HB 631-FN - AS INTRODUCED
2017 SESSION
17-0648
10/03
HOUSE BILL 631-FN
AN ACT establishing a cash balance pension plan for new hires and non-vested employees.
SPONSORS: Rep. Kurk, Hills. 2; Rep. Byron, Hills. 20; Rep. McGuire, Merr. 29; Rep. Ohm, Hills. 36; Rep. Azarian, Rock. 8; Rep. Seidel, Hills. 28; Sen. Giuda, Dist 2; Sen. Reagan, Dist 17
COMMITTEE: Executive Departments and Administration
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This bill establishes a cash balance pension plan for retirement system members who begin service with the state on or after July 1, 2017. Teachers, policemen, firemen, and political subdivision employee members of a non-state employer hired on or after July 1, 2017 are cash balance plan members if their employer elects to have their members participate in the cash balance 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Matter which is either (a) all new or (b) repealed and reenacted appears in regular type.
17-0648
10/03
STATE OF NEW HAMPSHIRE
In the Year of Our Lord Two Thousand Seventeen
AN ACT establishing a cash balance pension plan for new hires and non-vested employees.
Be it Enacted by the Senate and House of Representatives in General Court convened:
1 New Paragraph; Definition; Cash Balance Plan. Amend RSA 100-A:1 by inserting after paragraph I the following new paragraph:
I-a. "Cash balance plan" means the retirement plan established in RSA 100-A:58 through RSA 100-A:70 administered by the board of trustees for persons who begin service on and after July 1, 2017, and who are required to participate as a condition of employment under RSA 100-A:3, I-b or I-c.
2 New Paragraphs; Membership; Cash Balance Plan. Amend RSA 100-A:3 by inserting after paragraph I-a the following new paragraphs:
I-b. Any person who begins service on or after July 1, 2017 with the state or any department, commission, institution, or agency of the state government by which an employee is paid through the office of the state treasurer with respect to their employees, as an employee, teacher, permanent policeman, or permanent fireman, shall as a condition of employment participate in the cash balance plan of the retirement system established under RSA 100-A:58 through RSA 100-A:70.
I-c. Any political subdivision employee, teacher, permanent policeman, or permanent fireman, of a non-state employer, working in a full-time position for such employer as determined by common law standards, where the employer has made a separate election under the provisions of RSA 100-A:25-a to have its employees, teachers, policemen, and firemen participate in the cash balance plan, and who begins service on or after July 1, 2017 and after the effective date of such election, shall as a condition of employment participate in the cash balance plan of the retirement system established under RSA 100-A:58 through RSA 100-A:70.
3 Method of Financing; Member Annuity Savings Fund. Amend RSA 100-A:16, I(d) to read as follows:
(d) The accumulated contributions of a member withdrawn by the member, or paid to his or her estate or designated beneficiary in event of his or her death in service, shall be paid from the member annuity savings fund. Except as provided for members of the cash balance plan, upon the retirement of a member, his or her accumulated contributions shall be transferred from the member annuity savings fund to the state annuity accumulation fund. All employee contribution credits under the cash balance plan shall be held in the member annuity savings fund and accounted for separately, and paid out, as provided in the cash balance plan.
4 Method of Financing; State Annuity Accumulation Fund. Amend RSA 100-A:16, II(a) to read as follows:
(a) The state annuity accumulation fund shall be the fund in which shall be accumulated all reserves for the payment of all state annuities payable from contributions made by employers, any amounts transferred thereto from a similar fund under one or more of the predecessor systems, and amounts transferred from the member annuity savings fund, and from which shall be paid all benefits payable under the system other than those payable from the member annuity savings fund. All employer contribution credits under the cash balance plan, less any amounts attributed to disability and death benefit costs, shall be held in the state annuity accumulation fund and accounted for separately, and paid out, as provided in the cash balance plan.
5 New Section; Local Election; Cash Balance Plan Participation. Amend RSA 100-A by inserting after section 25 the following new section:
100-A:25-a Local Election; Cash Balance Plan Participation.
