Retirement System Changes

LFDA Editor

In Brief: 

  • At the end of 2015, the New Hampshire Retirement System (NHRS) reported an unfunded pension liability of $4.2 billion.
  • After a 2014 New Hampshire Supreme Court decision, state employees now contribute a larger percentage of their paychecks toward retirement.
  • Options for funding the liability include switching to a 401(k) style system or a cash balance plan, or waiting it out for economic recovery to take care of the problem.
  • Pro: Some argue that a 401(k) or cash balance plan would be cheaper than the current system.
  • Con: The NHRS actuary estimates that switching to a 401(k)-style plan could actually cost the state $1.2 billion.

Issue Facts: 

At the end of 2016, the New Hampshire Retirement System (NHRS) reported an unfunded pension liability of $5.1 billion. 

Three factors have contributed to the unfunded liability:

  • The 2008 fiscal crash;
  • A flawed funding methodology between 1991-2007 in which the NHRS faked low employer contribution rates;
  • Diversion "gain sharing" where roughly $900 million in investment returns went into a special account which funded non-pension benefits such as the cost-of-living adjustment instead of being redistributed into the main body of the pension system.

There are several options for addressing the unfunded liability in the New Hampshire Retirement System. 

Economic Recovery

First, the retirement system was designed to weather fluctuations in the economy, and as the economy improves the NHRS investments could rebound, eliminating the unfunded liability. According to the NHRS website, there is a plan in place to erase the unfunded liability by 2039.

In December 2014, the New Hampshire Supreme Court upheld the right of the state to increase public employees' contribution rates. Going forward, state employees will contribute a greater percentage of their paychecks toward their pensions.

Defined Contribution Plan

Second, the state could switch from a defined benefit system to a defined contribution system.  Under the current defined benefit plan, employees are guaranteed a yearly pension upon retirement.  A contribution system instead establishes 401(k)-style retirement accounts for employees.  Although many policymakers believe that a defined contribution system would be cheaper for the state than the current system, the New Hampshire Retirement System actuary estimates that switching to a 401(k)-style plan could actually cost the state $1.2 billion.

Cash-Balance Plan

Third, the state could switch to a "cash-balance" plan, which combines individual 401(k)-style accounts and pension guarantees.  Under a cash-balance plan, each year the employer contributes a set percentage of an employee's yearly pay, plus interest, to an individual account.  If the employee leaves the employer before retirement age, the employee may take the cash contents of the individual account with them.  If the employee stays until retirement age, the employee is guaranteed a set monthly pension payment.

Costs for Municipalities

The burden of retirement contributions on municipalities is another problem.  In recent years the recession has caused the New Hampshire Legislature to increase the amount local governments pay into the retirement system.  To handle those increasing costs, some local governments have allowed full-time employees to retire—at which point they start receiving their pensions—then rehired those same employees part time (up to 32 hours per week).  This strategy means the employer does not have to pay into the pension system anymore for that employee in a part-time position. 

Some stakeholders have called this retiring/re-hiring "gaming the system."  Local governments have argued that the practice is a natural consequence of the state downshifting retirement contributions.

In September 2014, the New Hampshire Supreme Court ruled that state pensioners cannot work more than 32 hours a week at a public job while at the same time collecting state pensions, but clarified that the hour limit includes working for one employer or multiple employers. This upheld the current law. The court did not rule on whether the limit is or is not constitutional.

LEGISLATIVE HISTORY

Signed by Governor

Requires the Decennial Retirement Commission to study the feasibility and cost of eliminating the reduction in a retiree's retirement allowance upon reaching the age of 65. The House amended the bill to add other duties to the Commission, such as reviewing the effects of retirees returning to work for government employers. The Senate amended the bill to establish a Bureau of Health and Benefits, a Bureau of Property, Casualty and Workers' Compensation, and a Bureau of Finance within the Department of Administrative Services.

In Committee

Requires the state to pay 15% of the retirement system contributions for group I teachers and group II (police and fire) members. The remaining 85% will be paid by the cities, towns, and counties that pay 100% of such contributions under current law.

Passed House

Requires the New Hampshire Retirement System (NHRS) to suspend a member's retirement allowance and assess a penalty on an employer for exceeding the limitations for part-time employment. This bill also requires retirement system employers to make contributions for certain full-time positions changed to part-time within one year of the full-time position becoming vacant.

Killed in the House

Extends the interest and dividends tax to capital gains and increases exemptions for the tax. This bill also adds a state contribution to retirement system costs for county and local employers.

