HB 629-FN-LOCAL - AS INTRODUCED

2019 SESSION

19-0709

10/08

HOUSE BILL 629-FN-LOCAL

AN ACT establishing a state defined contribution retirement plan for state and political subdivision members of the retirement system.

SPONSORS: Rep. McGuire, Merr. 29

COMMITTEE: Executive Departments and Administration

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ANALYSIS

This bill establishes a state retirement plan for new members of the retirement system, who begin service on or after July 1, 2019, which is structured as a defined contribution plan.  All new group I and group II members of the retirement system employed by the state and political subdivision employers on and after July 1, 2019 will be required to contribute to the defined contribution plan as administered by the state treasurer and the department of administrative services.

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Matter which is either (a) all new or (b) repealed and reenacted appears in regular type.

19-0709

10/08

STATE OF NEW HAMPSHIRE

In the Year of Our Lord Two Thousand Nineteen

AN ACT establishing a state defined contribution retirement plan for state and political subdivision members of the retirement system.

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

1  Participation by Members; Retirement System; Defined Contribution Plan.  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] before July 1, 2019, working in a position for an employer under this chapter as determined by common law standards, shall become a member of the defined benefit retirement system as a condition of employment.  In addition, employees appointed to an unclassified position with no fixed term on or after July 1, 2011 and before July 1, 2019 shall become members of the defined benefit retirement system as a condition of employment, if they are receiving benefits from the retirement system.  Any retirement benefit allowance collected by such an unclassified employee shall be suspended during the period of employment.  Membership in the retirement system shall be optional in the case of elected officials, officials appointed for fixed terms, employees appointed to an unclassified position with no fixed term prior to July 1, 2011, or those employees of the general court who are eligible for membership in the retirement system.  Employees, teachers, permanent policemen, and permanent firemen beginning service on or after July 1, 2019 shall as a condition of employment participate in the retirement system defined contribution plan established under RSA 100-A:58 through RSA 100-A:69. Elected officials and officials appointed for fixed terms shall, however, be eligible for membership in the retirement system only under the following conditions:

2  New Subdivision; Retirement System Defined Contribution Plan.  Amend RSA 100-A by inserting after section 57 the following new subdivision:

Retirement System Defined Contribution Plan

100-A:58  Definitions.  In this subdivision:

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

II.  “Plan” means the retirement system defined contribution plan established for members who began service on and after July 1, 2019, and who transfer funds to the defined contribution plan pursuant to procedures adopted by the state treasurer with the advice of the committee.  The defined contribution retirement plan is a plan in which savings are accumulated in an individual account for the exclusive benefit of the member or beneficiaries.  The plan is established effective July 1, 2019, at which time contributions by members begin.

100-A:59  Defined Contribution Plan Established.  There is hereby established a retirement benefit plan for members required to or who voluntarily elect to enroll in the retirement system, who began service on or after July 1, 2019.  The defined contribution retirement plan is intended to qualify under 26 U.S.C. section 401(a) and section 414(d), the Internal Revenue Code, as a qualified retirement plan established and maintained by the state for its employees and for the employees of political subdivision employers in the state.  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.  All assets received by the plan shall be held for the exclusive benefit of plan participants and their beneficiaries and applied solely as provided by the plan.

100-A:60  Membership.  Any person who is first employed, or reemployed after leaving service, by an employer and entered on the payroll on a full-time or eligible part-time basis on or after July 1, 2019 shall be a member of the retirement system defined contribution plan established in this subdivision; 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.

100-A:61  Administration; Rulemaking.

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

II.  The state treasurer shall adopt rules, pursuant to RSA 541-A, relative to the procedure for administration of the investment options of members and beneficiaries, and forms necessary for the administration of this subdivision.

100-A:62  Administration of Plan.  The state treasurer may contract with a third-party administrator for the retirement system defined contribution plan for the administration of assets accumulated under each participant’s account.

100-A:63  Contributions by Member.  The member participating under this subdivision shall contribute at a minimum the percentage of earnable compensation as follows:

I.  For group I members, 5 percent.

II.  For group II members, 9.3 percent.

100-A:64  Limitations on Contributions.  Notwithstanding any other provisions of this plan, the annual additions to each member’s individual account under this plan may not exceed, for any limitation year, the amount permitted under 26 U.S.C. section 415 at any time.  If the amount of a member’s defined contribution plan contributions exceeds the limitation of 26 U.S.C. section 415(c) for any limitation year, the administrator shall take any necessary remedial action to correct an excess contribution.

100-A:65  Investment of Individual Accounts.

I.  The administrator shall provide a range of investment options and permit a participant to exercise investment control over the participant’s assets in the member’s individual account as provided in this section.  If a participant exercises control over the assets in the individual account, the participant is not considered a fiduciary for any reason on the basis of exercising that control.

II.  A participant may direct investment of plan funds held in an account among available investment funds in accordance with rules established by the administrator.

III.  A participant may elect to change or transfer all or a portion of the participant’s existing account balance among available investment funds not more often than once each month in accordance with the rules established by the administrator.  Only the last election received by the administrator before the transmittal of contributions to the trust fund for allocation to the individual account will be used to direct the investment of the contributions received.

IV.  Except to the extent clearly set out in the terms of the investment plans offered by the employer to the employee, the employer is not liable to the participant for investment losses if the prudent investment standard has been met.

