Bill Text: NY S05906 | 2019-2020 | General Assembly | Amended


Bill Title: Relates to allowing certain members of the New York city police pension fund to borrow from contributions.

Spectrum: Moderate Partisan Bill (Democrat 6-1)

Status: (Introduced - Dead) 2020-04-08 - PRINT NUMBER 5906B [S05906 Detail]

Download: New_York-2019-S05906-Amended.html



                STATE OF NEW YORK
        ________________________________________________________________________

                                         5906--B

                               2019-2020 Regular Sessions

                    IN SENATE

                                      May 16, 2019
                                       ___________

        Introduced  by  Sens.  GOUNARDES,  COMRIE,  FUNKE,  GAUGHRAN,  KAMINSKY,
          KAPLAN, SAVINO -- read twice and ordered printed, and when printed  to
          be committed to the Committee on Civil Service and Pensions -- commit-
          tee  discharged, bill amended, ordered reprinted as amended and recom-
          mitted 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 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.

         EXPLANATION--Matter in italics (underscored) is new; matter in brackets
                              [ ] is old law to be omitted.
                                                                   LBD09957-05-0

        S. 5906--B                          2

     1    2. A member of the New York  state  and  local  employees'  retirement
     2  system  who first joins such system on or after January first, two thou-
     3  sand eighteen, or a member of the New York city police pension fund  who
     4  first joins such system on or after January first, two thousand eighteen
     5  in active service who has credit for at least one year of member service
     6  may  borrow,  no  more  than  once  during  each twelve month period, an
     7  amount, not less than one thousand dollars and which would not cause the
     8  balance owed pursuant to this section, including  any  amounts  borrowed
     9  then  outstanding,  to  exceed  (i)  fifty percent of the member's total
    10  contributions made pursuant to section five hundred  seventeen  of  this
    11  article  (including  interest credited at the rate set forth in subdivi-
    12  sion c of such section five hundred seventeen compounded  annually);  or
    13  (ii) fifty thousand dollars, whichever is less.
    14    §  2.  Subdivisions  d  and  i  of section 517-c of the retirement and
    15  social security law, subdivision d as added by chapter 920 of  the  laws
    16  of 1990 and subdivision i as amended by chapter 426 of the laws of 2018,
    17  are amended to read as follows:
    18    d.  The  rate  of  interest  payable  upon loans made pursuant to this
    19  section shall: (1) for members of the New York state and  local  employ-
    20  ees'  retirement  system, be one percent less than the valuation rate of
    21  interest adopted for such system, however, in no event shall the rate be
    22  less than the rate set forth in subdivision c of  section  five  hundred
    23  seventeen  of this article; (2) for members of the New York city employ-
    24  ees' retirement system, be one percent less than  the  regular  interest
    25  rate  established  pursuant  to  [subdivision  (c) of section 13-101.12]
    26  paragraph (c) of subdivision twelve of section 13-101 of the administra-
    27  tive code of the city of New York for such system, however, in no  event
    28  shall  the  rate  be  less  than  the rate set forth in subdivision c of
    29  section five hundred seventeen of this article; [and] (3) for members of
    30  the New York city board of education retirement system, be  one  percent
    31  less than the regular interest rate established pursuant to subparagraph
    32  four  of  paragraph  (b)  of  subdivision sixteen of section twenty-five
    33  hundred seventy-five of the education law for such system,  however,  in
    34  no event shall the rate be less than the rate set forth in subdivision c
    35  of  section  five hundred seventeen of this article; and (4) for members
    36  of the New York city police pension fund, be one percent less  than  the
    37  regular  interest  rate established pursuant to subdivision b of section
    38  13-638.2 of the administrative code of the city of  New  York  for  such
    39  system,  however,  in  no event shall the rate be less than the rate set
    40  forth in subdivision  c  of  section  five  hundred  seventeen  of  this
    41  article.    Whenever there is a change in the interest rate, it shall be
    42  applicable to loans made or renegotiated after the date of  such  change
    43  in the interest rate.
    44    i.  Notwithstanding  the provisions of section five hundred sixteen of
    45  this article, whenever a member of such a retirement system, for whom  a
    46  loan  is  outstanding, retires, the retirement allowance payable without
    47  optional modification shall be reduced by a life annuity which is  actu-
    48  arially  equivalent to the amount of the outstanding loan (all outstand-
    49  ing loans shall continue to accrue interest charges  until  retirement),
    50  such life annuity being calculated utilizing the interest rate on thirty
    51  year  United  States  treasury bonds as of January first of the calendar
    52  year of the effective date of retirement and the  mortality  tables  for
    53  options available under section five hundred fourteen of this article. A
    54  retiree  of  the  New  York  city employees' retirement system, board of
    55  education retirement system of the city of New York, [or] the  New  York
    56  state  and  local  employees'  retirement  system,  or the New York city

