Decennial Retirement Commission Update

Panel makes recommendations on funding, working after retirement, and other issues

Dec 28, 2017
  • Decennial Commission

For Immediate Release: December 28, 2017
Contact:  Marty Karlon, Public Information Officer, (603) 410-3594; [email protected]

CONCORD, NH – A statutory commission charged with reviewing and making recommendations to ensure the long-term viability of the New Hampshire Retirement System (NHRS, the retirement system) released a series of legislative recommendations earlier this month and is close to issuing a final report.

The 17-member Decennial Commission, established under RSA 100-A: 57, met 15 times between August 31 and December 27. The commission’s findings and any recommendations for proposed legislation, per statute, had to be reported 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 December 1. Because the commission had not finalized its full report by the statutory deadline, it issued an eight-page interim report on December 1 listing 12 recommendations. All of the recommendations are non-binding; legislation would have to be introduced and enacted into law.

Below is a summary of the recommendations adopted by the commission, sorted by topic. Additional details and background on each of the recommendations is included in the commission's interim report available here.

COLA/ONE-TIME ADDITIONAL ALLOWANCE

  • Recommendation: “The commission recommends that the legislature make a one-time payment of $500 per retiree in 2018, and whenever funding is available.” (Adopted 10-4)

The commission reviewed the history and current status of cost-of-living adjustments (COLAs) and other supplemental allowances paid to retirees and beneficiaries. After receiving cost estimates for a permanent COLA and for a one-time temporary supplemental allowance (TSA), the commission recommended providing a $500 payment to retirees in 2018 and in ensuing years when funds are available. Although no 2018 legislation addressing this recommendation has been posted on the legislative website, a House bill (HB 1756) introduced prior to the commission recommendation proposes a one-time $500 payment, effective July 1, 2019, to retirees and beneficiaries receiving an annual benefit of $30,000 or less and who have been retired more than five years.

WORKING AFTER RETIREMENT

  • Recommendation: “The commission recommends future legislation which enhances the reporting and compliance criteria to aid the NHRS in enforcing the law addressing retired members working part-time after retirement.” (Adopted 13-0)
  • Recommendation: “The commission recommends that the current 32 hour weekly limitation provision be replaced by an annual calendar year limit of 1,040 hours and that participating employers be required to report retiree work hours and compensation on an annual basis.” (Adopted 11-1)
  • Recommendation: “The commission recommends that a penalty be enacted which would authorize the NHRS to suspend the state portion of a retiree’s annuity benefit for a 12 month period if the retiree exceeds the annual 1,040 hour threshold. The retiree shall be required to track his or her hours worked.” (Adopted 9-5)
  • Recommendation: “The commission recommends that a retiree shall not return to part-time employment for any participating NHRS employer for a minimum of 60 days from the effective date of retirement.” (Adopted 13-1).

The commission made four recommendations concerning the laws governing retirees working for NHRS-participating employers. The first recommendation was a general statement that the current law should be revised. Three subsequent recommendations addressed specific aspects of the law. These recommendations have been amended into a House bill retained from 2017 (HB 561) and will be voted on by the Senate on January 3, 2018. If passed by the Senate, the bill would be sent to the House, which could either accept the amendment, let the bill die, or request a committee of conference to reconcile the differences between the House and Senate versions of the legislation.

FUNDING

  • Recommendation: “The commission affirms that the amortization of the existing UAAL should not be extended beyond 2039.” (Adopted 13-0)
  • Recommendation: “The commission recommends that the Legislature authorize layered amortization for any future gain or loss for a fixed period that is between 15 and 20 years.” (Adopted 8-3)
  • Recommendation: “The commission sees a potential benefit in a level dollar amortization schedule and therefore recommends that the legislature form a study committee to look at the advantages and disadvantages of moving from a level percentage of payroll to the level dollar amortization plan.” (Adopted 12-2)
  • Recommendation: “The commission recommends that the Legislature re-establish a state subsidy for local subdivision contributions.” (Adopted 9-4)

The commission dedicated several meetings to reviewing the status of the retirement system’s unfunded actuarial accrued liability (UAAL), the statutory framework for paying the liability off by 2039, and the impact that changes to employer contribution rates have had on local governments.

