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S09327 Summary:

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S09327 Text:

 
                STATE OF NEW YORK
        ________________________________________________________________________
 
                                          9327
 
                    IN SENATE
 
                                      May 17, 2022
                                       ___________
 
        Introduced  by  Sen.  BAILEY -- read twice and ordered printed, and when
          printed to be committed to the Committee on Civil Service and Pensions
 
        AN ACT to amend the retirement and social security law, in  relation  to
          allowing  certain  members of the New York city police pension fund to
          borrow from contributions
 
          The People of the State of New York, represented in Senate and  Assem-
        bly, do enact as follows:
 
     1    Section 1. Paragraphs 1 and 2 of subdivision b of section 517-c of the
     2  retirement and social security law, paragraph 1 as amended and paragraph
     3  2  as  added  by chapter 303 of the laws of 2017, are amended to read as
     4  follows:
     5    1. A member of the New York  state  and  local  employees'  retirement
     6  system,  the New York state and local police and fire retirement system,
     7  the New York city employees' retirement system [or], the New  York  city
     8  board of education retirement system or the New York city police pension
     9  fund  in  active  service who has credit for at least one year of member
    10  service may borrow, no more than once during each twelve  month  period,
    11  an  amount not exceeding seventy-five percent of the total contributions
    12  made pursuant to section five hundred seventeen of this article (includ-
    13  ing interest credited at the rate set forth in  subdivision  c  of  such
    14  section  five  hundred  seventeen compounded annually) and not less than
    15  one thousand dollars, provided, however, that  the  provisions  of  this
    16  section    shall    not   apply   to   a   New   York   city   uniformed
    17  correction/sanitation revised plan member  or  an  investigator  revised
    18  plan member.
    19    2.  A  member  of  the  New York state and local employees' retirement
    20  system who first joins such system on or after January first, two  thou-
    21  sand  eighteen, or a member of the New York city police pension fund who
    22  first joins such system on or after January first, two thousand eighteen
    23  in active service who has credit for at least one year of member service
    24  may borrow, no more than  once  during  each  twelve  month  period,  an
    25  amount, not less than one thousand dollars and which would not cause the
    26  balance  owed  pursuant  to this section, including any amounts borrowed
    27  then outstanding, to exceed (i) fifty  percent  of  the  member's  total
 
         EXPLANATION--Matter in italics (underscored) is new; matter in brackets
                              [ ] is old law to be omitted.
                                                                   LBD11444-02-2
        S. 9327                             2
 
     1  contributions  made  pursuant  to section five hundred seventeen of this
     2  article (including interest credited at the rate set forth  in  subdivi-
     3  sion  c  of such section five hundred seventeen compounded annually); or
     4  (ii) fifty thousand dollars, whichever is less.
     5    §  2.  Subdivisions  d  and  i  of section 517-c of the retirement and
     6  social security law, subdivision d as added by chapter 920 of  the  laws
     7  of 1990 and subdivision i as amended by chapter 426 of the laws of 2018,
     8  are amended to read as follows:
     9    d.  The  rate  of  interest  payable  upon loans made pursuant to this
    10  section shall: (1) for members of the New York state and  local  employ-
    11  ees'  retirement  system, be one percent less than the valuation rate of
    12  interest adopted for such system, however, in no event shall the rate be
    13  less than the rate set forth in subdivision c of  section  five  hundred
    14  seventeen  of this article; (2) for members of the New York city employ-
    15  ees' retirement system, be one percent less than  the  regular  interest
    16  rate  established  pursuant  to  [subdivision  (c) of section 13-101.12]
    17  paragraph (c) of subdivision twelve of section 13-101 of the administra-
    18  tive code of the city of New York for such system, however, in no  event
    19  shall  the  rate  be  less  than  the rate set forth in subdivision c of
    20  section five hundred seventeen of this article; [and] (3) for members of
    21  the New York city board of education retirement system, be  one  percent
    22  less than the regular interest rate established pursuant to subparagraph
    23  four  of  paragraph  (b)  of  subdivision sixteen of section twenty-five
    24  hundred seventy-five of the education law for such system,  however,  in
    25  no event shall the rate be less than the rate set forth in subdivision c
    26  of  section  five hundred seventeen of this article; and (4) for members
    27  of the New York city police pension fund, be one percent less  than  the
    28  regular  interest  rate established pursuant to subdivision b of section
    29  13-638.2 of the administrative code of the city of  New  York  for  such
    30  system,  however,  in  no event shall the rate be less than the rate set
    31  forth in subdivision  c  of  section  five  hundred  seventeen  of  this
    32  article.    Whenever there is a change in the interest rate, it shall be
    33  applicable to loans made or renegotiated after the date of  such  change
    34  in the interest rate.
    35    i.  Notwithstanding  the provisions of section five hundred sixteen of
    36  this article, whenever a member of such a retirement system, for whom  a
    37  loan  is  outstanding, retires, the retirement allowance payable without
    38  optional modification shall be reduced by a life annuity which is  actu-
    39  arially  equivalent to the amount of the outstanding loan (all outstand-
    40  ing loans shall continue to accrue interest charges  until  retirement),
    41  such life annuity being calculated utilizing the interest rate on thirty
    42  year  United  States  treasury bonds as of January first of the calendar
    43  year of the effective date of retirement and the  mortality  tables  for
    44  options available under section five hundred fourteen of this article. A
    45  retiree  of  the  New  York  city employees' retirement system, board of
    46  education retirement system of the city of New York, [or] the  New  York
    47  state  and  local  employees'  retirement  system,  or the New York city
    48  police pension fund whose benefit has been  so  reduced  may  repay  the
    49  outstanding balance of the loan at any time.  Benefits payable after the
    50  repayment  of  the  loan shall not be subject to the actuarial reduction
    51  required by this subdivision.
    52    § 3. This act shall take effect immediately.
          FISCAL NOTE.--Pursuant to Legislative Law, Section 50:
          SUMMARY OF BILL: This proposed legislation would amend the  Retirement
        and  Social  Security  Law  (RSSL) to permit Tier 3, Tier 3 Revised, and
        Tier 3 Enhanced members (who are subject to Article 14) of the New  York
        S. 9327                             3
 