I. An employer under this chapter, other than the state, may elect under paragraph II to have all of the teachers, permanent policemen, and permanent firemen of such employer, as well as the political subdivision employees participating under RSA 100-A:20 through RSA 100-A:25, who begin service after the effective date of such election, participate in the cash balance plan of the New Hampshire retirement system as a condition of employment.
II. The governing body of any county, city, town, school district, school administrative unit, or other political subdivision of the state may, by resolution legally adopted, in a form approved by the board of trustees, elect to have its teachers, permanent policemen, permanent firemen, and officers and employees, who begin service on and after the effective date of election, participate in the cash balance plan of the retirement system. The governing body shall certify to the board of trustees the date when the participation of its employees shall become effective.
III. Upon certification of the election by an employer under paragraph II to the retirement system board of trustees, the election shall be irrevocable as of the effective date of the election, unless the board of trustees adopts a process for rescinding an employer's election and reverting to the defined benefit plan.
IV. The non-election by an employer under paragraph II to have its teachers, permanent policemen, permanent firemen, and officers and employees participate in the cash balance plan shall result in such teachers, permanent policemen, permanent firemen, and officers and employees participating in the defined benefit plan of this chapter.
6 New Subdivision; Retirement System; Cash Balance Plan. Amend RSA 100-A by inserting after section 57 the following new subdivision:
Cash Balance Plan
100-A:58 Definitions. In addition to the definitions under RSA 100-A:1, the following words and phrases as used in this subdivision, unless a different meaning is plainly required by the context, shall have the following meanings:
I. “Annuity start date” means the date upon which a member’s annuity is first effective and shall be the first day of the month following the member’s termination or following the date the application is received by the board, whichever is later.
II. “Cash balance benefit” means a member’s retirement benefit that is equal to an amount based on annual employee contribution credits plus interest credits and, if vested, employer contribution credits plus interest credits, and any dividend amounts credited in accordance with RSA 100-A:65.
III. “Employee contribution credit” means an amount equal to the member contribution amount required by RSA 100-A:60.
IV. “Employer contribution credit” means an amount equal to the employer contribution amount required by RSA 100-A:61, I.
V. “Final account value” means the value of a member’s account on the date the account is either distributed to the member or used to purchase an annuity from the plan.
VI. “Interest credit rate” means the greater of (a) 5 percent or (b) the applicable federal mid-term rate, as published by the Internal Revenue Service as of the first day of the calendar quarter for which interest credits are credited, plus 1-1/2 percent, such rate to be compounded annually, provided no interest credit rate shall exceed 10 percent.
VII. “Interest credits” means the amounts credited to the employee cash balance account and the employer cash balance account quarterly. Such interest credits shall continue to be credited to the employee cash balance account and the employer cash balance account after a member ceases to be an employee, except that no such credit shall be made with respect to the employee cash balance account and the employer cash balance account for any period beginning on or after the member’s date of final account value. If benefits payable to the member’s surviving spouse or beneficiary are delayed after the member’s death, interest credits shall continue to be credited to the employee cash balance account and the employer cash balance account until such surviving spouse or beneficiary commences receipt of a distribution from the plan.
VIII. “Member cash balance account” means an account equal to the sum of the employee cash balance account and, if vested, the employer cash balance account, and any dividend amounts credited in accordance with RSA 100-A:65.
100-A:59 Board of Trustees; Powers and Duties.
I. The general administration of the cash balance plan in the retirement system shall be vested in the board of trustees. The board shall adopt rules to carry out the cash balance plan established in this subdivision. The board shall maintain records and may employ any assistants as may be necessary to carry out this subdivision. Where applicable the board shall incorporate administration of the retirement system with its administration of the cash balance plan, provided that if a conflict exists, or where specifically provided in this subdivision, the requirements of this subdivision shall control.
II. The board of trustees shall not permit loans or advances to members from cash balance plan accounts. A member may not make voluntary contributions to the cash balance plan.
