Briefing for NEANH

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Briefing for NEA-NH

• June 2007
• Kate McGovern Associates, LLC

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Topics

• Funding of NHRS for pensions
• Employer Employee Rates
• Funding for COLAs
• AFC
• Repeal of the 5 year nonqualified service
  purchase
• Medical subsidy program

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Contributory Plan

• Funding is like a mortgage
• The NHRS trust fund grows during the careers of
  its members, to build lifetime benefits.
• Employees have a fixed rate
• 5 for Group I
• 9.3 for Group II
• Employers have an adjustable rate
• Decreases when investments are good.
• Increases when investments fall.

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NHRS Additions to Plan Assets 2004-2006
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Overview of contributory structure

• The basic retirement funding equation is
• C I B E
• Contributions Investments
• Benefits Expenses

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The stock market bust 2001-2003
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Demographic Shifts in the Membership
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Other retirement systems responded more promptly
to the 2001-03 downturn. The median Employer rate
for GI employees reached 8 by 2005, two years
ahead of NH
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The chickens have come home

• Employers are responsible for paying the UAAL
  Unfunded Accrued Liability, to make up what they
  did not pay before.
• This will cost taxpayers more than 2 billion
  over the next 30 years.

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The method of funding post-retirement benefits

• COLAs and other extra retiree benefits were paid
  for by the Special Account. The source of
  funding for the account was excess earnings.
  When the trust fund gained more than 9 on a 5
  year rolling average, money went into the Special
  Account.

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Recent History of COLAs
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Special Account Balances Cost of 2.5 CPIU COLA
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Employee Rates

• Employees or their beneficiaries will get back
  all of their contributions as pension benefits or
  refunds with interest.
• The increased contributions will help fund the
  built in COLA.
• See attached fact sheet for sample pensions and
  contribution rates

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Proposed Member Contributions
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Proposal pay 2 more, to get 2 compounded, for
life?

• Pension of 24,500
• If you collect it for 30 years 347,400
• Add 2 per year, for 30 years 478,173
  Difference 130,773
• Your contributions 2 of pay, for ? years,
  until you retire. Sample
• 2 of 30,000 600 x 10 years 6,000

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What do you think? Is a built-in COLA worth the
rate increase to you?
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AFC Average Final Compensation

• AFC the average of your high 3 years, including
  pay-outs, with 2 exceptions.
• Your final year cant be more than 150 higher
  than your second highest year.
• Exception leave that youre had on the books
  since 6/30/1991.

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AFC Example

• Bobs final years salary 52,000, and he will
  get 12,500 in termination pay. His final year
  64,000
• His second highest year is 50,000.
• The cap of 150 on 50,000 75,000
• Bob does not hit the cap.
• Note If he did hit the cap some of the
  pay-outs may be exempt, if he earned them prior
  to 6/30/1991.

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Estimate your Average Final Compensation (AFC)
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Bobs pension

• 54,000
• Divided by 60 900
• x 30 years of service
• 27,000 annual pension
• For Group I members, 30 years gets you retired on
  half pay.

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AFC in the press

• The City of Dover paid its Police Chief his
  termination pay over a 3 year period, so he would
  not hit the cap.
• The Union Leader reported that his final salary
  was 114,000, but his pension would be 125,000
  per year.
• A proposal in the legislature said that pensions
  cannot be larger than the persons final years
  pay, plus mandatory overtime.

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Legislative proposal?

• There was a proposal that pensions can never be
  more than your final years salary, plus
  mandatory overtime.
• Bob s pension of 27,000 was nowhere near his
  highest year of earnings, which was 64,000

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The rest of the story

• Group II members reach a full pay pension by
  working 40 years.
• Group II members who retire after 40 year of
  service, and are paid for unused sick or vacation
  time would not be able to use those payments
  toward their pensions.
• The legislature changed the proposal to earnable
  compensation so members can continue to retire
  on amounts exceeding their salaries.

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Repeal of Nonqualified Service

• HB 673 repeals the provision for the purchase of
  5 years of nonqualified service, effective
  6/30/07.
• Requests made prior to that date will be
  processed.
• Proposal to reinstate the Additional
  Contributions program was not accepted.

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Medical Subsidy Amounts Effective July 1, 2007

• 1 person 376.56
• 2 person 751.12
• Medicare Supplement
• 1 person 236.84
• 2 person 473.68

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Current Eligibility for NHRSMedical Subsidy
Program
file for your pension no later than
6/1/08 certain service purchases excluded
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The Medical Subsidy Funds are running out

• Estimates indicate the subsidy will be depleted
  by 2011.
• If you were not planning to retire by 7/1/08,
  dont do it just to get the subsidy it might
  not be there.
• HB 876 establishes a Commission to study the
  problem lets find a solution!