senate Bill S7331A

Vetoed By Governor
2013-2014 Legislative Session

Increases the portion of public pension fund assets that may be invested according to the prudent investor standard

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Sponsored By

Archive: Last Bill Status Via A9643 - Vetoed by Governor


  • Introduced
  • In Committee
  • On Floor Calendar
    • Passed Senate
    • Passed Assembly
  • Delivered to Governor
  • Vetoed by Governor

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Actions

view actions (13)
Assembly Actions - Lowercase
Senate Actions - UPPERCASE
Dec 17, 2014 tabled
vetoed memo.552
Dec 05, 2014 delivered to governor
Jun 19, 2014 returned to assembly
passed senate
3rd reading cal.995
substituted for s7331a
Jun 19, 2014 substituted by a9643a
Jun 16, 2014 amended on third reading 7331a
Jun 02, 2014 advanced to third reading
May 29, 2014 2nd report cal.
May 28, 2014 1st report cal.995
May 13, 2014 referred to civil service and pensions

Votes

view votes

May 28, 2014 - Civil Service and Pensions committee Vote

S7331
8
0
committee
8
Aye
0
Nay
3
Aye with Reservations
0
Absent
0
Excused
0
Abstained
show committee vote details

Committee Vote: May 28, 2014

aye wr (3)

Bill Amendments

Original
A (Active)
Original
A (Active)

Co-Sponsors

S7331 - Bill Details

See Assembly Version of this Bill:
A9643A
Law Section:
Retirement and Social Security Law
Laws Affected:
Amd §177, R & SS L

S7331 - Bill Texts

view summary

Increases the portion of public pension fund assets that may be invested according to the prudent investor standard.

view sponsor memo
BILL NUMBER:S7331

TITLE OF BILL: An act to amend the retirement and social security
law, in relation to investments by public pension funds

PURPOSE: This bill increases the portion of public pension fund
assets that may be invested.

SUMMARY OF PROVISIONS:

Section 1 amends paragraph 1 of subdivision 9 of section 177 of the
Retirement and Social Security Law to increase from 25% to 35% the
portion of a public pension fund's assets that may be invested.

Section 2 provides for an immediate effective date.

DISCUSSION: In order to maximize risk-adjusted returns and meet its
actuarial targets, the New York City Retirement Systems (NYCRS) has
increased its exposure to alternative investment classes over time.
This action was in keeping with the evolution of capital markets and
in line with the actions of other large government pension funds. As
the investment advisors and trustees look forward to the market
challenges that lay ahead, they see the need to increase the basket
clause limit from 25% to 35%. This limit will allow for a superior
risk-adjusted portfolio and for additional flexibility to reduce
portfolio volatility while maintaining superior returns. In addition,
this change would better equip the funds' advisors and trustees to
tactically manage the investments to take advantage of market trends,
react to market shocks and avoid potentially costly rebalances or
unwinds at inopportune times.

The basket clause has been increased multiple times. The original
basket clause limit was established at 5% in 1982. The law was amended
in 1987 to increase the limit to 7.5%, in 1997 to 15%, and in 2006 to
25%. With each increase, public pension funds have been in a better
position to manage volatility. The current 25% limitation on basket
clause investments provides a relatively small allocation to non-legal
list investments through the 25% basket clause allocation.

RATIONALE FOR THE CHANGE: As discussed below, volatility and
illiquidity prevent NYCRS from using the entire allocation. As a
result, investments that could provide diversification - such as
certain high yield bonds, bonds denominated in foreign currencies,
various commodities, and other investments - are not available to
NYCRS.

The current twenty five percent limitation on basket investments has
become problematic given current low expected market returns.

Under the current 25% cap, most of the investments allocated to the
basket are illiquid, long-term private equity partnerships. In
addition, NYCRS' international investments, to the extent they exceed
the 10% permitted by the legal list, must be counted against the
basket cap. The private equity investments involve a long-term
commitment for NYCRS to make additional investments, and the timing of
these investments is subject to ever-changing market conditions and is
difficult to forecast. NYCRS must account for both the actual value of


private equity investments as well as future contractual commitments
to provide capital when measuring compliance with the 25% basket
clause allocation.

