SB 0432

AN ACT relative to allowing political subdivision employees who are members of the retirement system to make payment for prior service with other retirement assets.

SPONSORS: Sen. Cohen, Dist 24; Sen. D'Allesandro, Dist 20; Rep. Cox, Rock 24; Rep. Langley, Rock 24

This bill allows a political subdivision employee who is a retirement system member, who has prior service with the political subdivision, and who has retirement assets in another federally tax-qualified retirement plan, to authorize the transfer of funds for the payment of the cost to receive credit for the member's prior service.

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

Matter which is either (a) all new or (b) repealed and reenacted appears in regular type.

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

1 New Section; Retirement System; Political Subdivisions; Prior Service Payment. Amend RSA 100-A by inserting after section 24 the following new section:

I. A member participating pursuant to RSA 100-A:20-22 who has prior service with a political subdivision and who has retirement assets in another federally tax-qualified retirement plan may authorize the transfer, on a pre-tax basis, of funds held on the members account to the retirement system for payment of the actuarially determined accrued liability contribution required for the member to receive credit for the member's qualifying prior service.

II. The executive director with the approval of the board of trustees may enter into agreements for the trustee-to-trustee transfer of such funds for payment of the member's liability.

III. The provisions of this section shall be subject to any restrictions or qualifications on the use of such funds pursuant to federal law or regulations adopted under the authority of the Economic Growth and Tax Relief Reconciliation Act of 2001.

IV. Prior service purchased under this section shall be group I creditable service for the purpose of eligibility for retirement, medical, and other benefits under RSA 100-A.

The System states this bill will allow employees who become members of the New Hampshire Retirement System (NHRS), pursuant to RSA 100-A:22, to purchase prior service (including eligibility for post-retirement medical benefits) by transferring assets on a pre-tax basis from another federally tax-qualified retirement plan to the NHRS. There is no cost to the System since the employee has to pay for the entire cost of the retirement benefit and post-retirement medical benefit for such prior service.

The IRS requires assets to provide retirement benefits and assets to provide the post-retirement medical subsidy to be accounted for separately. The assets transferred to the System will have to be segregated into the amount for the retirement benefit and the amount for the post-retirement subsidy, and subsequently accounted for separately. Ultimately, when the member who transfers assets retires, he or she will receive a taxable retirement benefit and a non-taxable post-retirement medical subsidy. The assets used to purchase the post-retirement medical subsidy would have been ultimately taxed if such assets had not been transferred to the NHRS. Because of the difference in the tax implications on the assets used to purchase the post-retirement medical subsidy, compliance with IRS rules should be assessed.

Based on RSA 100-A:28, members would only be allowed to purchase prior service with assets transferred from a tax-qualified plan that does not include amounts contributed by either the State or by any other employer to provide retirement benefits.

This bill does not specify the methodology to be used for the cost of the post-retirement medical subsidy. The methodology to determine the cost could be either an actuarial calculation of the accrued liability or an approximation of the accrued liability. The first methodology will minimize gains or losses to the NHRS, and would cost approximately $600 per calculation. The second methodology could be determined using an Excel spreadsheet which could be developed for a one-time charge of $30,000. In addition, the NHRS will have to be able to account for the purchase of the medical subsidy, and costs are estimated to be between $75,000 and $100,000. The System states the additional annual administrative costs for this bill is $20,000.

The Actuary's letter is on file in the bill jacket in the Senate Clerk's Office.