Signed by Governor

Corrects the age for certain group II vested deferred state retirees to be eligible for retiree medical benefits. The bill changes the maximum age for certain children of state retirees to participate in the state retiree group medical insurance plan, to under age 25. The bill also clarifies the authority for judges and retired judges to participate in the state retiree group medical insurance plan.

In Committee

Establishes a cash balance pension plan for retirement system members who begin service with the state on or after July 1, 2017.

Killed in the House

Limits medical benefits through the New Hampshire Retirement System for spouses and new hires after July 1, 2017. The bill also requires the state to develop a defined contribution retiree health benefit plan.

In Committee

Requires a health care premium contribution for retired state employees and spouses receiving benefits who are eligible for Medicare Parts A and B due to age or disability.

Killed in the Senate

Requires that the state reimburses the Retirement System for the cost of analyzing any proposed bills.

In Committee

Grants a one-time $500 additional allowance to some retirees in the state retirement system if the person is retired with at least 20 years of creditable service; the person retired and has been receiving an allowance for at least 5 years prior to July 1, 2017; and the annual retirement allowance for the person is not greater than $30,000.

In Committee

Allows the New Hampshire Retirement System to revoke the benefits of a member if the member commits a crime related to the his or her public office or public employment for which the member resigned or was dismissed from employment.

Killed in the House

Requires the New Hampshire Retirement System to use the assumed rate of return of 7.75% when calculating employer contribution rates for the next two fiscal years. The current assumed rate of return is 7.25%.

Killed in the House

Requires a retired member of the retirement system who becomes part-time public employee to pay a fee to the retirement system.

Killed in the House

Forbids a retiree in the New Hampshire Retirement System from getting a part-time job with the same employer for which the retired member was employed at the time of retirement.

Killed in the House

This bill changes the retirement age for newer public employees to be the normal retirement age under the federal Social Security Act. The current state retirement ages varies from 60-65 years-old. The retirement age under the federal Social Security Act varies from 66-67.

In Committee

Modifies the calculation of average final compensation for retirement system members who commenced service on or after July 1, 2011 or who had not attained vested status prior to January 1, 2012 by including the highest five years of the members' service. At the time of this bill's submission, the highest five years of service are excluded from some calculations.

In Committee

Extends the period to correct the unfunded liability of the New Hampshire Retirement System (NHRS) from 30 to 40 years. According to the NHRS, in the short term there will be savings in employer rates, however extending the amortization period will result in additional employer payments of $4.1 billion over the additional ten years.

Signed by Governor

Requires that proposed changes to the state retiree group insurance plan have a hearing before the legislative fiscal committee.

Tabled in the House

Establishes a cash balance pension plan for state retirement system members.

Killed in the House

Increases the premium contribution for retired state employees and judges who have attained the age of 65 on or after July 1, 2016.

House Nonconcurred with the Senate

Increases the premium contribution for retired public employees and judges who have attained the age of 65 on or after July 1, 2016.

Killed in the House

Establishes a committee to study the rates of employer contributions in the retirement system.

Interim Study

Creates additional temporary supplemental allowances for retired members of the retirement system or their beneficiaries.

Signed by Governor

Requires the retirement system board of trustees to give employers notice and an opportunity to explain before assessing the penalty for failing to report required data to the retirement system.

Signed by Governor

Removes a reference in the law that permitted a portion of state procurement card rebates to be used to reduce the unfunded liability of the New Hampshire retirement system.

Interim Study

Requires premium contribution amounts for retiree health benefits for retired state employees who have attained the age of 65 on or after July 1, 2016, and makes an appropriation to the Department of Administrative Services for a health care consultant to design a long-term retiree health care funding plan.

Killed in the House

Removes some of the limits on hours for retired government employees working during emergencies. The NH Retirement System says this bill would have no fiscal impact on the retirement system.

Killed in the House

Establishes a committee to study alternative public employee retirement plans, such as cash balance plans.

Killed in the House

Establishes a statutory commission to study the creation of a state retirement security program for New Hampshire residents who do not have access to an employer-sponsored plan, and appropriates $100,000 for the study.

Interim Study

Establishes a defined contribution retirement plan for public employees. Beginning November 1, 2015, all new hires by employers participating in the retirement system shall be enrolled in the public employee defined contribution plan.

Killed in the House

Increases from 1,300 hours to 1,664 hours the annual hourly limit on retired members’ part-time employment, and removes the weekly 32-hour limit on part-time employment.

Signed by Governor

Permits a state retiree to terminate benefits to a former spouse in accordance with a divorce decree. This bill also allows a retired member of the retirement system to terminate the designation of a single, non-spouse beneficiary to receive an optional allowance.