The portion of the NYCRS portfolios allocated to public equities is
much more volatile than the investments allocated to the basket. As a
result, a swing in public markets can push NYCRS dangerously close to
the investment cap with no new investments.

Expansion of the basket to 35% is critical in providing public pension
advisors and trustees greater ability to mitigate market volatility
and structure superior risk-adjusted portfolios. Increasing a fund's
ability to invest according to the expanded standard will result in
increased flexibility, thereby enabling trustees to monitor
investments closely without restricting their ability to respond
effectively to changing market conditions.

CONCLUSION: In sum, NYCRS is prevented from creating an optimal
investment portfolio. The current 25% limitation on the basket clause
investments prevents NYCRS from investing in a number of attractive
asset classes and strategies.

EFFECTIVE DATE:

Immediately.

view full text
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                    S T A T E   O F   N E W   Y O R K
________________________________________________________________________

                                  7331

                            I N  S E N A T E

                              May 13, 2014
                               ___________

Introduced  by  Sen.  DeFRANCISCO -- 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
  investments by public pension funds

  THE PEOPLE OF THE STATE OF NEW YORK, REPRESENTED IN SENATE AND  ASSEM-
BLY, DO ENACT AS FOLLOWS:

  Section  1.  Paragraph  (a)  of  subdivision  9  of section 177 of the
retirement and social security law, as amended by chapter 22 of the laws
of 2006, is amended to read as follows:
  (a) the investments by a fund made pursuant to this subdivision  shall
not  at  any  time  exceed  [twenty-five]  THIRTY-FIVE per centum of the
assets of such fund;
  S 2. This act shall take effect immediately.
  FISCAL NOTE.--Pursuant to Legislative Law, Section 50:
  PROVISIONS OF PROPOSED LEGISLATION: With respect to the New York  City
Retirement  Systems  ("NYCRS"),  this  proposed  legislation would amend
Retirement and Social Security Law ("RSSL") Section 177.9(a)  to  permit
an  increase to 35% the percentage of assets that may be held in "Basket
Clause" investments (i.e.,  investments  not  explicitly  identified  as
permissible elsewhere in New York State law).
  This 35% limit compares with a limit of 25% under current law.
  FINANCIAL  IMPACT - EMPLOYER CONTRIBUTIONS: With respect to the NYCRS,
the enactment of this proposed legislation would not, in and of  itself,
result in any change in employer contributions.
  The ultimate cost of a Retirement Program is the benefits it pays. The
financing of that ultimate cost is provided by contributions and invest-
ment income.
  Investment  income  depends upon the amounts of assets of the Fund and
the rate of return received on those assets. The rate of return  depends
primarily upon the asset allocation policy of the Fund.
  To the extent that the NYCRS increase their investments in the securi-
ties  authorized  by  this  proposed  legislation  and  those securities
produce greater (lesser) rates of return than the rates of  return  that

 EXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets
                      [ ] is old law to be omitted.
                                                           LBD14954-03-4

