House Finance reviews HB 2 retirement changes for Group 2; actuaries say costs lower than 2023 version

Lede: New Hampshire Retirement System officials told the House Finance Committee on Feb. 28 that the Group 2 ("Tier B") provisions in House Bill 2 (2025) would restore pre‑2011 definitions of earnable compensation and average final compensation for certain employees and that, based on preliminary actuarial work, the 2025 package appears less costly than a similar 2023 proposal.

Nut graf: The committee heard a detailed legal and actuarial briefing from the retirement system’s executive director and deputy counsel. Presenters flagged a drafting error they want fixed, explained how the bill would change how overtime, special duty pay and payouts for accrued sick and vacation are counted in final compensation, and described how a $25–27 million annual appropriation figure in recent drafts interacts with actuarial assumptions and prior legislation.

Body: Jan Goodwin, executive director of the New Hampshire Retirement System, opened the system’s presentation and introduced Mark Kavanaugh, deputy chief counsel, who summarized the Group 2 (Tier B) comparison between House Bill 2 in 2025 and earlier proposals, including the 2023 House Bill and HB 727 (2024 drafting/numbering discussed at the hearing). Kavanaugh told the committee the two bills are “almost identical” in many respects but that the 2025 bill does not include a maximum‑benefit increase that appeared in the 2023 proposal.

Kavanaugh and Goodwin repeatedly emphasized three substantive changes in the 2025 text: (1) elimination of a cap on extra and special duty pay that limited overtime/special duty counted toward average final compensation (the presenters called this likely a scrivener’s error that should be restored for the intended tier), (2) restoration of a pre‑2011 definition of ‘‘earnable compensation’’ so payouts of accrued sick and vacation at retirement would be included in final compensation, and (3) a change from a high‑5 to a high‑3 final average compensation calculation for the impacted group in some provisions.

Kavanaugh said the core intent is to restore Tier B members to benefit levels that previously applied to vested Tier A members. He described the tier structure used by the retirement system: Tier A (vested at the old standard), Tier B (hired before 1/1/2012 but not vested), and Tier C (hired on or after 1/1/2012). He said the bill is aimed at Tier B members and does not change Tier C benefits.

On cost, the retirement system explained that actuaries used different assumptions and valuation dates for the 2023 and 2025 exercises. Goodwin and Kavanaugh said the 2025 bill appropriation (discussed in committee as roughly $27.0–27.5 million annually) was their best estimate from sponsors, but that actuarial differences (experience study, demographic changes, a reduced Tier B population) make the 2025 bill show a more favorable effect on the unfunded actuarial accrued liability (UAAL) compared with the 2023 bill. The presenters cited a reduction in UAAL under the 2025 approach on the order of tens of millions of dollars in the actuary’s comparison (the retirement system described a $98.2 million reduction figure for one scenario) and described small net changes in employer contribution rates across police and fire cohorts in their preliminary numbers.

Committee members asked how the appropriation schedule interacts with the governor’s revenue estimates. Presenters noted that HB‑1 (the governor’s budget) shows smaller first‑year VLT receipts and that some HB2 appropriations rely on projected VLT revenue arriving later in the biennium; Goodwin said the system had priced scenarios on the assumption that the full legislative appropriation would be made for ten years but acknowledged a smaller first‑year appropriation would change short‑term cash flows and funding outcomes.

Goodwin and Kavanaugh also flagged a drafting issue that removed a legacy anti‑spiking limit from the Group 2 ‘‘earnable compensation’’ section; they said they treated that as an unintended deletion (scrivener’s error) and had assumed it would be corrected in the fiscal worksheet. Committee members asked staff to verify and correct the placement of the limiting language so it applies where intended.

Members of the committee pressed on policy design: some members said they favored restoring Tier B benefits to Tier A levels as a retention tool; others warned that returning to pre‑2011 definitions would reopen ‘‘spiking’’ concerns that the 2011 changes were meant to address. Committee members also asked whether the 2025 text affected Tier C (new hires) and were told it does not.

Goodwin said the retirement system can provide supplemental actuarial valuations quickly — ‘‘about a week’’ for focused changes — if the committee asks for cost estimates of alternate designs. Several members asked the system to produce comparisons to the House‑passed version of HB 16‑47 (the 2024 bill that adjusted multipliers for years in excess of 15) so legislators could see how the 2025 text compares to prior legislative options.

Ending: Committee members made no final decision about adopting, amending, or moving the retirement provisions during the hearing. Staff and the presenters agreed to (a) capture the noted scrivener’s error in the fiscal worksheet, (b) provide updated actuarial runs based on any amendments the committee requests, and (c) supply a concise comparison showing how the 2025 House Bill 2 text differs from both the 2023 proposal and the House‑passed HB 16‑47 changes. The retirement system said updated official valuations were expected from its actuary later that week and that the system would provide more detail on appropriation timing implications once those numbers were available.