Killed in the Senate

Establishes a commission to study post-retirement employment of New Hampshire retirement system retirees.

Interim Study

Establishes a cash balance pension plan for all New Hampshire retirement system members hired on and after July 1, 2015.

Signed by Governor

Authorizes the Department of Administrative Services to create a credit card affinity program in which fees are directed to offset the Retirement System's unfunded liability.

Killed in the House

Requires that the Retirement System take action to recover overpayments, and establishing a committee to study accidental overpayment.

Killed in the House

Creates a committee to study alternative public employee retirement plans.

Interim Study

The New Hampshire Retirement System decreases monthly benefits once a recipient reaches age 65 and is eligible for Social Security.  This bill would change that reduction from age 65 to whenever the recipient starts receiving Social Security checks, potentially after age 65. 

Killed in the House

Requires the New Hampshire Retirement System to stop benefits for any retiree that exceeds the legal limit of part-time hours with a government employer.

Killed in the Senate

Requires municipal, county, and school district officials to notify those receiving New Hampshire Retirement System benefits of the limit on the hours retirees are allowed to work (1,300 per year).

Killed in the House

Requires contribution rates for members in the retirement system and employers to be calculated by assigning one half of the biennial change in the retirement system liabilities to each.

Signed by Governor

Requires retirement system employers to report all compensation paid to retirees collecting pensions.  This bill also requires the retirement system to notify retirees of the annual limitations on hours for part-time employment with a public employer.

Vetoed by Governor

Makes various changes to the state retirement system, such as raising retirement ages and increasing member contributions.

Should NH government switch from a pension system to a 401(k)-style retirement plan?

FOR
REPRESENTATIVES

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UNDECIDED
REPRESENTATIVES

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AGAINST
REPRESENTATIVES

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Comments

Ananta Gopalan
- Hampton

Sat, 02/20/2010 - 9:01pm

Pew Center on States has published the status report on the pension system of the fifty states. New Hampshire rated as one of the worst with over $3B in unfunded liability, funding ratio at 58% and the state withdrawing its funding to 30% and 25% in the next two years.
It is a huge burden on the local taxpayers that hasn't come ashore yet.
Group II employees can retire after 20 years (amended to 25 for new employees) with retirement pay formula calculated at 125% of the base pay which can include O/T, sick pay and personal time off. It is based on 2.5% for every year of service.
There is no political will to reform the egregious system. The Retirement Board is managed by a select group of 14 with 8 of its members beneficiaries of the system. An attempt to amend that obvious conflict of interest went no where in the legislature last year.
How many of the citizens of the state enjoy such a lucrative pension, not to mention the most generous(Cadillac) health insurance plan, all guaranteed by the tax payers?
It is a system that reflects why we need organizations such as the Live Free or Die Alliance. The party politicians hand out the unsustainable benefits using the tax payer funds to the unions in return for their block votes. It is a corrupt system with regular people that work and save for their future retirement have no meaningful say in it.
You might hear lame excuses for the status as follows: The stock market losses put us in the bind and/or the employers (town taxpayers) haven't been contributing enough into the funds.
Both of those are bogus arguments to cover up the total mismanagement. The actuarial requirement had been set at 8.5% for pension annuity funding. In 1983, some politician wanting to get the votes, managed to pass a bill that siphoned off any excess return on investment over 9%. Guess what they did with the excess. They sweetened the benefits so that they could get the votes. If the excess had been left to accumulate, it would have taken care of the lean years such as the past one.
It is time to take back the state. The state government is for promotion of general welfare, not sweetheart deals to voting blocks at the expense of the rest.
The legislature must get rid of the benefit based pension system for new employees and institute a contribution based system, i.e. 401-K. The board must be totally independent with no employees benefiting from it on the board. The pension system must be the same as enjoyed by the average New Hampshire tax payer. Sunset the Cadillac health insurance largess.
We have got to get the legislature to concentrate on such vital issues instead of trying to legislate motor cycle helmets, smoking bans and the myriad of unwanted rules and regulations. It is really scary getting up from the bed in the morning not knowing you have already violated some state/local regulations or ordinances. That is not the lifestyle of people in the Live Free or Die state.

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Issue Status

The NHRS originally projected a return rate of 7.25 percent for fiscal year 2016, but the rate of return on the pension system's investments was just 1 percent.

There were several bills this session aimed at making changes to the NHRS. Those that succeeded included one that creates a committee to study the impact of re-hiring retired employees as part-timers, and another that made adjustments to eligilibity for retiree medical benefits.

Several other possible changes were held over in committee and could resurface next session. See Legislative History on this page for details. 

 

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