STATE OF NEW YORK
________________________________________________________________________
5851--A
2019-2020 Regular Sessions
IN SENATE
May 15, 2019
___________
Introduced by Sen. GOUNARDES -- read twice and ordered printed, and when
printed to be committed to the Committee on Civil Service and Pensions
-- committee discharged, bill amended, ordered reprinted as amended
and recommitted to said committee
AN ACT to amend the administrative code of the city of New York and the
retirement and social security law, in relation to permitting certain
New York city correction members to borrow from their accumulated
member contributions; and to repeal certain provisions of the retire-
ment and social security law relating thereto
The People of the State of New York, represented in Senate and Assem-bly, do enact as follows:
1 Section 1. Paragraph 8 of subdivision d of section 445-a of the
2 retirement and social security law is REPEALED and paragraphs 9 and 10
3 are renumbered paragraphs 8 and 9.
4 § 2. Paragraph 12 of subdivision d of section 445-c of the retirement
5 and social security law is REPEALED and paragraphs 13, 14 and 15 are
6 renumbered paragraphs 12, 13 and 14.
7 § 3. Paragraph 9 of subdivision e of section 504-a of the retirement
8 and social security law is REPEALED.
9 § 4. Paragraph 13 of subdivision e of section 504-b of the retirement
10 and social security law is REPEALED.
11 § 5. Subdivision a of section 13-140 of the administrative code of the
12 city of New York, as amended by chapter 642 of the laws of 1985, is
13 amended to read as follows:
14 a. Any member in city service who shall have been a member continuous-
15 ly at least three years, may borrow from the contingent reserve fund,
16 subject to such rules and regulations as may be approved by such board,
17 an amount not exceeding the sum of (i) seventy-five per centum of the
18 amount in his or her account in the annuity savings fund, (ii) all addi-
19 tional contributions, together with interest thereon, made by such
20 member pursuant to section four hundred forty-five-a of the retirement
EXPLANATION--Matter in italics (underscored) is new; matter in brackets
[] is old law to be omitted.
LBD04279-03-9
S. 5851--A 2
1 and social security law, and (iii) all additional contributions, togeth-
2 er with interest thereon, made by such member pursuant to section four
3 hundred forty-five-c of the retirement and social security law. The
4 rate of interest payable on any loan made under this section shall be
5 two per centum higher than the rate of regular interest creditable to
6 the account of the member. The amount so borrowed, together with inter-
7 est on any unpaid balance thereof shall be repaid to the retirement
8 system in equal installments by deduction from the compensation of the
9 member at the time the compensation is paid, but such installments shall
10 be at least five per centum of the member's earnable compensation. All
11 payments of principal and interest made by such member shall be credited
12 to the contingent reserve fund.
13 § 6. Paragraph 1 of subdivision b of section 517-c of the retirement
14 and social security law, as amended by chapter 303 of the laws of 2017,
15 is amended to read as follows:
16 1. A member of the New York state and local employees' retirement
17 system, the New York state and local police and fire retirement system,
18 the New York city employees' retirement system or the New York city
19 board of education retirement system in active service who has credit
20 for at least one year of member service may borrow, no more than once
21 during each twelve month period, an amount not exceeding seventy-five
22 percent of the total contributions made pursuant to section five hundred
23 four-a (including interest credited at the rate set forth in subpara-
24 graph (ii) of paragraph eight of subdivision e of such section five
25 hundred four-a compounded annually), or section five hundred four-b
26 (including interest credited at the rate set forth in subparagraph (ii)
27 of paragraph twelve of subdivision e of such section five hundred four-b
28 compounded annually) or section five hundred seventeen of this article
29 (including interest credited at the rate set forth in subdivision c of
30 such section five hundred seventeen compounded annually) and not less
31 than one thousand dollars, provided, however, that the provisions of
32 this section shall not apply to a New York city uniformed
33 correction/sanitation revised plan member or an investigator revised
34 plan member.
35 § 7. This act shall take effect immediately.