        City  Police  Pension Fund (POLICE), to take loans against their accumu-
        lated total member contributions with interest.
          Effective Date: Upon enactment.
          BACKGROUND:  Tier 1 and Tier 2 members of POLICE are generally permit-
        ted, subject to certain restrictions, to borrow from  their  accumulated
        Basic  Member Contributions (BMC) with interest. However, Tier 3, Tier 3
        Revised, and Tier 3 Enhanced members are currently not permitted to take
        loans on their contributions.
          The proposed legislation would permit Tier 3, Tier 3 Revised, and Tier
        3 Enhanced members of POLICE to  borrow  from  their  accumulated  total
        member  contributions,  which  include  Enhanced  Plan Additional Member
        Contributions (AMC). For members with a date of membership before  Janu-
        ary  1,  2018,  the members may take out a loan up to 75% of their total
        contributions plus accumulated interest. For  members  with  a  date  of
        membership  on  and after January 1, 2018, the loan is limited to 50% of
        their total member contributions plus accumulated interest  or  $50,000,
        whichever is less.
          This  Fiscal  Note does not account for any tax implications or penal-
        ties that may result to POLICE members in the event loans exceed thresh-
        olds set by the Internal Revenue Service.
          FINANCIAL IMPACT - RELATED TO OUTSTANDING LOANS AT RETIREMENT: In  the
        event  an  outstanding  loan  exists  at  retirement, the balance of the
        unpaid loan is converted to an annuity based on  the  yield  on  30-year
        U.S.  Treasury securities and deducted from the annual retirement allow-
        ance  otherwise  payable.  This conversion is made on an actuarial basis
        that is different than the basis used to determine the employer contrib-
        ution to POLICE. As a result of this difference in actuarial  bases  and
        based  on  the  census data, actuarial assumptions and methods described
        herein, the enactment of this proposed legislation  would  increase  the
        Present Value of Future Benefits (PVFB) by approximately $40.0 million.
          Under  the Entry Age Normal cost method used to determine the employer
        contributions to POLICE, there would be  an  increase  in  the  Unfunded
        Accrued Liability (UAL) of approximately $9.4 million and an increase in
        the Present Value of future employer Normal Cost of $30.6 million.
          FINANCIAL  IMPACT  -  RELATED  TO LOST INVESTMENT EARNINGS: Currently,
        member contributions are invested with other POLICE assets in accordance
        with its overall  investment  policy.  Thus,  member  contributions  are
        expected to earn, in accordance with the POLICE long-term assumption for
        earnings on assets, 7.0% per annum.
          When  an  active  member borrows member contributions from POLICE, the
        loan is repaid with interest at 6.0%  per  annum  prior  to  retirement.
        Thus,  POLICE  asset  earnings  would be lessened due to the decrease in
        assets attributable to the amount of loans outstanding.
          Assuming loan repayment within  one  year,  the  member  contributions
        borrowed  while  in active service are expected to reduce overall POLICE
        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, 2021, members eligible to borrow  member  contributions  under  this
        proposed legislation had balances totaling approximately $316.3 million,
        $230.6  million  of  which  would  be  eligible for a loan. Based on the
        assumptions described below, the result of this difference  between  the
        loan repayment rate of 6.0% and the expected investment earnings rate of
        7.0%  is  a  decrease  in  the MVA, or asset loss, of approximately $0.3
        million per year.
          FINANCIAL IMPACT - ANNUAL EMPLOYER CONTRIBUTIONS: In  accordance  with
        Section  13-638.2(k-2)  of  the  Administrative  Code of the City of New
        S. 9327                             4
 
