STATE OF NEW YORK
________________________________________________________________________
6134--A
2017-2018 Regular Sessions
IN SENATE
May 11, 2017
___________
Introduced by Sen. GOLDEN -- read twice and ordered printed, and when
printed to be committed to the Committee on Cities -- recommitted to
the Committee on Cities in accordance with Senate Rule 6, sec. 8 --
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2 retirement and social security law is REPEALED and paragraphs 9 and 10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5 and social security law is REPEALED and paragraphs 13, 14 and 15 are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8 and social security law is REPEALED.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10 and social security law is REPEALED.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
EXPLANATION--Matter in italics (underscored) is new; matter in brackets
[] is old law to be omitted.
LBD11665-02-8
S. 6134--A 2
1 member pursuant to section four hundred forty-five-a of the retirement
2 and social security law, and (iii) all additional contributions, togeth-
3 er with interest thereon, made by such member pursuant to section four
4 hundred forty-five-c of the retirement and social security law. The
5 rate of interest payable on any loan made under this section shall be
6 two per centum higher than the rate of regular interest creditable to
7 the account of the member. The amount so borrowed, together with inter-
8 est on any unpaid balance thereof shall be repaid to the retirement
9 system in equal installments by deduction from the compensation of the
10 member at the time the compensation is paid, but such installments shall
11 be at least five per centum of the member's earnable compensation. All
12 payments of principal and interest made by such member shall be credited
13 to the contingent reserve fund.
14 § 6. Paragraph 1 of subdivision b of section 517-c of the retirement
15 and social security law, as amended by chapter 303 of the laws of 2017,
16 is amended to read as follows:
17 1. A member of the New York state and local employees' retirement
18 system, the New York state and local police and fire retirement system,
19 the New York city employees' retirement system or the New York city
20 board of education retirement system in active service who has credit
21 for at least one year of member service may borrow, no more than once
22 during each twelve month period, an amount not exceeding seventy-five
23 percent of the total contributions made pursuant to section five hundred
24 four-a (including interest credited at the rate set forth in subpara-
25 graph (ii) of paragraph eight of subdivision e of such section five
26 hundred four-a compounded annually), or section five hundred four-b
27 (including interest credited at the rate set forth in subparagraph (ii)
28 of paragraph twelve of subdivision e of such section five hundred four-b
29 compounded annually) or section five hundred seventeen of this article
30 (including interest credited at the rate set forth in subdivision c of
31 such section five hundred seventeen compounded annually) and not less
32 than one thousand dollars, provided, however, that the provisions of
33 this section shall not apply to a New York city uniformed
34 correction/sanitation revised plan member or an investigator revised
35 plan member.
36 § 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%
S. 6134--A 3
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.
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 (PVF) of Benefits (PVFB) and PVF employer contributions
by approximately $47.3 million.
Under the Entry Age Normal cost method used to determine the employer
contributions to NYCERS, there would be an increase in the Unfunded
Accrued Liability (UAL) of approximately $32.2 million and an increase
in the PVF employer Normal Cost of $15.1 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.
Therefore, the borrowed AMC while in active service is expected to
reduce overall NYCERS investment earnings by approximately $475 for
every $100,000 borrowed, resulting in a decrease in the Actuarial Value
of Assets (AVA). As of June 30, 2017, members eligible to borrow member
contributions under this proposed legislation had AMC balances totaling
approximately $303.9 million, $227.9 million of which would be eligible
for a loan. If all members borrowed the maximum amount, the result would
be a decrease in the AVA, or asset loss, of approximately $1.1 million
per year.
FINANCIAL IMPACT - ANNUAL EMPLOYER CONTRIBUTIONS: In accordance with
the Administrative Code of the City of New York (ACCNY) Section
13-638.2(k-2), new UAL attributable to benefit changes are to be amor-
tized as determined by the Actuary but generally over the remaining
working lifetime of those impacted by the benefit changes. As of June
S. 6134--A 4
30, 2017, the remaining working lifetime of the members in CO-20 and
CC-20 Plans is approximately eight years.
For the purposes of this Fiscal Note, the increase in UAL was amor-
tized over an eight-year period (seven payments under the One-Year Lag
Methodology) using level dollar payments. This payment plus the increase
in the Normal Cost results in an increase in annual employer contrib-
utions of approximately $8.3 million.
Since the changes in NYCERS AVA 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 One-Year Lag Methodology) using
level dollar payments. The actuarial losses related to the lost invest-
ment earnings, will eventually compound to an increase in employer
contributions of $1.1 million per year.
Therefore, the total cost for this legislation, if enacted, is $9.4
million per year.
OTHER COSTS: Not measured in this Fiscal Note are the additional
administrative costs of NYCERS and other New York City agencies to
implement the proposed legislation.
CONTRIBUTIONS TIMING: For the purposes of this Fiscal Note, it is
assumed that the changes in the PVF employer contributions, and annual
employer contributions would be reflected for the first time in the June
30, 2017 actuarial valuation of NYCERS. In accordance with the One-Year
Lag Methodology (OYLM) used to determine employer contributions, the
increase in employer contributions would first be reflected in Fiscal
Year 2019.
CENSUS DATA: The estimates presented herein are based on census data
used in the Preliminary June 30, 2017 (Lag) actuarial valuation of
NYCERS to determine Preliminary Fiscal Year 2019 employer contributions.
ACTUARIAL ASSUMPTIONS AND METHODS: The changes in the APV of future
employer contributions and annual employer contributions presented here-
in have been calculated based on the same actuarial assumptions and
methods in effect for the June 30, 2017 (Lag) actuarial valuations used
to determine the Preliminary Fiscal Year 2019 employer contributions of
NYCERS. Please note these assumptions and methods are subject to change
as this valuation is not considered final until the end of Fiscal Year
2019.
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
(ERISA), a Member of the American Academy of Actuaries, and a Fellow of
the Conference of Consulting Actuaries. I meet the Qualification Stand-
ards of the American Academy of Actuaries to render the actuarial opin-
ion contained herein. To the best of my knowledge, the results contained
herein have been prepared in accordance with generally accepted actuari-
al principles and procedures and with the Actuarial Standards of Prac-
tice issued by the Actuarial Standards Board.
FISCAL NOTE IDENTIFICATION: This Fiscal Note 2018-51 dated August 20,
2018, was prepared by the Chief Actuary for the New York City Employees'
Retirement System. This estimate is intended for use only during the
2018 Legislative Session.