NEW YORK STATE ASSEMBLY MEMORANDUM IN SUPPORT OF LEGISLATION submitted in accordance with Assembly Rule III, Sec 1(f)
BILL NUMBER: A7670
SPONSOR: Abbate TITLE OF BILL:
An act to amend the retirement and social security law, in relation to
the calculation of employers' contributions to the New York state and
local employees' retirement system and the New York state and local
police and fire retirement system
PURPOSE:
The purpose of this legislation is to provide for the calculation of the
employer contributions to the funding of the New York state and local
employees' retirement system and the New York state and local police and
fire retirement system ( the Retirement System or System) on the basis
of rates established at the beginning of a fiscal year to be applied to
the employees' annual compensation earned in the same fiscal year as the
establishment of the rates for the payment of contributions due for the
next succeeding fiscal year.
SUMMARY OF PROVISIONS:
Section 1 of the bill amends the opening subparagraph of paragraph 1 of
subdivision b of section 23 of the retirement and social security law in
relation to the applicability of the rate of contribution for the
Employees' Retirement System.
Section 2 of the bill amends paragraph 1 of subdivision b of section
23-a of the retirement and social security law in relation to the
revision of the schedule pertaining to the valuation, billing and
payment of contributions by the state and participating employers under
which the valuation of the assets and liabilities of the retirement
system undertaken on the first day of a fiscal year shall be used to
determine the contribution rates to be applied to the pensionable sala-
ries of the state and participating employers by adding language allow-
ing the use of such salaries earned during such fiscal year for the
payment of contributions due for the next succeeding fiscal year for the
Employees' Retirement System.
Section 3 of the bill amends the opening subparagraph of paragraph 1 of
subdivision b of section 323 of the retirement and social security law
in relation to the applicability of the rate of contribution for the
Police and Fire Retirement System.
Section 4 of the bill amends paragraph 1 of subdivision b of section
323-a of the retirement and social security law in relation to the
revision of the schedule pertaining to the valuation, billing and
payment of contributions by the state and participating employers under
which the valuation of the assets and liabilities of the retirement
system undertaken on the first day of a fiscal year shall be used to
determine the contribution rates to be applied to the pensionable sala-
ries of the state and participating employers by adding language allow-
ing the use of such salaries earned during such fiscal year for the
payment of contributions due for the next succeeding fiscal year for the
Police and Fire Retirement System.
Section 5 of the bill sets forth an immediate effective date.
PRIOR LEGISLATIVE HISTORY:
New bill.
JUSTIFICATION:
Current law requires that the calculation of the payment of employer
contributions to the funding of the New York state and local employees'
retirement system and the New York state and local police and fire
retirement system be based on an employees' compensation as of the end
of the same fiscal year (March 31). However, contributions must be paid
by local participating employers no later than February 1 (Retirement
and Social Security Law § 17) and by the State no later than March 1 of
the fiscal year (Retirement and Social Security Law § 23-a). As a
result, the actual fiscal year end amount of an employer's compensation
base is not known when the bill becomes due or, more importantly, when
the Retirement System issues the bill in the preceding November.
Instead, from the partial information then available, the Retirement
System must project the employer salary base in order to calculate the
bill. Once the fiscal year is closed, it is then necessary for the
Retirement System to reconcile the amount paid with the amount actually
owed by each employer, including the State. The reconciliation may
result in a credit due to the employer. However, the more likely result
is an additional amount that must be paid, with statutory interest at
7.5%, to the Retirement System as part of the bill for the next year.
When the reconciliation results in an additional payment to the System,
it is largely unanticipated to the employer and not included in their
budget for that year.
Because of the current reconciliation process, any large change in sala-
ries has a three-year impact on the invoice, even though the actual
salaries, regular pension contribution and Group Term Life Insurance may
only change for one year. It unduly complicates the employer's budgeting
process. Smaller employers in particular, are placed in the position of
having to make a payment without having the funds budgeted to accommo-
date that payment, unless they have placed funds in reserve.
The proposed amendment would permit the Retirement System to calculate
the employers' obligations on actual, known salaries. This approach
would eliminate the need for time-consuming reconciliations and, for the
State and participating employers, it would provide them with the clari-
ty of a known obligation when preparing budgets. There would be no need
for them to budget for a reserve based on the possibility of owing more
after a reconciliation. This change should also result in a slight down-
ward movement of rates. Although the current contribution stream is
delayed by one year, there is an additional contribution for each active
member in the valuation cohort that stays active for at least one more
year. The increase in the present value of future billable salary due to
that additional contribution is larger than the decrease due to the
one-year delay in the current contribution stream and should result in a
slight reduction of rates.
By the enactment of Chapter 49 of the Laws of 2003, the Legislature
recognized the opportunity for a comprehensive structural reform program
to strengthen the long-term fiscal health of the Retirement System,
reduce the volatility of contribution rates, and provide some budget
certainty for participating employers ( Retirement and Social Security
Law §23-a). Relevant to the current proposal, the timing of the billing
process required the State to pay its contribution based on estimates,
subject to adjustment plus interest, on the basis of subsequent calcu-
lations. Similarly, participating employers were forced to adopt budgets
based on estimates. The Legislature authorized the Comptroller, in his
or her discretion, to implement revisions of the schedule pertaining to
the valuation, billing and payment of employer contributions to provide
budget certainty. Unfortunately, the changes implemented at that time
did not address the issues of budgeting for payments based on estimates
and the need for subsequent reconciliations. By amending Retirement and
Social Security Law §§ 23, 23-a, 323 and 323-a to provide for the calcu-
lation based on rates applied to the salary base earned in the same
fiscal year for the payment of contributions due for the next succeeding
fiscal year, these issues can be resolved and provide for even greater
budgeting certainty for employers.
FISCAL IMPLICATIONS FOR STATE:
This bill has no significant State fiscal impact.
EFFECTIVE DATE:
This act shall take effect immediately.
