HB 1653-FN - AS INTRODUCED
2024 SESSION
24-2729
10/08
HOUSE BILL 1653-FN
AN ACT relative to determination of earnable compensation for certain group II retirement system members.
SPONSORS: Rep. Pratt, Rock. 4
COMMITTEE: Executive Departments and Administration
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ANALYSIS
This bill modifies the definition of earnable compensation for group II retirement system members who did not attain vested status prior to January 1, 2012.
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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Matter which is either (a) all new or (b) repealed and reenacted appears in regular type.
24-2729
10/08
STATE OF NEW HAMPSHIRE
In the Year of Our Lord Two Thousand Twenty Four
AN ACT relative to determination of earnable compensation for certain group II retirement system members.
Be it Enacted by the Senate and House of Representatives in General Court convened:
1 Retirement System; Definition of Earnable Compensation; Certain Group II Members. Amend RSA 100-A:1, XVII(b) to read as follows:
(b)(1) For group I members who have not attained vested status prior to January 1, 2012, the full base rate of compensation paid, as determined by the employer, plus compensation over base pay. Compensation over base pay shall include as applicable, subject to subparagraphs (2), (3), and (4), any overtime pay, cost of living bonus, annual attendance stipend or bonus, annual longevity pay, additional pay for extracurricular and instructional activities for full-time teachers and full-time employees who are employed in paraprofessional or support position, additional pay for instructional activities of full-time faculty of the community college system, compensation for extra and special duty, and any military differential pay, plus the fair market value of non-cash compensation paid to, or on behalf of, the member for meals or living quarters if subject to federal income tax, but excluding other compensation except supplemental pay paid by the employer while the member is receiving workers' compensation and teacher development pay that is not part of the contracted annual salary.
(2) Compensation over base pay shall be limited during the highest 5 years of creditable service as provided in paragraph XVIII.
(3) Earnable compensation shall not include compensation for extra and special duty for members who commence service on and after July 1, 2011.
(4) Earnable compensation shall not include incentives to encourage members to retire, severance pay or end-of-career additional longevity payments, and pay for unused sick or vacation time. Earnable compensation in the final 12 months of creditable service prior to termination of employment shall be limited to 1-1/2 times the higher of the earnable compensation in the 12-month period preceding the final 12 months or the highest compensation year as determined for the purpose of calculating average final compensation, but excluding the final 12 months. Any compensation received in the final 12 months of employment in excess of such limit shall not be subject to member or employer contributions to the retirement system and shall not be considered in the computation of average final compensation. Provided that, the annual compensation limit for members of governmental defined benefit pension plans under section 401(a)(17) of the United States Internal Revenue Code of 1986, as amended, shall apply to earnable compensation for all employees[,] and teachers[, permanent firemen, and permanent policemen] who first become eligible for membership in the system on or after July 1, 1996. Earnable compensation shall not include compensation in any form paid later than 120 days after the member's termination of employment from a retirement eligible position.
(c)(1) For group II members who have not attained vested status prior to January 1, 2012, the full base rate of compensation paid, as determined by the employer, plus compensation over base pay. Compensation over base pay shall include as applicable, subject to subparagraphs (2), (3), (4) and (5), any overtime pay, cost of living bonus, annual attendance stipend or bonus, annual longevity pay, additional pay for extracurricular and instructional activities for full-time teachers and full-time employees who are employed in paraprofessional or support position, additional pay for instructional activities of full-time faculty of the community college system, compensation for extra and special duty, and any military differential pay, plus the fair market value of non-cash compensation paid to, or on behalf of, the member for meals or living quarters if subject to federal income tax, but excluding other compensation except supplemental pay paid by the employer while the member is receiving workers' compensation.
(2) Compensation over base pay shall be limited during the highest 5 years of creditable service as provided in paragraph XVIII.
(3) Earnable compensation shall not include compensation for extra and special duty for members who commence service on and after July 1, 2011.
(4) Members hired before July 1, 2011, shall have any overtime pay included as base pay.
(5) Earnable compensation shall not include incentives to encourage members to retire, severance pay or end-of-career additional longevity payments, and pay for unused sick or vacation time. Earnable compensation in the final 12 months of creditable service prior to termination of employment shall be limited to 1 1/2 times the higher of the earnable compensation in the 12-month period preceding the final 12 months or the highest compensation year as determined for the purpose of calculating average final compensation, but excluding the final 12 months. Any compensation received in the final 12 months of employment in excess of such limit shall not be subject to member or employer contributions to the retirement system and shall not be considered in the computation of average final compensation. Provided that, the annual compensation limit for members of governmental defined benefit pension plans under section 401(a)(17) of the United States Internal Revenue Code of 1986, as amended, shall apply to earnable compensation for all permanent firemen and permanent policemen who first become eligible for membership in the system on or after July 1, 1996. Earnable compensation shall not include compensation in any form paid later than 120 days after the member's termination of employment from a retirement eligible position.
