Pension Flexibility: New Hampshire

Analysis of New Hampshire's policies

New Hampshire only offers a defined benefit pension plan to its teachers as their mandatory pension plan. This plan is not fully portable, does not vest until year 10, and does not provide any employer contribution for teachers who choose to withdraw their account balances when leaving the system. It also limits flexibility by restricting the ability to purchase years of service. 

Teachers in New Hampshire also participate in Social Security, so they must contribute to the state's defined benefit plan in addition to Social Security. Although retirement savings in addition to Social Security are good and necessary for most individuals, the state's policy results in mandated contributions to two inflexible plans, rather than permitting teachers options for their state-provided savings plans.

Vesting in a defined benefit plan guarantees a teacher's eligibility to receive lifetime monthly benefit payments at retirement age. Nonvested teachers do not have a right to later retirement benefits; they may only withdraw the portion of their funds allowed by the plan. New Hampshire's vesting at 10 years of service is very late and limits the options of teachers who leave the system prior to this point.

Many teachers will leave the system before they reach 10 years of service. Teachers in New Hampshire who choose to withdraw their contributions upon leaving only receive their own contributions plus interest. This means that those who withdraw their funds accrue no benefits beyond what they might have earned had they simply put their contributions in basic savings accounts. Further, teachers who remain in the field of education but enter another pension plan (such as in another state) will find it difficult to purchase the time equivalent to their prior employment in the new system because they are not entitled to any employer contribution.

New Hampshire limits teachers' flexibility to purchase years of service. The ability to purchase time is important because defined benefit plans' retirement eligibility and benefit payments are often tied to the number of years a teacher has worked. New Hampshire's plan allows teachers to purchase unlimited time for previous teaching experience, which is very generous. However, the state's plan does not allow teachers to purchase time for approved leaves of absence, which is a tremendous disadvantage to any teacher who needs to take a leave for paternity or maternity care, or for other personal reasons.

Citation

New Hampshire Retirement System, Plan Details http://www.nhrs.org/Members/PlanDetails.aspx New Hampshire Retirement System, Notices http://www.nhrs.org/Members/Notices.aspx

Recommendations for New Hampshire

Offer teachers a pension plan that is fully portable, flexible and fair.
New Hampshire should offer teachers for their mandatory pension plan the option of either a defined contribution plan or a fully portable defined benefit plan, such as a cash balance plan. A well-structured defined benefit plan could be a suitable option among multiple plans. However, as the sole option, defined benefit plans severely disadvantage mobile teachers and those who enter the profession later in life. Because teachers in New Hampshire participate in Social Security, they are required to contribute to two defined benefit-style plans.

Increase the portability of its defined benefit plan.
If New Hampshire maintains its defined benefit plan, it should allow teachers that leave the system to withdraw employer contributions. The state should also allow teachers to purchase time for approved leaves of absence and decrease the vesting requirement to year three. A lack of portability is a disincentive to an increasingly mobile teaching force.  

Offer a fully portable supplemental retirement savings plan.
If New Hampshire maintains its defined benefit plan, the state should at least offer teachers the option of a fully portable supplemental defined contribution savings plan, with employers matching a percentage of teachers' contributions.

State response to our analysis

The New Hampshire Retirement System did not respond to repeated requests to review NCTQ's analyses related to teacher pensions.