Explanation of HB 1645, Section 33 & 34
125% Calculation, for Employers
Revised Notice September 10, 2009
House Bill 223, Chapter 4 of 2009, legislation delays from August 29, 2008, until July 1, 2010 the
implementation of RSA 100-A:16, III-a, which addresses the funding of dramatic increases in the
pensions of NHRS members resulting from excessively high end-of-career earnable compensation
payments made to a retiring employee by an employer. Known as the “spiking provision” or the “125%
calculation provision”, RSA 100-A:16, III-a provides that employers assume financial responsibility for
the funding costs associated with those increased pension amounts.
The links herein provide important information about the 125% calculation/employer assessment as
provided in the new legislation. The AFC Spiking Charge from HB 1645 presentation created by the
NHRS actuaries (GRS) (using limited data) describes the way the calculation will work and illustrates it
with Group I and Group II examples. The calculator tool is interactive. Values may be entered for either
Group I or Group II estimates. The factor for Estimated Present Value of Pension will vary according to
Earnable Compensation: Effective August 29, 2008, RSA 100-A:1, XVII states, in relevant part,
that “Earnable compensation” shall mean for all members the full base rate of compensation paid
plus any overtime pay, holiday and vacation pay, sick pay, longevity or severance pay, cost of
living bonus, additional pay for extracurricular and instructional activities or for other extra or
special duty, and any military differential pay*, plus the fair market value of non-cash
compensation paid to, or on behalf of, the member for meals or living quarters only if such
amounts are includible as income for federal income tax purposes, but excluding other
compensation except cash incentives paid by an employer to encourage members to retire,
supplemental pay paid by the employer while the member is receiving workers’ compensation,
and teacher development pay that is not part of the contracted annual salary. This change will
require changes in contribution reporting for employers (see list below). It will also change the
amount used in the calculation of the Average Final Compensation (AFC).
Payments to Members Excluded as “Other Compensation” Under RSA 100-A: 1, XVII, as
amended under HB 1645, 2008:
o Automobile allowances/reimbursements: Allowance or reimbursement provided by the
o Clothing/Uniforms: Employer-provided clothing/uniform allowance, stipend or
reimbursement for clothing/uniforms.
o Domestic Partners’ Medical Coverage: Cost of employer-provided medical and/or dental
coverage for member’s same-sex domestic partner.
o Educational Assistance: All employer-provided reimbursement for tuition and other
educational expenses are not includible as earnable compensation, regardless of the
dollar amount paid in a calendar year.
o Health & Fitness: Reimbursement by employer or employer-provided health plan for
health club dues and/or exercise equipment. Example: Reimbursement for health club
dues/home exercise equipment provided under the state’s HMO.
o Medical Insurance “Buy-outs” or “Payments In Lieu Of”: Amounts paid by an employer to
members who waive employer-provided health/dental insurance coverage. (Sometimes
called an “insurance buy-out” or a “payment in lieu of.”)
o Moving/Relocation Expenses: Reimbursed or employer-paid moving or relocation
o Per Diem or Fixed Allowance: Reimbursement for a member’s travel expenses.
o Settlement Amounts Paid to Employees: All settlement amounts paid to employees.
Termination Pay: Compensation paid at and because of a termination of employment is defined
as any holiday, vacation, sick, longevity, or severance pay or early retirement incentive pay
Base Pay: Includes a member’s annualized hourly rate or contracted salary (e.g. wages for a
fixed 37 ½ or 40 hr. work week). Base Pay excludes any bonuses, overtime, military differential
pay, auto allowances, tuition reimbursements, health/fitness reimbursements, relocation
expenses, clothing/uniform stipends/reimbursements, termination pay and payments in lieu of
125% Calculator for Employers
Below is a summary of the amended statute:
Section 33- 34 – 125% Calculation:
a. Section 33 of HB 1645 is designed to provide employer specific funding for that portion of the
member’s pension which is attributable to significant increases in the member’s earnable
compensation which may occur at the end of his or her career.
b. The amendment does not restrict an employer from making larger end-of-career compensation
arrangements such as increased overtime, vacation pay, severance, etc.
c. If the member’s average final compensation is greater than 125% of his/her average base pay
for the same period, then under RSA 100-A:16, III-a the employer is responsible for funding
the cost of the member’s pension which is attributed to the difference.
d. NHRS will assess the employer an amount to the cost (present value) of the member’s pension
multiplied by a fraction, the numerator of which is: the member’s AFC minus 125% of his/her
average base pay for the highest three years of creditable service and the denominator of
which is 125% of the member’s average base pay for the high three years.
e. Employers must certify the base pay for the three highest years of creditable service.
f. Employers are authorized to appropriate the sums necessary for payment of assessments.
g. NHRS must certify to employers the additional cost the employer must pay pursuant to the
h. Section 33 takes effect August 29, 2008 (for anyone who retires on or after September 1,
2008) and only impacts members under new or renewed contracts or members who
are working without a contract.
HB 1645 in its entirety is found at: http://www.gencourt.state.nh.us/legislation/2008/HB1645.html