S. 7331                             2

the  NYCRS  would  otherwise  have achieved, then employer contributions
will be lesser (greater).
  FISCAL  NOTE  IDENTIFICATION:  This  estimate is intended for use only
during the 2014 Legislation Session. It is Fiscal  Note  2014-16,  dated
April  18,  2014,  prepared  by  the Chief Actuary for the New York City
Retirement Systems.
  FISCAL NOTE.--Pursuant to Legislative Law, Section 50:
  This bill will  amend  the  Retirement  and  Social  Security  Law  to
increase  the  limit  on  non-legal  list  investments for the eight (8)
public retirement systems of  New  York  State.  It  would  replace  the
current 25% limit with a 35% limit.
  If  this  bill  is  enacted, insofar as this bill affects the New York
State and Local Employees' Retirement System and the New York State  and
Local  Police  and Fire Retirement System, we assume that there would be
small investment changes as a result  of  enactment.  Any  increases  or
decreases  in investment earnings will result in decreases or increases,
respectively, in employer contributions. Annual changes in  assets  will
be  shared  by  all employers and will be spread over the future working
lifetimes of active members.
  Summary of relevant resources:
  The membership data used in  measuring  the  impact  of  the  proposed
change  was  the same as that used in the March 31, 2013 actuarial valu-
ation.  Distributions and other statistics can  be  found  in  the  2013
Report  of  the  Actuary  and  the  2013  Comprehensive Annual Financial
Report.
  The actuarial assumptions and methods used are described in the  2010,
2011,  2012  and  2013  Annual  Report  to  the Comptroller on Actuarial
Assumptions, and the Codes Rules and Regulations of  the  State  of  New
York: Audit and Control.
  The Market Assets and GASB Disclosures are found in the March 31, 2013
New  York  State  and  Local  Retirement System Financial Statements and
Supplementary Information.
  I am a member of the American Academy of Actuaries and meet the Quali-
fication Standards to render the actuarial opinion contained herein.
  This estimate, dated May 7, 2014, and intended for use only during the
2014 Legislative Session, is Fiscal Note No. 2014-127, prepared  by  the
Actuary  for  the  New York State and Local Employees' Retirement System
and the New York State and Local Police and Fire Retirement System.
  FISCAL NOTE. -- Pursuant to Legislative Law, Section 50:
  This bill would amend subdivision 9 of Section 177 of  the  Retirement
and  Social  Security  Law  to  increase to 35% the percentage of assets
which may be invested by the New York State Teachers' Retirement  System
in  those investments that aren't otherwise specifically permitted under
the other subdivisions of this section. The current limit is 25%.
  If this bill is enacted, any cost  or  savings  to  the  employers  of
members  of  the New York State Teachers' Retirement System would depend
on the investment performance of any  assets  that  are  invested  in  a
different  manner  due  to  this  change in the investment restrictions.
Additional investment income results in lower required employer contrib-
utions, and vice-versa.
  Employee data is from the System's  most  recent  actuarial  valuation
files,  consisting  of  data provided by the employers to the Retirement
System.  Data distributions and statistics can be found in the  System's
Comprehensive  Annual  Financial  Report  (CAFR).  System  assets are as
reported in the System's financial statements, and can also be found  in

S. 7331                             3

the CAFR. Actuarial assumptions and methods are provided in the System's
Actuarial Valuation Report.
  The  source  of this estimate is Fiscal Note 2014-31 dated May 8, 2014
prepared by the Actuary of  the  New  York  State  Teachers'  Retirement
System and is intended for use only during the 2014 Legislative Session.
I,  Richard  A.  Young,  am the Actuary for the New York State Teachers'
Retirement System. I am a member of the American  Academy  of  Actuaries
and  I meet the Qualification Standards of the American Academy of Actu-
aries to render the actuarial opinion contained herein.

Co-Sponsors

S7331A (ACTIVE) - Bill Details

See Assembly Version of this Bill:
A9643A
Law Section:
Retirement and Social Security Law
Laws Affected:
Amd §177, R & SS L

S7331A (ACTIVE) - Bill Texts

view summary

Increases the portion of public pension fund assets that may be invested according to the prudent investor standard.

view sponsor memo
BILL NUMBER:S7331A

TITLE OF BILL: An act to amend the retirement and social security
law, in relation to investments by public pension funds

PURPOSE: This bill increases the portion of public pension fund assets
that may be invested.

SUMMARY OF PROVISIONS:

Section 1 amends paragraph 1 of subdivision 9 of section 177 of the
Retirement and Social Security Law to increase from 25% to 30% the
portion of a public pension fund's assets that may be invested.