V.  The employer, administrator, state, or board, or a person or entity who is otherwise a fiduciary, is not liable for any participant’s investment loss that results from the participant’s directing the investment of plan assets allocated to the participant’s account.

100-A:66  Contributions by the State or a Political Subdivision.  Employers under the plan shall contribute to member accounts a minimum of a 50 percent match of a member's contributions.

100-A:67  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:68  Withdrawal of Funds.  Distributions from an account of a member shall be permitted in the following circumstances, subject to applicable rules and limitations under federal regulations:

I.  Termination of employment.

II.  Retirement.

III.  Upon turning age 59½ and still employed as limited by federal regulations.

IV.  If the member becomes disabled.

V.  If the member dies.

VI.  Financial hardship as defined in applicable federal regulations.

100-A:69  Health Insurance Group Insurance Inclusion.  Any retired member and his or her beneficiaries 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 at his or her own expense unless otherwise provided.

3  Effective Date.  This act shall take effect 60 days after its passage.

LBAO

19-0709

1/14/19

HB 629-FN-LOCAL- FISCAL NOTE

AS INTRODUCED

AN ACT establishing a state defined contribution retirement plan for state and political subdivision members of the retirement system.

FISCAL IMPACT:      [ X ] State              [ X ] County               [ X ] Local              [    ] None

*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 defined contribution (DC) state retirement plan for new members of the retirement system, who begin service on or after July 1, 2019.  All new Group I and Group II members of the retirement system employed by the state and political subdivision employers on and after July 1, 2019 will be required to contribute to the plan.  The bill designates the Treasurer as the Administrator of the DC plan and assigns custody and investment of funds and adoption of administrative rules pursuant to RSA 541-A.  The assets to be held by the plan will not be assets of the New Hampshire Retirement System (NHRS) or subject to control by the NHRS Board of Trustees.  Retired members and beneficiaries would be eligible for health care benefits pursuant to RSA 100-A:50-RSA 100-A:55.

The Treasury states the legislation provides no detail as to assistance and services to be provided by the Department of Administrative Services.  Treasury anticipates additional indeterminable resources would be required to meet the minimum administrative, fiduciary, and operational responsibilities.  Based upon experience with the Deferred Compensation Plan Commission and the Board of Trustees of the Retirement System, Treasury assumes it would need to procure the services of an investment manager, investment consultant, a record keeping company, a custodian, an external auditor, legal counsel (either through the Department of Justice or outside counsel) and hire at least one full-time employee with financial expertise for the coordination and administration of the DC plan, including responsibility for regulatory compliance (IRS, SSA, ERISA, PBGC, etc.).  Upfront costs could be significant as contributions accumulate, as most third-party providers charge asset-based fees on a sliding scale that assesses higher amounts for lower asset levels.  Because the legislation is silent with regard to funding, Treasury assumes administrative costs would be covered by the general fund, thus increasing expenditures of the Treasury by an indeterminable amount.

The Department of Administrative Services (DAS) assumes there would be additional responsibilities for additional payroll deductions for retirement, health benefits, and implementing various data and systems needs.  The Department assumes a plan administrator would be hired to assist the Accounting Services Division with implementing the new plan.  Retired members of the pension plan and their beneficiaries, including new DC members, remain eligible to participate in the State's Retiree Health Benefit Plan.  The New Hampshire Retirement System (NHRS) withholds premium contributions on behalf of DAS, and may require a separate billing function.  This may necessitate additional staffing and/or resources that are indeterminable at this time, but because it would only apply to employees hired on or after July 1, 2019, it will not impact the period FY 2019-2022.  Technical needs to implement this legislation would require additional staff, at least one senior technical position, and the re-assignment of existing staff which would impact other functional areas.  The New Hampshire Deferred Compensation Plan (NHDCP), a state sponsored, voluntary, supplemental 457b retirement plan, anticipates indeterminable future costs to both the plan and the plan's 7,890 participants.  It is unclear whether employees would be able to contribute additional amounts up to relevant IRS levels.  It is also unclear if the 50% employer match is to the minimum contribution or on the actual employee contribution.  If permitted, this may remove incentives to participate in the NHDCP, and may slow its current plan growth, affecting current employees and leading to higher plan costs and fees.

The New Hampshire Retirement System indicates that proposed RSA 100-A:59 states that all contributions and assets of the DC plan "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".  The NHRS assumes it is only charged with the funding necessary to meet the obligations of the resulting frozen defined benefit plan (DB).  The NHRS also assumes the reference to RSA 100-A:50 through RSA 100-A:55 is intended to incorporate into the DC plan, benefits similar to those described as a "medical subsidy" but not the existing medical subsidy embodied in those provisions, which is a closed plan on behalf of NHRS retirees who elect to participate in the health plan of their former employers.  Such medical benefits are assumed to be administered by the DC plan administrator and paid solely from DC plan funds.

The NHRS consulting actuary determined the following changes to the FY 2020-2022 employer contributions using a new assumed rate of interest of 6.03% and an assumed rate of wage inflation of 3.25%.  The amortization period is a closed 20-year period beginning in FY 2020.  The new DC plan proposal changes the NHRS assumed rate of return from 7.25% to 6.03%, it increases the total actuarial accrued liability of NHRS by $1.9 billion as of June 30, 2017 valuation and would have decreased the funded ratio as of June 30, 2017 from 61.8% to 53.9%.

AGENCIES CONTACTED:

State Treasury, Department of Administrative Services, and New Hampshire Retirement System