        York, new UAL attributable to benefit changes are  to  be  amortized  as
        determined by the Actuary but are generally amortized over the remaining
        working  lifetime  of  those impacted by the benefit changes. As of June
        30,  2021, the remaining working lifetime of the members in Tier 3, Tier
        3 Revised, and Tier 3 Enhanced Plan is approximately 18 years.
          For the purposes of this Fiscal Note, the increase in  UAL  was  amor-
        tized over an 18-year period (17 payments under the One-Year Lag Method-
        ology  (OYLM))  using  level  dollar  payments.  This  payment  plus the
        increase in the Normal Cost results in an increase  in  annual  employer
        contributions  of approximately $3.0 million each year. Assuming a homo-
        geneous population, this cost will decrease by  approximately  10%  over
        time  as a larger portion of the membership is limited to a maximum loan
        percentage of 50% and a maximum loan amount of $50,000.
          Since the changes in the POLICE 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  will  be  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 $0.3 million per year.
          Therefore, the total cost for this legislation, if enacted, is approx-
        imately $3.3 million per year.
          CONTRIBUTION TIMING: For the purposes  of  this  Fiscal  Note,  it  is
        assumed  that  the changes in the PVFB and annual employer contributions
        would be reflected for the first time in the Final June 30, 2021 actuar-
        ial valuation of POLICE. In accordance with the OYLM used  to  determine
        employer  contributions,  the  increase  in employer contributions would
        first be reflected in Fiscal Year 2023.
          CENSUS DATA: The estimates presented herein are based  on  the  census
        data  used in the Preliminary June 30, 2021 (Lag) actuarial valuation of
        POLICE to determine the Preliminary Fiscal Year 2023  employer  contrib-
        utions.
          The  17,963  Tier  3,  Tier  3 Revised, and Tier 3 Enhanced members in
        POLICE as of June 30, 2021 had an  average  age  of  approximately  31.8
        years, average service of approximately 5.3 years, and an average salary
        of approximately $97,600.
          ACTUARIAL  ASSUMPTIONS AND METHODS: The changes in the PVFB and annual
        employer contributions presented herein have been  calculated  based  on
        the actuarial assumptions and methods in effect for the Preliminary June
        30,  2021  (Lag)  actuarial valuations used to determine the Preliminary
        Fiscal Year 2023 employer contributions of POLICE.
          In addition, for the purposes of this Fiscal Note, it has been assumed
        that the yield on 30-year U.S. Treasury securities, on a long-term basis
        would equal 3.5% per year. Finally, it has  been  assumed  that  25%  of
        member balances available for borrowing would be taken as loans.
          RISK  AND  UNCERTAINTY: The costs presented in this Fiscal Note depend
        highly on the realization of the actuarial assumptions used, as well  as
        certain  demographic  characteristics  of  POLICE  and  other  exogenous
        factors such as investment, contribution, and  other  risks.  If  actual
        experience  deviates  from actuarial 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.
          Not measured in this Fiscal Note are the following:
          * The initial, additional administrative costs of POLICE and other New
        S. 9327                             5
 
          York City agencies to implement the proposed legislation.
          * The impact of this proposed legislation on Other Postemployment
          Benefit (OPEB) costs.
          STATEMENT  OF  ACTUARIAL  OPINION: I, Michael J. Samet, am the Interim
        Chief Actuary for, and independent of,  the  New  York  City  Retirement
        Systems and Pension Funds. I am a Fellow of the Society of Actuaries and
        a  Member of the American Academy of 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  and  procedures  and with the Actuarial
        Standards of Practice issued by the Actuarial Standards Board.
          FISCAL NOTE IDENTIFICATION: This Fiscal Note 2022-44 dated May 5, 2022
        was prepared by the Interim Chief Actuary for the New York  City  Police
        Pension  Fund.  This  estimate  is intended for use only during the 2022
        Legislative Session.