III. In order to carry out the provisions of this subdivision, the board may enter into administrative services agreements for accounting or record keeping services. No agreement shall be entered into unless the board determines that it will result in administrative economy and will be in the best interests of the retirement system and its members and beneficiaries. The board may develop a schedule for the allocation of the administrative services agreements costs for accounting or record keeping services and may assess the costs so that each member pays a reasonable fee as determined by the board.
100-A:60 Contributions of Members. Each member of the cash balance plan in the retirement system shall have deducted from compensation, by procedures provided in RSA 100-A:16, contributions equal to member rates under RSA 100-A:16, I(a), and separately accounted for as employee contribution credits.
100-A:61 Employer Contributions. Contribution amounts paid to the retirement system and appropriated by employers shall be equal to the following percentages of earnable compensation of members:
I. The normal contribution rate percent determined in RSA 100-A:16, II, which shall be separately accounted for as employer contribution credits on account of the member.
II. The employer rate percent of unfunded accrued liability determined under RSA 100-A:16, II(e).
III. The medical benefits contribution rate percent required of employers under RSA 100-A:52 through RSA 100-A:55.
100-A:62 Cash Balance Accounts.
I. The employee cash balance account within the cash balance retirement fund shall, at any time, be equal to the following:
(a) Employee contribution credits deposited in accordance with RSA 100-A:60; plus
(b) Interest credits credited in accordance with RSA 100-A:58, VII; plus
(c) Dividend amounts credited in accordance with RSA 100-A:65.
II. The employer cash balance account within the cash balance retirement fund shall, at any time, be equal to the following:
(a) Employer contribution credits deposited in accordance with RSA 100-A:61, I; plus
(b) Interest credits credited in accordance with RSA 100-A:58, VII; plus
(c) Dividend amounts credited in accordance with RSA 100-A:65.
100-A:63 Application for Benefits.
I. A member of the cash balance plan may file an application for benefits with the board for service retirement pursuant to the procedures provided in RSA 100-A:5, I(a) for group I members or RSA 100-A:5, II(a) for group II members.
II. The member shall specify in the application for benefits the manner in which he or she wishes to receive the retirement benefit, including the election of an optional allowance in accordance with RSA 100-A:13, III and an optional 2-½ percent cost-of-living adjustment purchased by the member. Payment under the application for benefits shall be made (a) for annuities, no sooner than the annuity start date, and (b) for other distributions, no sooner than the date of final account value.
III. Payment of any benefit provided under the cash balance plan in the retirement system may not be deferred later than April 1 of the year following the year in which the employee has both attained at least age 70-½ years and terminated his or her employment with the employer.
100-A:64 Retirement Benefits; Deferral.
I. The retirement value for any employee who retires under the provisions of RSA 100-A:63 shall be the benefit provided by the total member cash balance account as of the date of final account value.
II.(a) The normal form of payment of retirement benefits shall be a single life annuity which is an annuity payable monthly during the remainder of the member’s life or as provided in the options elected under RSA 100-A:63, II. Such annuity shall be equal to the actuarial equivalent of the member cash balance account as of the date of final account value using the interest rate used in the actuarial valuation as recommended by the actuary and approved by the board.
(b) A member may elect a lump-sum distribution of up to 50 percent of his or her member cash balance account as of the date of final account value upon termination of service or retirement. The balance of his or her member cash balance account as of the date of final account value shall be converted to an annuity as provided in subparagraph (a).
III. At the option of the retiring member, any annuity provided under this section may be deferred to commence at any time, except that no benefit shall be deferred later than April 1 of the year following the year in which the employee has both attained at least 70-½ years of age and has terminated his or her employment with the employer. Such election by the retiring member may be made at any time prior to the commencement of the annuity payments.
100-A:65 Dividends. The board of trustees may authorize a dividend to be paid as follows:
I. For the fiscal year beginning July 1, 2017, and each fiscal year thereafter, the actuary for the board shall perform a separate actuarial valuation of the cash balance plan using the entry age actuarial cost method.
