HB 0758

HB 758-FN – AS INTRODUCED

2007 SESSION

07-1082

10/09

HOUSE BILL 758-FN

AN ACT establishing a new state defined contribution retirement plan for new state employees and establishing a committee to study the transition of current employees into the new plan and administration of the new plan.

SPONSORS: Rep. Wendelboe, Belk 1; Rep. Itse, Rock 9; Rep. Kurk, Hills 7; Rep. Bettencourt, Rock 4

COMMITTEE: Executive Departments and Administration

ANALYSIS

This bill establishes a state retirement plan for new state employees which is structured as a defined contribution plan. All new employees of the state of New Hampshire after the effective of the bill will be required to be in the new retirement plan. The bill establishes a committee to study the transition of current and other employees into the plan and examine issues in the administration of the retirement 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Matter which is either (a) all new or (b) repealed and reenacted appears in regular type.

07-1082

10/09

STATE OF NEW HAMPSHIRE

In the Year of Our Lord Two Thousand Seven

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

1 New Subdivision; Retirement Contribution Plan. Amend RSA 100-A by inserting after section 55 the following new subdivision:

State Employees Retirement Contribution Plan

100-A:56 Definitions. In this subdivision:

I. “Board” means the benefits advisory board established in RSA 100-A:59.

II. “Member” means a person employed by the state who is required or chooses to participate in the plan established in this subdivision.

100-A:57 Retirement Plan Established. There is hereby established a retirement benefit plan for members required to be or voluntarily enrolled in the retirement system who began service as a state employee on or after January 1, 2008, and which is established pursuant to provisions of the United States Internal Revenue Code regulating tax-exempt governmental defined contribution retirement plans. All qualifying contributions shall be held and invested by the state treasurer. All such contributions and all investments, reinvestments, interest, or other moneys held by the treasurer shall not be assets of the retirement system administered by the board of trustees or subject to control of the board of trustees of the retirement system.

100-A:58 Membership. Any group I or group II member under RSA 100-A who is first employed, or reemployed after leaving service, and entered on the payroll on or after January 1, 2008 shall be a member of the retirement contribution plan established in this subdivision.

100-A:59 Benefits Advisory Board Established.

I. A retirement benefits advisory board is hereby established consisting of the following members:

(a) The state treasurer, who shall be a nonvoting member.

(b) The commissioner of administrative services or designee.

(d) The banking commissioner or designee.

(e) The director of the office of securities regulation, department of state.

(f) The attorney general or designee.

(g) Two members of the New Hampshire retirement system board of trustees, appointed by the board.

II. Four members shall constitute a quorum for the transaction of business and may act on behalf of the board.

100-A:60 Administration; Rulemaking.

I. The administration of the state employees retirement contribution plan shall be the state treasurer, who shall have the assistance and services of the commissioner of administrative services and the department of administrative services for all duties and responsibilities under this subdivision.

II. The state treasurer, with the advice of the board, shall adopt rules, pursuant to RSA 541-A, relative to the procedure for administration of the investment choices of members and beneficiaries, and forms necessary for the administration of this subdivision. The board of trustees of the retirement system shall not have the authority to adopt rules under RSA 100-A concerning implementation, operation, investment, or distribution under this subdivision.

100-A:61 Administration of Plan.

I. The state treasurer shall have the authority to contract with an administrator or custodian of retirement plans for the administration of assets accumulated under each employee participant’ s account.

II. The board shall provide advice to the state treasurer on the provision of investment options and services by an administrator under a plan contract.

100-A:62 Contributions by Member.

I. The member participating under this subdivision shall contribute the percentage of gross pay as follows:

(a) For group I members, 5 percent or more as permitted by the Internal Revenue Code and applicable regulations.

(b) For group II members, 9.3 percent or more as permitted by the Internal Revenue Code and applicable regulations.

II. A member who is a part-time employee and not eligible for a match of contributions may participate in the option under this chapter even if there is no right to employer contributions. The employee shall contribute the percentage of gross pay provided in paragraph I.

100-A:63 Contributions by State. Subject to applicable federal limitations, the state shall contribute the following sums as a 2 to one, member to employer, match against the contributions by the member:

I. For group I members, up to 2.5 percent of the member’ s gross pay.

II. For group II members, up to 4.65 percent of the member’ s gross pay.

100-A:64 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 subdivision according to the following schedule:

I. 20 percent of funds in an account after one year of continuous participation by a member.

II. 40 percent of funds in an account after 2 years of continuous participation by a member.

III. 60 percent of funds in an account after 3 years of continuous participation by a member.

IV. 80 percent of funds in an account after 4 years of continuous participation by a member.

V. 100 percent of funds in an account after 5 years of continuous participation by a member.

100-A:65 Withdrawal of Funds. Distributions from an account of a member shall be permitted in the following circumstances, subject to applicable limitations under federal regulations:

I. Termination of employment.

II. Retirement.

III. Upon turning age 59 ½ and still employed as limited by federal regulations.

IV. If the member becomes disabled.

V. If the member dies.

VI. Based on financial hardship as defined in applicable federal regulations.

100-A:66 Health Insurance Group Insurance Inclusion. Any retired group I or group II state employee members shall be eligible to participate in the group hospitalization, hospital medical care, surgical care, and other medical and surgical benefits provided under RSA 100-A:50 through RSA 100-A:55.

