August 18, 2010 1

New Hampshire

Retirement System

Presentation for NHSAA

August 18, 2010 2

NH Legislature: Plan Sponsor RSA 100-A serves as plan document

NHRS Board of Trustees and Independent Investment Committee Members serve as fiduciaries

NHRS staff implements RSA 100-A

Internal Revenue Code provisions

NH Constitution Art. 36-a protects funds “for the exclusive purpose” of providing benefits

Plan Governance

August 18, 2010 3

InvestmentEarnings

InvestmentEarnings

BenefitPaymentsBenefit

Payments

Equation must balance over long-term

ContributionsContributions

Fiduciary Management

+ =+ExpensesExpenses

+

August 18, 2010 4

Trust Fund

Member ContributionsFire and Police = 9.3% of earningsEmployees and Teachers = 5.0% of earnings

Employer ContributionsActuarially determinedBased on membership classificationIncludes pension contribution and medical

subsidy contribution Trust Fund Investment Earnings

*State employees hired on or after July 1, 2009, must contribute 7.0% of gross earnings

August 18, 2010 5

Actuarial Analysis Biannual Actuarial Valuation

Calculates funding status Used to set employer rates Assumptions derived in experience study

Actuarial Experience Study Conducted every five years Evaluates assumptions

• Member demographics and mortality• Investment Assumptions• Inflation

August 18, 2010 6

Employer Contributions

Actuary recommends average increase in employer rates by 22.7% of total fund for biennium beginning July 1, 2011Increases from 11.4% to 31.1% based on

membership classification (employee, teacher, fire, police)

Rate increases primarily due to investment losses

Employer rate increases to be less dramatic than other plans

August 18, 2010 7

Member Classification Pension

Medical Subsidy Total

Employees 9.09% 0.07% 9.16%

Teachers*Employer ShareState share

Total

7.03%

2.35%

9.38%

0.99%

0.33%

1.32%

8.02%

2.68%

10.70%

*The State of NH contributes 25% of the cost for teacher members, and the employer contributes the remaining 75%. The contribution percentage is scheduled

to revert to a 35% (state)/65% (employer) split in Fiscal Year 2012.

Employer ContributionsGroup I Political Subdivision Employers – 2010-11

August 18, 2010 8

Member Classification Pension

Medical Subsidy Total

Employees 10.71% 0.38% 11.09%

Teachers*Employer ShareState share

Total

7.48%

4.03%

11.51%

1.59%

0.85%

2.44%

9.07%

4.88%

13.95%

*The State of NH contributes 35% of the cost for teacher members, and the employer contributes the remaining 65%.

Employer ContributionsGroup I Political Subdivision Employers – 2012-13 (projected)

August 18, 2010 9

Employer ContributionsNEW HAMPSHIRE RETIREMENT SYSTEM

42 YEAR HISTORY OF EMPLOYER CONTRIBUTION RATESFOR POLITICAL SUBDIVISION EMPLOYERS

FY 1970-FY 2011

0%

5%

10%

15%

20%

25%

30%

1970 1975 1980 1985 1990 1995 2000 2005 2010

Employees

Teachers

Police Officers

Firefighters

August 18, 2010 10

Funded Ratio History

82%75%

71%

60% 61%67% 68%

58%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

2002

2003

2004

2005

2006

2007

2008

2009

Actuarial Value of Assets To Actuarial Value of Liabilities

August 18, 2010 11

Funding Status of NHRS

58% funded as of June 30, 2009 NHRS well-positioned to recover as

economy improves; 2010 numbers still being audited, but overall return on marketable assets is encouraging.

August 18, 2010 12

Investment Management

Board of Trustees

Independent Investment Committee

Investment Strategy

Asset Liability Modeling

August 18, 2010 13

Independent Investment Committee

New as of January 1, 2009

Oversees the administration of the investment program within Board’s policies

Hires investment service providers, such as the custodian and investment managers

Prepares a comprehensive annual investment report for approval by the Board

August 18, 2010 14

Investment Strategy

Reviewed annually

Long-term time horizon

Manages risk and liquidity

Diversifies portfolio among different types of assets

August 18, 2010 15

Trust Fund Assets

$4,391.3$4,728.6

$5,112.3

$5,967.9$5,597.6

$4,461.2$4,910.6

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

FY2004

FY2005

FY2006

FY2007

FY2008

FY2009

FY2010

Net Assets Available for Benefits (millions)

August 18, 2010 16

Investment Performance

13.2%

-6.7%-6.4%

2.5%

14.9%10.1% 10.0%

16.0%

-4.6%

-18.1%

13.70%

-25.0%-20.0%-15.0%-10.0%

-5.0%0.0%5.0%

10.0%15.0%20.0%

00 01 02 03 04 05 06 07 08 09 10

Total Fund - Fiscal Year Returns

August 18, 2010 17

Financial Status of NHRS

Trust fund stood at $4.9 billion as of June 30, 2010

Marketable assets showed a 13.7% return for year ending June 30, 2010

Investment performance better than many other funds

August 18, 2010 18

Asset Liability Model

Models asset allocation alternatives Maximize investment returns

Acceptable levels of liquidity and risk Liquidity: cash management to fund

benefits payments Goal: Balance expected return, risk,

and liquidity

August 18, 2010 19

Legislative Review2008 - 2010

Board Governance Changes to Certain Benefits Employer Assessments and

Contributions Funding Source of Certain Benefits Post-Retirement Benefits Spiking