II. If the actuarial funded ratio of the cash balance plan is determined to be 100 percent or greater, both before and after the payment of a dividend, then on the basis of all data in the possession of the board, including such mortality and other tables as are recommended by the actuary and adopted by the retirement board, the retirement board may elect to pay a dividend to all members participating in the cash balance plan in an amount that would not increase the actuarial contribution rate above 90 percent of the actual contribution rate. Dividends shall be credited to the employee cash balance account and the employer cash balance account based on the account balances on the actuarial valuation date. In the event a dividend is granted and paid after the actuarial valuation date, interest for the period from the actuarial valuation date until the dividend is actually paid shall be paid on the dividend amount. The interest rate shall be the interest credit rate earned on regular contributions.
III. A dividend shall not be paid if the interest credit rate exceeds the board of trustees' approved assumed rate of return for the calendar year. A dividend shall not be recommended under paragraph II if the dividend rate plus the annual interest credits for the year exceeds 8 percent, unless a 2/3 vote of the board authorizes the dividend.
IV. The board of trustees may only authorize a dividend to be paid if the total interest credits plus dividends paid to members in the previous 4 consecutive years plus the amount recommended for the current year is less than 66-2/3 percent of the total net cumulative financial return of the cash balance plan's investment portfolio over those same 5 years.
100-A:66 Termination of Employment; Vesting; Deferment of Benefits.
I. Upon termination of employment before becoming eligible for service retirement under RSA 100-A:63, a member may, upon application to the board, receive:
(a) If not vested, a termination benefit equal to the amount in his or her member cash balance account as of the date of final account value payable in a lump sum or an annuity with the lump-sum or first annuity payment made at any time after termination but no later than April 1 of the year following the year in which the member attains the age of 70-1/2 years.
(b) If vested, a termination benefit equal to the amount of his or her member cash balance account as of the date of final account value payable in an annuity with up to 50 percent in lump-sum with the lump sum and first annuity payment made at any time after termination but no later than April 1 of the year following the year in which the member attains the age 70-1/2 years.
II. The member cash balance account of a terminating member shall be retained by the board, and the termination benefit shall be deferred until a valid application for benefits has been received.
III. Members of the retirement system shall be vested after a total of 5 years of participation in the system as a member of the cash balance plan. If a member retires pursuant to RSA 100-A:63, such an employee shall be fully vested in the retirement system.
100-A:67 Accounts Forfeited. For a member who has terminated employment and is not vested, the balance of the member’s employer cash balance account shall be forfeited. The forfeited account shall be credited to the state annuity accumulation fund.
100-A:68 Reemployment.
I.(a) A member who ceases active service before becoming eligible for retirement under RSA 100-A:63 and again becomes a full-time employee, teacher, permanent policeman, or permanent fireman shall immediately be reenrolled in the cash balance plan and resume making contributions. For purposes of vesting employer contributions made prior to and after reentry into the retirement system, years of participation include years of participation prior to such employee’s original termination. For a member who is not vested and has received a termination benefit pursuant to RSA 100-A:66, the years of participation prior to such employee’s original termination shall be limited in a ratio equal to the amount that the member repays divided by the termination benefit withdrawn pursuant to RSA 100-A:66.
(b) The reemployed member may repay the value of, or a portion of the value of, the termination benefit withdrawn pursuant to RSA 100-A:66. A reemployed member who elects to repay all or a portion of the value of the termination benefit withdrawn pursuant to RSA 100-A:66 shall repay the actual earnings on such value. Repayment of the termination benefit shall commence within 3 years after reemployment and shall be completed within 5 years after reemployment or prior to termination of employment, whichever occurs first, through (i) direct payments to the retirement system, (ii) installment payments made pursuant to a binding irrevocable payroll deduction authorization made by the member, (iii) an eligible rollover distribution as provided under the Internal Revenue Code, or (iv) a direct rollover distribution made in accordance with section 401(a)(31) of the Internal Revenue Code.
(c) The value of the member’s forfeited employer account or employer cash balance account, as of the date of forfeiture, shall be restored in a ratio equal to the amount of the benefit that the member has repaid divided by the termination benefit received.