2 Effective Date. This act shall take effect July 1, 2024.
24-2729
12/12/23
HB 1653-FN- FISCAL NOTE
AS INTRODUCED
AN ACT relative to determination of earnable compensation for certain group II retirement system members.
FISCAL IMPACT: [ X ] State [ X ] County [ X ] Local [ ] None
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Estimated State Impact - Increase / (Decrease) | ||||||
| FY 2024 | FY 2025 | FY 2026 | FY 2027 | ||
Revenue | $0 | $0 | $0 | $0 | ||
Revenue Fund(s) | None | |||||
Expenditures | $0 | Indeterminable Increase | $660,000 | $680,000 | ||
Funding Source(s) | General Fund and Highway Fund Various Agency Funds | |||||
Appropriations | $0 | $0 | $0 | $0 | ||
Funding Source(s) | None | |||||
• Does this bill provide sufficient funding to cover estimated expenditures? [X] N/A • Does this bill authorize new positions to implement this bill? [X] N/A | ||||||
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Estimated Political Subdivision Impact - Increase / (Decrease) | ||||||
| FY 2024 | FY 2025 | FY 2026 | FY 2027 | ||
Revenue | $0 | $0 | $0 | $0 | ||
Expenditures | $0 | $0 | $2,880,000 | $2,960,000 | ||
*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 shifts the definition of "earnable compensation" for Group II members employed before July 1, 2011 but not vested before January 1, 2012. It incorporates overtime into base compensation to prevent potential limitations on pension benefits based on the definition of average final compensation tied to compensation over the base. However, the bill doesn't explicitly address whether overtime would be excluded from earnable compensation for members hired after July 1, 2011 (Tier C members).
The New Hampshire Retirement System (NHRS) states they assume the changes from this bill would incorporate overtime pay into base compensation and would remove the previous restriction on including overtime pay in the calculation of average final compensation, as outlined in RSA 100-A:1, XVIII(c)(1). The NHRS states the actuary's assumption is that the bulk of the additional compensation beyond the base is due to overtime pay for the affected members. Based on this, the actuary believes it's reasonable to expect higher benefit levels for these members due to the change. However, there isn't enough data to decide if adjusting liabilities based on the actual population is appropriate. To estimate the impact, it was assumed that retirement liabilities for active members affected by the change would increase by 85%, using assumptions from a previous valuation for certain members hired before July 1, 2011 and vested as of January 1, 2012. For this study, the following predicted increases of 9.35% for Police members and 10.20% for Fire members impacted by the proposal were used, aligning with certain pre-established assumptions. As more data becomes available, the assumptions will be reassessed.
Additionally the NHRS's actuary states contributions for fiscal years 2024 and 2025 are certified and won't change. The potential impact for FY 2026 and FY 2027 are solely due to this bill. Future employer contributions are anticipated to rise in line with wage inflation. The actuary provided valuations based upon data used in the annual actuarial valuation as of June 30, 2021. The valuation assumes an annual rate of interest of 6.75 percent, wage inflation of 2.75 percent per year and uses the entry-age actuarial cost valuation method. Actual FY 2026-2027 employer rates will be based on the June 30, 2023 actuarial valuation and could differ. The allocation of this benefit is estimated as follows:
Estimated State Impact
Increase (Decrease) in Employer Pension Rates as a Percent of Payroll | |
| Net Impact of Proposal |
Employees | 0.00% |
Police | 0.59% |
Fire | 0.79% |
Expected Employer Dollar Increase (Decrease) Due to Proposal | ||||
| FY 2024 | FY 2025 | FY 2026 | FY 2027 |
Employees | - | - | - | - |
Police | - | - | $620,000 | $640,000 |
Fire | - | - | $40,000 | $40,000 |
TOTAL | $0 | $0 | $660,000 | $680,000 |
Estimated Political Subdivision Impact
Increase (Decrease) in Employer Pension Rates as a Percent of Payroll | |
| Net Impact of Proposal |
Employees | 0.00% |
Teachers | 0.00% |
Police | 0.59% |
Fire | 0.79% |
Expected Employer Dollar Increase (Decrease) Due to Proposal | ||||
| FY 2024 | FY 2025 | FY 2026 | FY 2027 |
Employees | - | - | - | - |
Teachers | - | - | - | - |
Police | - | - | $1,590,000 | $1,640,000 |
Fire | - | - | $1,290,000 | $1,320,000 |
TOTAL | $0 | $0 | $2,880,000 | $2,960,000 |
The NHRS actuary projects an increase in the actuarial accrued liability by $26.9 million based on the provisions in the bill and will be amortized over a fixed period of no longer than 20-years.
Lastly, the NHRS states there will be an indeterminable increase in expenditures in FY 2025 due to administrative costs relating to the reprogramming of the pension administrative system.
AGENCIES CONTACTED:
New Hampshire Retirement System