FISCAL NOTE.--Pursuant to Legislative Law, Section 50:
SUMMARY OF BILL: This proposed legislation would amend Retirement and
Social Security Law (RSSL) and Administrative Code of the City of New
York (ACCNY) to permit certain correction officer members of the New
York City Employees' Retirement System (NYCERS), who are participants in
the Tier 2 and Tier 3 Twenty-Year Improved Benefit Program for
correction officers (CO-20 Plans) and such Plans for ranks of correction
captains and above (CC-20 Plans), to take loans against their accumu-
lated additional member contributions with interest (AMC).
Effective Date: Upon enactment.
BACKGROUND: NYCERS members who participate in the Tier 2 and Tier 3
CO-20 and CC-20 Plans are generally permitted, subject to certain
restrictions, to borrow up to 75% of the value of their accumulated
basic member contributions (BMC) with interest. However, these
correction members are currently not permitted to take loans on their
AMC.
The proposed legislation would permit NYCERS members who are partic-
ipants in the Tier 2 CO-20 and CC-20 Plans to borrow 100% of their AMC,
and permit Tier 3 CO-20 and CC-20 Plan participants to borrow up to 75%
of their AMC. The loans on the AMC would be in addition to currently
permissible loans in an amount not to exceed 75% of BMC for such Plans.
S. 5851--A 3
In the event an outstanding loan exists at retirement, the balance of
the unpaid loan is converted into an annuity and is deducted, on an
actuarial basis, from the annual retirement allowance otherwise payable.
For purposes of this Fiscal Note, it has been assumed that the yield on
30-year U.S. Treasury securities, used to convert applicable unpaid
loans at retirement into annuities, on a long-term basis, would equal
4.0% per year.
Because there are no active Tier 2 CO-20 and CC-20 Plan participants,
the analysis in this Fiscal Note is limited to Tier 3 CO-20 and CC-20
Plan participants. Therefore, it is assumed that each applicable partic-
ipant will borrow 75% of his or her respective AMC balance at retire-
ment.
This Fiscal Note also does not account for any tax implications or
penalties that may result to NYCERS members in the event loans exceed
thresholds set by the Internal Revenue Service.
FINANCIAL IMPACT - RELATED TO OUTSTANDING LOANS AT RETIREMENT: As
explained above, any outstanding loan balance at retirement is converted
to an annuity and deducted from the annual retirement allowance other-
wise payable. This conversion is made on an actuarial basis that is
different than the basis used to determine the employer contribution to
NYCERS. As a result of this difference in actuarial bases and based on
the census data and actuarial assumptions and methods described herein,
the enactment of this proposed legislation would increase the Present
Value of Future Benefits (PVFB) by approximately $30.5 million.
Under the Entry Age Normal cost method used to determine the employer
contributions to NYCERS, there would be an increase in the Accrued
Liability (AL) of approximately $25.5 million and an increase in the
Present Value of future employer Normal Cost of $5.0 million.
FINANCIAL IMPACT - RELATED TO LOST INVESTMENT EARNINGS: Currently,
member contributions are invested with other NYCERS assets in accordance
with the NYCERS' overall investment policy. Thus, member contributions
are expected to earn, in accordance with NYCERS' long-term assumption
for earnings on assets, 7.0% per annum.
When an active member borrows member contributions from NYCERS, the
loan is repaid with interest (excluding loan insurance or other adjust-
ments) at 6.0% per annum prior to retirement. Thus, NYCERS asset earn-
ings would be lessened due to the decrease in assets attributable to the
amount of loans outstanding.
Assuming loan repayment within one year, the AMC borrowed while in
active service is expected to reduce overall NYCERS investment earnings
by approximately $472 for every $100,000 borrowed, resulting in a
decrease in the Market Value of Assets (MVA). As of June 30, 2018,
members eligible to borrow member contributions under this proposed
legislation had AMC balances totaling approximately $173.8 million, $
130.3 million of which would be eligible for a loan. If all members
borrowed the maximum amount, the result would be a decrease in the MVA,
or asset loss, of approximately $0.6 million per year.
