Members who applied for the Additional Contributions program prior to December 31, 2004, and whose applications were subsequently approved by NHRS, may make additional contributions to NHRS separate from their regular, mandatory contributions, for the purpose of funding an additional annuity with after-tax funds.
Additional Contributions Annuity
Additional contributions are not the same as purchasing service credit. NHRS law allows members to fund an additional annuity, separate from their regular, defined benefit.
Upon applying for the Additional Contributions program, members were required to choose one of the following purposes for funding an additional annuity:
- Eligible active members (employee, firefighter, police officer, and teacher members) may make additional contributions for the purpose of funding an additional annuity, which when combined with the member’s regular annuity, will equal up to 50% of the member’s average final compensation (the average of a member’s highest paid years of membership service).
- Eligible active employee and teacher members may make additional contributions for the purpose of offsetting the actuarial reduction for Early Retirement. Also, employers may make additional contributions on behalf of their employee and teacher members for the purpose of offsetting the reduction for Early Retirement.
Source of Additional Contributions
Additional contributions made by the member must be paid with dollars which have already been taxed, and the money may not be rolled over from another plan.
Employers may make additional contributions on behalf of the member only for the purpose of offsetting the reduction for Early Retirement. Employers must complete an Employer Request to Deposit Additional Contributions form (C NHRS 41) and file it with NHRS.
Additional contributions are credited with interest at the same rate applied to mandatory member contributions. Per statute, the annual member interest rate effective Jan. 1 shall be 2 percentage points less than either the assumed rate of investment return or the actual rate of return in the previous fiscal year, whichever is lower. Any change to the interest rate could affect the funding of a benefit through additional contributions.
Calculation of Additional Contributions
Calculations are actuarially determined and based on the member’s base rate of pay, age, years of creditable service, projected retirement date, assumed interest rate applicable to accumulated contributions, and other information available at the time of the member’s request to deposit additional contributions.
NHRS provides the member with the calculation results. A member may choose to contribute a lesser amount or not at all, but never a greater amount.
The actual benefit received for additional contributions may not meet the member’s expectations if at the time of retirement the actual compensation levels, interest rates, age, or retirement date differ from the assumptions used in the additional contributions actuarial computations. NHRS will not automatically recalculate the amount of additional contributions needed to fund a particular benefit; members must contact NHRS.
Recalculation of Additional Contributions
Members who are eligible to make additional contributions may request a new calculation if any of the assumptions used in the original actuarial computations have changed. In such cases the member must complete and file with NHRS a Member Request To Update Voluntary Additional Contributions Calculation form (CNHRS 40D). Upon completion of the actuarial computations, NHRS will mail to the member a Statement of Additional Contributions, which shows the revised maximum annual amount that the member may contribute in any fiscal year, provided that none of the assumptions used in the actuarial computation subsequently changes (such as the annual rate of compensation and other variables).
Taxation and Limitations
After-tax member additional contributions will not be taxed again for Federal income tax purposes. However, all employer-paid additional contributions and interest earnings are taxable income to the member when received from NHRS whether as a lump sum distribution or an additional annuity.
The Internal Revenue Code (IRC) imposes certain limits on allowable additional contributions. The IRC limitations are very complex and may limit the member’s ability to meet retirement objectives through additional contributions. NHRS will monitor those limits as they relate to NHRS additional contributions.
NHRS law limits the amount of additional contributions that a member may make. Additional contributions may only fund an additional annuity, which when combined with the member’s regular annuity, shall not exceed 50% of the member’s average final compensation; OR, additional contributions may never exceed the amount needed to offset the Early Retirement reduction.
If a member’s additional contributions exceed the NHRS limits, excess payments will be refunded.
Remitting Additional Contributions
Members may remit additional contributions to NHRS through payroll deductions, but only if the employer is willing to do so. Members must provide their employer with a copy of their Statement of Additional Contributions.
Members using payroll deduction do not need to file any forms. Members whose additional contributions are not remitted through payroll deduction will need to include a Voluntary Additional Contribution Form (D NHRS 22) with each of their payments to NHRS.
NHRS does not issue reminder notices to members and/or employers for additional contributions.
Members must notify NHRS in writing when their additional contributions will cease. If the contributions are remitted through payroll deduction, members must also notify their employer of the change, so that the additional deductions will cease.
Receiving the Funds
At retirement, the member may choose to receive the additional contributions as an additional annuity for the member’s lifetime, or the member may withdraw the additional contributions plus credited interest in cash, in lieu of an additional monthly annuity.
If the retired member had elected a Survivorship Option, the survivorship beneficiary(ies) will receive the survivorship portion of the retired member’s lifetime additional annuity. If the retired member had not elected a Survivorship Option, the designated beneficiary(ies) will receive any balance of the additional contributions not yet distributed to the retired member through the annuity.
Withdrawing Additional Contributions Prior to Retirement
Members may not withdraw additional contributions or interest earnings, or receive an additional annuity, prior to termination of employment.
If a member terminates employment and chooses to withdraw his/her funds, the member must withdraw both the regular and additional contributions. Vested members may receive a Vested Deferred Retirement pension in the future.