II. For a cash balance plan member who retired pursuant to RSA 100-A:64 and becomes a full-time employee, teacher, permanent policeman, or permanent fireman subject to employee and employer contributions under this subdivision, the member shall continue receiving retirement benefits. Such a retired member shall be considered a new employee as of the date of reemployment and shall not receive credit for any service prior to the member’s retirement for purposes of the this subdivision.
100-A:69 Disability Benefits; Death Benefits.
I. A member of the cash balance plan shall be entitled to qualify and receive benefits for ordinary and accidental disability as provided in RSA 100-A:6.
II. A member of the cash balance plan shall be entitled to qualify and receive benefits for accidental or ordinary death as provided in RSA 100-A:8 and RSA 100-A:9, respectively.
100-A:70 Qualified Military Service Credit. Any member of the cash balance plan who terminated his or her employment in order to enter directly into the armed forces of the United States or other qualified military service within the meaning of section 414(u)(5) of the United States Internal Revenue Code of 1986, as amended, shall be entitled to employee and employer contribution credits, excluding interest credits and dividends as determined by the retirement system, for the period of such qualified military service, provided he or she again becomes employed within a year after the termination of such service, unless he or she is prevented from such reemployment by virtue of disability incurred during the period of such qualified military service, and provided further that he or she elects to make, and makes within a period of time equal to 3 times the length of time of such service, but not more than 5 years, all payments excluding interest credits and dividends to the system he or she would have been required to make had he or she been so employed during the period of such qualified military service. Contribution credits shall be applied as qualified military service credit only after all such payments have been completed to the satisfaction of the board. Interest credits and dividends shall accrue to balances after the completion of such payments.
7 Effective Date. This act shall take effect July 1, 2017.
17-0648
Revised 1/31/17
HB 631-FN- FISCAL NOTE
AS INTRODUCED
AN ACT establishing a cash balance pension plan for new hires and non-vested employees.
FISCAL IMPACT: [ X ] State [ X ] County [ X ] Local [ ] None
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| Estimated Increase / (Decrease) | |||
STATE: | FY 2018 | FY 2019 | FY 2020 | FY 2021 |
Appropriation | $0 | $0 | $0 | $0 |
Revenue | $0 | $0 | $0 | $0 |
Expenditures | Indeterminable | Indeterminable | Indeterminable | Indeterminable |
Funding Source: | [ X ] General [ X ] Education [ X ] Highway [ X ] Other | |||
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POLITICAL SUBDIVISIONS: |
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Revenue | $0 | $0 | $0 | $0 |
Expenditures | Indeterminable | Indeterminable | Indeterminable | Indeterminable |
*The New Hampshire Retirement System states it is not able to separate the fiscal impact of this legislation between county and local government, therefore the fiscal impact is shown together as political subdivisions.
METHODOLOGY:
This bill establishes a cash balance pension plan for retirement system members who begin service with the state on or after July 1, 2017. Teachers, policemen, firemen and political subdivision employee members of a non-state employer hired on or after July 1, 2017 are cash balance plan members if their employer elects to have their members participate in the cash balance plan. The New Hampshire Retirement System indicates that expenditures are indeterminable because political subdivisions are not required to participate in the cash balance plan. The System’s consulting actuary determined the following changes to the FY 2018-FY 2021 employer contributions using an assumed rate of interest of 7.25% and assumed rate of wage inflation of 3.25% (3.00% for teachers).
State Estimated Employer Increase/(Decrease) | ||||
| FY 2018 | FY 2019 | FY 2020 | FY 2021 |
Employees | ($669,405) | ($1,252,654) | ($1,804,034) | ($2,342,368) |
Police | ($79,706) | ($156,359) | ($232,516) | ($310,431) |
Fire | ($912) | ($1,865) | ($2,870) | ($3,937) |
State Total | ($750,023) | ($1,410,878) | ($2,039,420) | ($2,656,736) |
Two scenarios are presented for political subdivisions to provide a range of fiscal impacts because political subdivision employers must elect to participate in the cash balance plan. The System is unable to break out the costs attributable to political subdivisions into the county and local shares.