August 18, 2010 20

2008 Laws

House Bill 1516-FN Sudan Divestment Act

House Bill 1520Peace Corps or AmeriCorps service credit

House Bill 1643Extended eligibility for medical subsidy benefits to certain Group I teacher and political subdivision employee members who retired on or before July 1, 2009

August 18, 2010 21

2008 Laws

House Bill 1645Definition of “Earnable Compensation”Transferred $250 million to the State Annuity Accumulation Fund

Special Account funds will not be used to provide medical benefits

Effective July 1, 2008, medical subsidy rates will not increase for four years

Effective July 1, 2012, rates will increase by 4.0% each July 1st

August 18, 2010 22

2008 Laws

House Bill 1645 continued:Extended the deadline for medical subsidy eligibility for teachers and political subdivision employees

Created a legislative study commission to determine future funding for medical benefits

August 18, 2010 23

2008 Laws

House Bill 1645 continued:Granted certain COLA payments to eligible retired members

Granted one-time supplemental allowances to eligible retired members

Created a legislative study commission to determine future funding for COLAs

August 18, 2010 24

2008 Laws

House Bill 1645 continued:Newly appointed and reappointed trustees must have familiarity with or experience in finance or business management

Non-member trustees must have substantial experience in the field of institutional investment or finance

Chairperson now has vote on board

August 18, 2010 25

2008 Laws

House Bill 1645 continued:“Spiking” Legislation – 125% CalculationMembers shall cease to be active after more than 180 days of absence from service

Interest rate applied to funds of non-vested members is different from interest rate applied to funds of vested members

August 18, 2010 26

2008 Laws

House Bill 1645 continued:Maximum benefit for member hired on or after July 1, 2009, will be no more than $120,000 under service or disability retirement

Decennial Retirement Commission

August 18, 2010 27

2009 Laws“Spiking” Legislation

House Bill 223Delayed the implementation of the “spiking” legislation (HB 1645, Laws of 2008) to July 1, 2010

House Bill 641NHRS to recommend methodology for determining employer assessment for excess pension benefits (“spiking assessment”)

Senate Bill 108Established a study committee to review employer assessments

August 18, 2010 28

2009 LawsHouse Bill 2State’s share of employer contribution7.0% contribution rate for new state employeesState OPEB balance to $0.00 for calculating ratesHealthcare premiums for state retirees under age 65

House Bill 436Same gender married couples

House Bill 633Extended eligibility for medical subsidy benefits to certain Group I teacher and political subdivision employee members who retired on or before July 1, 2009

August 18, 2010 29

2009 Laws

Senate Bill 160Accidental Death Benefit

Pension to spouse continues upon remarriage

Senate Bill 200 Ordinary Death Benefit

Pension to spouse continues upon remarriage HEART Act: Death benefit payable to beneficiary

if member dies during military service

August 18, 2010 30

2010 Laws

Special Session House Bill 1 Provides Cost-of-Living Adjustments (COLA) and Temporary Supplemental Allowances (TSA) to eligible retirees and beneficiaries

August 18, 2010 31

Challenges and Initiatives

SpikingSupplemental AllowancesWorking After RetirementLawsuitsLegislation 2011

August 18, 2010 32

“Spiking”

House Bill 1645, Laws of 2008Created the 125% employer assessment – “spiking”

legislation

House Bill 223, Laws of 2009Delayed the implementation of the “spiking”

legislation (HB 1645, Laws of 2008) to July 1, 2010

Senate Bill 504, Laws of 2010Delayed the implementation of the “spiking”

legislation (HB 1645, Laws of 2008) to July 1, 2011

August 18, 2010 33

Supplemental Allowances

Cost-of-Living Adjustments (COLAs) become a permanent addition to the pension if and when granted by the New Hampshire Legislature

Temporary Supplemental Allowances (TSAs) are one-time payments

A legislative study commission will determine future funding of COLAs

August 18, 2010 34

Employees Teachers Fire Police

2008 through

2010

1.5% on first $30K base pension

One-time $1K if base pension <= $20K

One-time $500 if retired before 1/1/93

$500/$1K if receiving Medical Subsidy

2007 2.25% 2.25% 2.25% 2.25%

2006 1% 1% 1% 1%

2005 1% 1% 1.5% 1%

2004 1% 1% 2.5% 1%

COLAs and TSAs

August 18, 2010 35

Working After Retirement May work for non-NHRS employer (such as

private sector) May not occupy NHRS-covered position

and receive pensionPension will ceaseActive membership will be restored

Disability Retirement – Different provisions (gainful occupation earnings limitations)

NHRS is reviewing post-retirement employment issues

August 18, 2010 36

Lawsuits

State health insurance for retirees HB 1645 earnable compensation Sudan divestment State’s share of employer contribution rates

August 18, 2010 37

Legislation 2011

“Spiking solution” State’s contribution to employer rates Plan design changes

August 18, 2010 38

NHRS Communications

Outreach and communication Employer, member, and retiree education Public Forums

Website and content enhancements New “My Account” feature User-friendly information Consistent messaging

August 18, 2010 39

Email Updates

Visit www.nhrs.orgEnter information in section entitled

“NHRS Email Updates”Receive up-to-date information on

various NHRS-related topics

August 18, 2010 40

NH Retirement System54 Regional Drive

Concord, NH 03301Phone: 603-410-3500

Toll Free: 877-600-0158www.nhrs.orginfo@nhrs.org