        S. 5906--B                          3

     1  police pension fund whose benefit has been  so  reduced  may  repay  the
     2  outstanding balance of the loan at any time.  Benefits payable after the
     3  repayment  of  the  loan shall not be subject to the actuarial reduction
     4  required by this subdivision.
     5    § 3. 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  Tier  3,  Tier 3 Revised, and Tier 3 Enhanced
        members (who are subject to Article 14) of  the  New  York  City  Police
        Pension  Fund  (POLICE),  to  take loans against their accumulated 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 $340.6 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 $59.5 million and  an  increase
        in the Present Value of future employer Normal Cost of $281.1 million.
          FINANCIAL  IMPACT  -  RELATED  TO LOST INVESTMENT EARNINGS: Currently,
        member contributions are invested with other POLICE assets in accordance
        with the POLICE 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 (excluding loan insurance or other  adjust-
        ments)  at  6.0% per annum prior to retirement. Thus, POLICE 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  member  contributions
        borrowed  while  in active service are expected to reduce overall POLICE

        S. 5906--B                          4

        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, 2019, members eligible to borrow  member  contributions  under  this
        proposed legislation had balances totaling approximately $196.8 million,
        $146.8  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 $0.2
        million per year.
          FINANCIAL IMPACT - ANNUAL EMPLOYER CONTRIBUTIONS: In  accordance  with
        Section  13-638.2(k-2)  of  the  ACCNY,  new UAL attributable to benefit
        changes are to be amortized as determined by the Actuary, but are gener-
        ally amortized over the remaining working lifetime of those impacted  by
        the benefit changes. As of June 30, 2019, the remaining working lifetime
        of  the  members  in Tier 3, Tier 3 Revised, and Tier 3 Enhanced Plan is
        approximately 19 years.
          For the purposes of this Fiscal Note, the increase in  UAL  was  amor-
        tized  over a 19-year period (18 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 $22.5 million each year.
          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 $0.2 million per year.
          Therefore, the total cost for this legislation, if enacted,  is  esti-
        mated  to  grow  to $22.7 million per year. Assuming a homogeneous popu-
        lation, this cost will decrease by approximately  50%  over  time  as  a
        larger  portion  of  the  membership  is  limited  to  a maximum loan of
        $50,000.
          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  June  30,  2019  actuarial
        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 2021.
          CENSUS  DATA:  The  estimates presented herein are based on the census
        data used in the Preliminary June 30, 2019 (Lag) actuarial valuation  of
        POLICE  to  determine the Preliminary Fiscal Year 2021 employer contrib-
        utions.
          The 15,698 Tier 3, Tier 3 Revised, and  Tier  3  Enhanced  members  in
        POLICE  as  of  June  30,  2019 had an average age of approximately 30.7
        years, average service of approximately 4.4 years, and an average salary
        of approximately $89,000.
          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,  2019
        (Lag) actuarial valuations used to determine the Preliminary Fiscal Year
        2021 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  4.0%  per year. Finally, it has been assumed that approxi-

        S. 5906--B                          5

        mately 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
        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, 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
        and procedures and with the Actuarial Standards of  Practice  issued  by
        the Actuarial Standards Board.
          FISCAL  NOTE  IDENTIFICATION:  This Fiscal Note 2020-21 dated April 1,
        2020 was prepared by the Chief Actuary for  the  New  York  City  Police
        Pension  Fund.  This  estimate  is intended for use only during the 2020
        Legislative Session.
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