2 Participation by Members; State Employees. 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 working in a position for an employer under this chapter as determined by common law standards, except for state employees who begin service on or after January 1, 2008, shall become a member of the defined benefit retirement system as a condition of employment; except that membership shall be optional in the case of elected officials, officials appointed for fixed terms, unclassified state employees, or those employees of the general court who are eligible for membership in the retirement system. State employees beginning service on or after January 1, 2008 shall as a condition of employment participate in the retirement contribution plan under RSA 100-A:56 through RSA 100-A:66. Elected officials and officials appointed for fixed terms shall, however, be eligible for membership in the retirement system only under the following conditions:

3 Committee Established. There is established a committee to study the administration and expansion of the retirement contribution plan for new state employees.

4 Membership and Compensation.

I. The members of the committee shall be as follows:

(a) Four members of the house of representatives, appointed by the speaker of the house of representatives.

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

II. Members of the committee shall receive mileage at the legislative rate when attending to the duties of the committee.

5 Duties. The committee shall study the retirement contribution plan established in section 1 of this act as RSA 100-A:56 through RSA 100-A:66 and look at options for the inclusion of other classes of employees, procedures for the transition from the defined benefit plan to a defined contribution plan, buyout options including tax consequences, issues related to vesting, and any other matters deemed relevant by the committee

6 Chairperson; Quorum. The members of the study committee shall elect a chairperson from among the members. The first meeting of the committee shall be called by the first-named house member. The first meeting of the committee shall be held within 45 days of the effective date of this section. Four members of the committee shall constitute a quorum.

7 Report. The committee 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 November 1, 2007.

8 Effective Date.

I. Sections 3-7 of this act shall take effect upon its passage.

II. The remainder of this act shall take effect January 1, 2008.

LBAO

07-1082

01/30/07

HB 758-FN - FISCAL NOTE

FISCAL IMPACT:

The New Hampshire Retirement System states this bill may increase state, county, and local expenditures by an indeterminable amount in FY 2008 and each year thereafter. This bill will have no fiscal impact on state, county, and local revenue.

METHODOLOGY:

The New Hampshire Retirement System states this bill establishes a defined contribution plan for new state employee hires and establishes a committee to study the transition of current employees into the new plan and administration of the new plan. Employees participating in the defined contribution plan would be required to contribute at least 5 percent of gross pay for Group I members, and at least 9.3 percent of gross pay for Group II members. Employers would be required to contribute 2.5 percent of a member’s gross pay on behalf of Group I members, and 4.65 percent of a member’s gross pay on behalf of Group II members. The System states that as of June 30, 2005, there were 51,031 active members, with 12,572 members employed by the state.

Total Covered State Covered

Members Payroll Members Payroll

Group I –

Employees 26,395 $879,398,187 11,050 $399,771,193

Teachers 18,464 $851,617,810 13 $ 626,402

Group II -

Police 4,573 $221,456,362 1,439 $ 63,745,688

Fire 1,599 $91,029,434 70 $ 3,004,056

Total 51,031 $2,043,501,793 12,572 $467,147,339

Employer contributions under the defined contribution plan would be lower than employer contributions under the current plan, which in itself would reduce employer costs. The System’s actuary did not estimate the difference in employer costs on behalf of new hires.

LBAO

07-1082

01/30/07

However, the System’s actuary did state that if the proposal is adopted and the defined benefit plan is closed to new state employees, although overall plan costs will not change for the current members of the plan, the timing of contributions will necessarily shorten, causing contribution rates to increase. For the purposes of estimating a fiscal impact, the System’s actuary assumed there would be no change to the funding method and experience rating of the various groups which would also increase county and local contribution rates as a result of the state moving to a defined contribution plan. Statutory changes beyond what is contained in the proposed bill would need to be made in order to insulate the state’s actions from county and local contribution rates. Assuming wage inflation at 5.5 percent per year and the rate of return on investments is 8.5 percent, the estimated fiscal impact is as follows:

Additional Employer Contributions

(Dollar Cost in Millions)

Retirement Group As % of Pay Dollar Cost

Employees 1.61% $14.2

Police 2.61% $ 5.8

Fire 0.37% $ 0.3

Total $20.3

The System’s actuary further states that transition costs, administrative costs, benefit adequacy, death and disability benefits, annuitization of defined contribution accounts, payment of COLAs to members participating in the defined contribution plan, determination of special accounts, participation in and contributions to the 401(h) medical sub-trust on behalf of defined contribution participants, vendor selection, and communications need to be considered if the plan structure is to change. The exact fiscal impact cannot be determined at this time.