Political Subdivisions Estimated Employer Increase/(Decrease) | ||||
100% Scenario | FY 2018 | FY 2019 | FY 2020 | FY 2021 |
Employees | ($787,598) | ($1,473,827) | ($2,122,560) | ($2,755,944) |
Teachers | ($1,100,557) | ($2,128,599) | ($3,129,343) | ($4,114,063) |
Police | ($218,760) | ($429,137) | ($638,156) | ($852,000) |
Fire | ($27,570) | ($56,362) | ($86,717) | ($118,967) |
Political Subdivisions Total | ($2,134,485) | ($4,087,925) | ($5,976,776) | ($7,840,974) |
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0% Scenario | FY 2018 | FY 2019 | FY 2020 | FY 2021 |
Employees | $0 | $0 | $0 | $0 |
Teachers | $0 | $0 | $0 | $0 |
Police | $0 | $0 | $0 | $0 |
Fire | $0 | $0 | $0 | $0 |
Political Subdivisions Total | $0 | $0 | $0 | $0 |
The System’s costs to implement and administer the cash balance plan are indeterminable. The cost to make change to the System’s database software is estimated to be $150,000. This is a preliminary estimate and detailed specification will need to be developed and an assessment made with regard to how the cash balance provisions integrate with the existing defined benefit plan. Depending on the complexity of the system design and development issues, implementation might require multiple phases to obtain the detail requirement and clarification of all the data requirements. The time required for this system development could also impact the ability of the system to implement the cash balance plan for newly hired employees within the timeframes specified in the bill. The System may require administrative services agreements for accounting or recordkeeping in order to carry out the provisions of the bill and those administrative costs are indeterminable at this time.
The Department of Administrative Services states that administrative costs would be the same as currently experienced and any increased costs due to work task changes would be absorbed by the current budget. Any changes to the current model required by the Retirement System which may affect member employers has not yet been determined, thus the overall incremental cost to the State is indeterminable.
The New Hampshire Association of Counties is unable to determine the specific fiscal impact at this time.
The New Hampshire Municipal Association states that the employer cost of participation in the cash balance plan would be the same as the cost of participating in the current defined benefit pension plan. Since the cost of benefits provided by a cash balance plan require an actuarial analysis of the likely participants, the Association is unable to determine the extent by which establishing a cash balance pension plan would change employer costs for FY 2018-FY 2021.
AGENCIES CONTACTED:
New Hampshire Retirement System, New Hampshire Association of Counties, New Hampshire Municipal Association, and Department of Administrative Services
| Date | Body | Type |
|---|---|---|
| Feb. 1, 2017 | House | Hearing |
| Feb. 8, 2017 | House | Exec Session |
| Nov. 1, 2017 | House | Exec Session |
Jan. 3, 2018: Refer for Interim Study: MA VV 01/03/2018 HJ 1 P. 65
Jan. 3, 2018: Lay HB 631 on Table (Rep. Proulx): MF DV 158-182 01/03/2018 HJ 1 P. 65
Jan. 3, 2018: Committee Report: Refer for Interim Study for 01/03/2018 (Vote 11-6; RC)
Nov. 1, 2017: Executive Session: 11/01/2017 10:30 AM LOB 306
Sept. 14, 2017: Retained Bill Subcommittee Work Session: 09/14/2017 09:00 AM LOB 307
Aug. 24, 2017: ==CANCELLED== Retained Bill Subcommittee Work Session: 08/24/2017 09:00 AM LOB 306
Aug. 22, 2017: Retained Bill Full Committee Work Session: 08/22/2017 10:00 AM LOB 306
: Retained in Committee
Feb. 8, 2017: Executive Session: 02/08/2017 10:30 AM LOB 306
Feb. 1, 2017: Public Hearing: 02/01/2017 11:15 AM LOB 306
Jan. 5, 2017: Introduced 01/05/2017 and referred to Executive Departments and Administration HJ 3 P. 22