FINANCIAL IMPACT - ANNUAL EMPLOYER CONTRIBUTIONS: In accordance with
Administrative Code of the City of New York (ACCNY) Section
13-638.2(k-2), new unfunded AL attributable to benefit changes are to be
amortized as determined by the Actuary but generally over the remaining
working lifetime of those impacted by the benefit changes. As of June
30, 2018, the remaining working lifetime of the members in CO-20 and
CC-20 Plans is approximately four years.
For the purposes of this Fiscal Note, the increase in AL was amortized
over a four-year period (three payments under the One-Year Lag Methodol-
S. 5851--A 4
ogy (OYLM)) using level dollar payments. This payment plus the increase
in the Normal Cost results in an increase in annual employer contrib-
utions of approximately $11.3 million each year.
Since the changes in NYCERS Actuarial Value of Assets under this
proposed legislation are not known in advance, the asset loss due to
this legislation has been treated as an actuarial loss. These actuarial
losses were amortized over a 15-year period (14 payments under the OYLM)
using level dollar payments. The actuarial losses related to the lost
investment earnings, will eventually compound to an increase in employer
contributions of $0.6 million per year.
Therefore, the total cost for this legislation, if enacted, will ulti-
mately be $11.9 million per year.
OTHER COSTS: Not measured in this Fiscal Note are the following:
* The initial, additional administrative costs of NYCERS and other New
York City agencies to implement the proposed legislation.
* The impact of this proposed legislation on Other Postemployment
Benefit (OPEB) costs.
CONTRIBUTION TIMING: For the purposes of this Fiscal Note, it is
assumed that the changes in the Present Value of future employer
contributions and annual employer contributions would be reflected for
the first time in the June 30, 2018 actuarial valuation of NYCERS. In
accordance with the OYLM used to determine employer contributions, the
increase in employer contributions would first be reflected in Fiscal
Year 2020.
CENSUS DATA: The estimates presented herein are based on the census
data used in the Preliminary June 30, 2018 (Lag) actuarial valuation of
NYCERS to determine the Preliminary Fiscal Year 2020 employer contrib-
utions.
The 1,995 Tier 3 CO-20 and CC-20 Plan members who participate in
NYCERS as of June 30, 2018 had an average age of approximately 49.6
years, average service of approximately 19.6 years, and an average sala-
ry of approximately $122,000.
ACTUARIAL ASSUMPTIONS AND METHODS: The changes in the Present Value of
future employer contributions and annual employer contributions
presented herein have been calculated based on the actuarial assumptions
and methods in effect for the June 30, 2018 (Lag) actuarial valuations
used to determine the Preliminary Fiscal Year 2020 employer contrib-
utions of NYCERS.
RISK AND UNCERTAINTY: The costs presented in this Fiscal Note depend
highly on the actuarial assumptions and methods used and are subject to
change based on the realization of potential investment, demographic,
contribution, and other risks. If actual experience deviates from actu-
arial assumptions, the actual costs could differ from those presented
herein. Costs are also dependent on the actuarial methods used, and
therefore different actuarial methods could produce different results.
Quantifying these risks is beyond the scope of this Fiscal Note.
STATEMENT OF ACTUARIAL OPINION: I, Sherry S. Chan, am the Chief Actu-
ary for, and independent of, the New York City Retirement Systems and
Pension Funds. I am a Fellow of the Society of Actuaries, an Enrolled
Actuary under the Employee Retirement Income and Security Act of 1974, a
Member of the American Academy of Actuaries, and a Fellow of the Confer-
ence of Consulting Actuaries. I meet the Qualification Standards of the
American Academy of Actuaries to render the actuarial opinion contained
herein. To the best of my knowledge, the results contained herein have
been prepared in accordance with generally accepted actuarial principles
S. 5851--A 5
and procedures and with the Actuarial Standards of Practice issued by
the Actuarial Standards Board.
FISCAL NOTE IDENTIFICATION: This Fiscal Note 2019-22 dated May 20,
2019 was prepared by the Chief Actuary for the New York City Employees'
Retirement System. This estimate is intended for use only during the
2019 Legislative Session.
