenacted appears in regular type.

03/21/12 1265s

03/28/12 1413s

12-2876

10/03

STATE OF NEW HAMPSHIRE

In the Year of Our Lord Two Thousand Twelve

AN ACT establishing a commission to make recommendations on whether the New Hampshire retirement system should be replaced with a defined contribution plan for all new hires and to study the impact such change would have on the retirement system.

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

1 New Section; Commission to Study a Viable Defined Contribution Plan. Amend RSA 100-A by inserting after section 56 the following new section:

100-A:56-a Commission to Study a Viable Defined Contribution Plan.

I. There is established a commission to make recommendations on whether the New Hampshire retirement system should be replaced with a defined contribution plan for all new hires and to study the impact such change would have on the retirement system.

II. The members of the commission shall be as follows:

(a) Three members of the house of representatives, one of whom shall be from the executive departments and administration committee and one of whom shall be from the finance committee, appointed by the speaker of the house of representatives.

(b) Two members of the senate, appointed by the president of the senate.

(c) The chairman of the New Hampshire retirement system board of trustees, or designee.

(d) Two member representatives of group I of the retirement system, one appointed by the governor and one appointed by the speaker of the house of representatives.

(e) Two member representatives of group II of the retirement system, one appointed by the governor and one appointed by the president of the senate.

(f) Four employer representatives, with one of the 4 employer representative appointed by the New Hampshire Municipal Association, one appointed by the New Hampshire School Boards Association, one appointed by the New Hampshire Association of Counties, and one representing the state of New Hampshire, appointed by the governor.

(g) One public member with recognized expertise in finance, financial management, or the governance and oversight of large endowments or public funds, appointed by the governor.

(h) Two public members with recognized expertise in the design, administration, implementation and educational components of public sector and/or private sector defined contribution plans. One member to be appointed by the speaker of the house of representatives and one member to be appointed by the president of the senate.

III. Legislative members of the commission shall receive mileage at the legislative rate when attending to the duties of the commission.

IV. The commission shall:

(a) Study and make recommendations regarding a viable defined contribution plan to replace the current defined benefit plan for new hires. Such study shall include but not necessarily be limited to:

(1) Evaluation and comparison of defined contribution plans in place in other states, in the private sector, and in public and private sector higher education.

(2) Evaluation and comparison of mandatory and voluntary contribution requirements in defined contribution plans and the statistical outcomes for each in providing retirement benefits.

(3) Evaluation of the effect on retirement account balances and member retirement outcomes of allowing participant loans or hardships withdrawals.

(4) Evaluation of various investment management options for participants and the effect such options have on retirement outcomes.

(5) Evaluation of employer and employee education programs for administration and participation in defined contribution plans.

(6) Evaluation of a plan design with a fixed employer and employee contribution, but which provides a hybrid defined benefit and defined contribution member benefit.

(b) Provide a legislative history of the existing New Hampshire retirement system and the financial impact that major legislative decisions have had on the funding of the corpus of the plan.

(c) Analyze the current financial status of the retirement system and the challenges facing the system in the future.

(d) Study the impact on the investment returns and plan funding of closing the existing New Hampshire retirement system defined benefit plan, and compare and evaluate how other jurisdictions and/or the private sector have addressed these issues.

(e) Evaluate various methods for continued funding of the unfunded accrued liability of the existing New Hampshire retirement system, including but not limited to recent legislative proposals establishing a state administered defined contribution plan.

(f) Evaluate options for providing a cost of living increase for current New Hampshire retirement system plan participants and provide an analysis of the annual costs of the same for the amortization period of the system’s unfunded accrued liability.

(g) Study the issue of equity in contribution rates between employers and employees.

(h) Study other matters deemed necessary by the commission.

(i) Seek technical assistance as necessary from the New Hampshire retirement system and from other independent financial, investment, actuarial, and retirement experts. The commission may employ support staff for the purposes of its duties.

V. The commission shall elect a chairperson from among the members. The first meeting of the commission shall be called by the first-named senate member. The first meeting of the commission shall be held within 45 days of the effective date of this section.

VI. The commission 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 December 1, 2013.

2 Expenditures. The commission established in RSA 100-A:56-a as inserted by this act is authorized to accept and expend private sector grants, gifts, or donations of any kind for the purpose of the duties required in this act. Any moneys collected shall be continually appropriated to the commission for the purposes of this act.

3 Commission Repealed. RSA 100-A:56-a, relative to the commission on long-term viability, defined contribution plan, is repealed.

4 Effective Date.

I. Section 3 of this act shall take effect January 1, 2014.

II. The remainder of this act shall take effect upon its passage.

LBAO

12-2876

12/14/11

SB 229-FN - FISCAL NOTE

AN ACT establishing a commission to make recommendations on whether the New Hampshire retirement system should be replaced with a defined contribution plan for all new hires and to study the impact such change would have on the retirement system.

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.