Bill Text: NY S06987 | 2021-2022 | General Assembly | Amended
Bill Title: Permits NYC correction officers to borrow from accumulated contributions.
Spectrum: Partisan Bill (Democrat 1-0)
Status: (Introduced - Dead) 2022-04-27 - PRINT NUMBER 6987B [S06987 Detail]
Download: New_York-2021-S06987-Amended.html
STATE OF NEW YORK ________________________________________________________________________ 6987--B 2021-2022 Regular Sessions IN SENATE May 20, 2021 ___________ 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 -- recommitted to the Committee on Civil Service and Pensions 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 Paragraph 8 of subdivision d of section 445-a of the 2 retirement and social security law is REPEALED and paragraphs 9 and 10 3 are renumbered paragraphs 8 and 9. 4 § 2. Paragraph 12 of subdivision d of section 445-c of the retirement 5 and social security law is REPEALED and paragraphs 13, 14 and 15 are 6 renumbered paragraphs 12, 13 and 14. 7 § 3. Paragraph 9 of subdivision e of section 504-a of the retirement 8 and social security law is REPEALED. 9 § 4. Paragraph 13 of subdivision e of section 504-b of the retirement 10 and social security law is REPEALED. 11 § 5.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 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. LBD06280-04-2S. 6987--B 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 20-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 accumulated Addi- tional Member Contributions (AMC) with interest. 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. 6987--B 3 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: In the event an outstanding loan balance 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 NYCERS. 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 $10.0 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 $8.7 million and an increase in the Present Value of future employer Normal Cost of $1.3 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% 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% per annum prior to retirement. Thus, NYCERS 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 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, 2021, members eligible to borrow member contributions under this proposed legislation had contribution balances totaling approximately $99.4 million, $74.6 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% and the expected investment earn- ings rate of 7% would be a decrease in the MVA, or asset loss, of approximately $0.2 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 York (ACCNY), 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 CO-20 and CC-20 Plans is approximately three years. For the purposes of this Fiscal Note, the increase in UAL was amor- tized over a three year period (two payments under the One-Year Lag Methodology (OYLM)) using level dollar payments. This payment plus the increase in the Normal Cost results in an increase in annual employer contributions of approximately $5.4 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 will be amortized over a 15-year period (14 payments under the OYLM) using level dollar payments. The actuarial losses related to theS. 6987--B 4 lost investment earnings, will eventually compound to an increase in employer contributions of $0.2 million per year. Therefore, the total cost for this legislation, if enacted, is esti- mated to grow to $5.6 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 NYCERS. 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 NYCERS to determine the Preliminary Fiscal Year 2023 employer contrib- utions. The 918 Tier 3 CO-20 and CO-22 Plan members who participate in NYCERS as of June 30, 2021 had an average age of approximately 51.1 years, average service of approximately 20.9 years, and an average salary of approximately $137,000. 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 June 30, 2021 (Lag) actuarial valuation used to determine the Preliminary Fiscal Year 2023 employer contributions of NYCERS. 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 approxi- mately 50% 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 NYCERS, 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 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 2022-32 dated April 22, 2022 was prepared by the Interim Chief Actuary for the New York City Employees’ Retirement System. This estimate is intended for use only during the 2022 Legislative Session.