The commission supported the current schedule to pay down the existing UAAL of $5.04 billion through 2039, but endorsed the concept of layering future liability gains and losses over a fixed period of no longer than 20 years to mitigate potential employer rate volatility in the years approaching 2039. Legislation addressing the recommendation for “layered amortization” has been introduced for the 2018 legislative session (HB 1823).

The commission also recommended further study of switching to a “level-dollar” approach to paying down the UAAL. The level dollar approach evenly divides the liability payments over the amortization period, leading to greater employer contributions up front and lower contributions toward the end of the pay-off period. NHRS, like most public retirement systems, funds its liabilities using the “level percent-of-payroll” method, which assesses employer contributions as a percentage of payroll, meaning UAAL payments are lower in the early years of the payoff period and grow over time as payroll increases. Legislation addressing the recommendation to study level-dollar amortization has been introduced for the 2018 legislative session (HB 1805).

Finally, the commission recommended that the State of NH reinstate an employer contribution subsidy for local governments and school districts, which was in effect for more than 30 years before being eliminated in 2011. The Decennial Commission made no recommendation as to the size of a re-established state subsidy or the source of funding. No 2018 legislation addressing this recommendation has been posted on the legislative website.

GROUP I PENSION ADJUSTMENT AT AGE 65

  • Recommendation: “The commission recommends legislative action to defer the reduction in benefit for Group I active employees at age 65 until age 67.” (Adopted 10-4)

Under current law, a Group I (Employee and Teacher) retiree’s pension is reduced by approximately 10 percent when a retiree turns 65. After reviewing cost estimates for eliminating the adjustment for all members and retirees and for increasing the age at which the adjustment occurs, the commission recommended increasing the age of the reduction to age 67 for active members.  Although no 2018 legislation addressing this recommendation has been posted on the legislative website, a House bill (HB 1757) introduced prior to the commission recommendation proposes indexing the Group I adjustment to the age at which a member reaches his or her full Social Security retirement age.

OTHER ISSUES

  • Recommendation: “The commission recommends amending the statute that establishes the Decennial Retirement Commission to permit the work of the Commission to begin earlier and thus provide more time overall for its work; no specific timeframe recommended.” (Adopted 13-0)
  • Recommendation: “The commission recommends the terms of office for members of the Board of Trustees of the New Hampshire Retirement System be changed from two to three years, with provision for staggered terms to achieve implementation.” (Adopted 12-0)

The commission also made recommendations to allow the 2027 Decennial Commission to begin meeting earlier in the year, and to increase the terms of NHRS Trustees from two years to three years to match the terms for the NHRS Independent Investment Committee that took effect this year. No 2018 legislation addressing these recommendations has been posted on the legislative website.

About the Decennial Commission

The commission consisted of 17 members, including legislators, public experts, members, employers, retirees, and the chair of the NHRS Board of Trustees. The commission was chaired by former state Rep. David Hess. The vice-chairs were Sen. Sharon Carson and Linda Hodgdon, the former commissioner of the Department of Administrative Services.

In the course of its work, the Decennial Commission heard from representatives of member, retiree, and employer organizations, NHRS staff, and outside experts on public pension policy and funding. The commission also hired an independent third party – the Center for Retirement Research (CRR) at Boston College – to review NHRS’ past and future funding progress and provide recommendations.

The Boston College-CRR report found that despite its below-average funded status (currently 61.8%), NHRS “costs are low in comparison to the national average” and its current actuarial assumptions “are more conservative than most public plans.” The report made two recommendations: move to level-dollar amortization of the UAAL to “front-load” the UAAL payments, and begin using both a short-term and a long-term investment return assumption to mitigate investment risk. The commission endorsed studying the level-dollar amortization recommendation, but took no action on the investment return assumption recommendation.

A web page listing commission members is available here.

There is also a second commission page that archives meeting materials, as well as audio of the meetings:

When the final versions of the commission’s full report and the report from Boston College-CRR are available, they will be posted on the committee archive page above, as well as on the NHRS website.

About NHRS

NHRS provides retirement, disability, and death benefits to its eligible members and their beneficiaries.  The State of New Hampshire and nearly 470 local government employers participate in NHRS for their employees, teachers, firefighters, and police officers.  NHRS has approximately 48,000 active members and 35,000 pension recipients. NHRS administers a defined benefit plan qualified as a tax-exempt entity under sections 401(a) and 501(a) of the Internal Revenue Code.

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