Section 2 provides for an immediate effective date.

DISCUSSION: In order to maximize risk-adjusted returns and meet its
actuarial targets, the New York City Retirement Systems (NYCRS) has
increased its exposure to alternative investment classes over time.
This action was in keeping with the evolution of capital markets and
in line with the actions of other large government pension funds. As
the investment advisors and trustees look forward to the market
challenges that lay ahead, they see the need to increase the basket
clause limit from 25% to 30%. This limit will allow for a superior
risk-adjusted portfolio and for additional flexibility to reduce
portfolio volatility while maintaining superior returns. In addition,
this change would better equip the funds' advisors and trustees to
tactically manage the investments to take advantage of market trends,
react to market shocks and avoid potentially costly rebalances or
unwinds at inopportune times.

The basket clause has been increased multiple times. The original
basket clause limit was established at 5% in 1982. The law was amended
in 1987 to increase the limit to 7.5%, in 1997 to 15%, and in 2006 to
25%. With each increase, public pension funds have been in a better
position to manage volatility. The current 25% limitation on basket
clause investments provides a relatively small allocation to non-legal
list investments through the 25% basket clause allocation.

RATIONALE FOR THE CHANGE: As discussed below, volatility and
illiquidity prevent NYCRS from using the entire allocation. As a
result,investments that could provide diversification - such as
certain high yield bonds, bonds denominated in foreign currencies,
various commodities, and other investments - are not available to
NYCRS.

The current twenty five percent limitation on basket investments has
become problematic given current low expected market returns.

Under the current 25% cap, most of the investments allocated to the
basket are illiquid, longterm private equity partnerships. In
addition, NYCRS' international investments, to the extent they exceed
the 10% permitted by the legal list, must be counted against the
basket cap. The private equity investments involve a long-term
commitment for NYCRS to make additional investments, and the timing of
these investments is subject to ever-changing market conditions and is
difficult to forecast. NYCRS must account for both the actual value of


private equity investments as well as future contractual commitments
to provide capital when measuring compliance with the 25% basket
clause allocation.

The portion of the NYCRS portfolios allocated to public equities is
much more volatile than the investments allocated to the basket. As a
result, a swing in public markets can push NYCRS dangerously close to
the investment cap with no new investments.

Expansion of the basket to 30% is critical in providing public pension
advisors and trustees greater ability to mitigate market volatility
and structure superior risk-adjusted portfolios. Increasing a fund's
ability to invest according to the expanded standard will result in
increased flexibility, thereby enabling trustees to monitor
investments closely without restricting their ability to respond
effectively to changing market conditions.

CONCLUSION: In sum, NYCRS is prevented from creating an optimal
investment portfolio. The current 25% limitation on the basket clause
investments prevents NYCRS from investing in a number of attractive
asset classes and strategies.

EFFECTIVE DATE: Immediately.

view full text
download pdf
                    S T A T E   O F   N E W   Y O R K
________________________________________________________________________

                                 7331--A
    Cal. No. 995

                            I N  S E N A T E

                              May 13, 2014
                               ___________

Introduced by Sens. DeFRANCISCO, SAVINO -- read twice and ordered print-
  ed, and when printed to be committed to the Committee on Civil Service
  and  Pensions  --  reported  favorably from said committee, ordered to
  first and second report, ordered  to  a  third  reading,  amended  and
  ordered reprinted, retaining its place in the order of third reading

AN  ACT  to amend the retirement and social security law, in relation to
  investments by public pension funds

  THE PEOPLE OF THE STATE OF NEW YORK, REPRESENTED IN SENATE AND  ASSEM-
BLY, DO ENACT AS FOLLOWS:

  Section  1.  Paragraph  (a)  of  subdivision  9  of section 177 of the
retirement and social security law, as amended by chapter 22 of the laws
of 2006, is amended to read as follows:
  (a) the investments by a fund made pursuant to this subdivision  shall
not  at any time exceed [twenty-five] THIRTY per centum of the assets of
such fund;
  S 2. This act shall take effect immediately.
  FISCAL NOTE.--Pursuant to Legislative Law, Section 50:
  This bill would amend subdivision 9 of Section 177 of  the  Retirement
and  Social  security  Law  to  increase to 30% the percentage of assets
which may be invested by the New York State Teachers' Retirement  System
in  those investments that aren't otherwise specifically permitted under
the other subdivisions of this section. The current limit is 25%.
  If this bill is enacted, any cost  or  savings  to  the  employers  of
members  of  the New York State Teachers' Retirement System would depend
on the investment performance of any  assets  that  are  invested  in  a
different  manner  due  to  this  change in the investment restrictions.
Additional investment income results in lower required employer contrib-
utions, and vice-versa.
  Employee data is from the System's  most  recent  actuarial  valuation
files,  consisting  of  data provided by the employers to the Retirement
System.  Data distributions and statistics can be found in the  System's
Comprehensive  Annual  Financial  Report  (CAFR).  System  assets are as
reported in the System's financial statements, and can also be found  in

 EXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets
                      [ ] is old law to be omitted.
                                                           LBD14954-08-4

S. 7331--A                          2

the CAFR. Actuarial assumptions and methods are provided in the System's
Actuarial Valuation Report.
  The  source of this estimate is Revised Fiscal Note 2014-31 dated June
11, 2014 prepared by the Actuary of the New York State Teachers' Retire-
ment System and is intended for use only  during  the  2014  Legislative
Session.  I,  Richard  A.  Young,  am the Actuary for the New York State
Teachers' Retirement System. I am a member of the  American  Academy  of
Actuaries and I meet the Qualification Standards of the American Academy
of Actuaries to render the actuarial opinion contained herein.
  FISCAL NOTE.--Pursuant to Legislative Law, Section 50:
  PROVISIONS  OF PROPOSED LEGISLATION: With respect to the New York City
Retirement Systems ("NYCRS"),  this  proposed  legislation  would  amend
Retirement  and  Social Security Law ("RSSL") Section 177.9(a) to permit
an increase to 30% the percentage of assets that may be held in  "Basket
Clause"  investments  (i.e.,  investments  not  explicitly identified as
permissible elsewhere in New York State law).
  This 30% limit compares with a limit of 25% under current law.
  FINANCIAL IMPACT - EMPLOYER CONTRIBUTIONS: With respect to the  NYCRS,
the  enactment of this proposed legislation would not, in and of itself,
result in any change in employer contributions.
  The ultimate cost of a Retirement Program is the benefits it pays. The
financing of that ultimate cost is provided by contributions and invest-
ment income.
  Investment income depends upon the amounts of assets of the  Fund  and
the  rate of return received on those assets. The rate of return depends
primarily upon the asset allocation policy of the Fund.
  To the extent that the NYCRS increase their investments in the securi-
ties authorized  by  this  proposed  legislation  and  those  securities
produce  greater  (lesser) rates of return than the rates of return that
the NYCRS would otherwise have  achieved,  then  employer  contributions
will be lesser (greater).
  FISCAL  NOTE  IDENTIFICATION:  This estimated is intended for use only
during the 2014 Legislative Session. It  is  Fiscal  Note  No.  2014-27,
dated June 11, 2014, prepared by the Chief Actuary for the New York City
Retirement Systems.
  FISCAL NOTE.--Pursuant to Legislative Law, Section 50:
  This  bill  will  amend  the  Retirement  and  Social  Security Law to
increase the limit on non-legal  list  investments  for  the  eight  (8)
public  retirement  systems  of  New  York  State.  It would replace the
current 25% limit with a 30% limit.
  If this bill is enacted, insofar as this bill  affects  the  New  York
State  and Local Employees' Retirement System and the New York State and
Local Police and Fire Retirement System, we assume that there  would  be
small investment changes. Any increases or decreases in investment earn-
ings  will  result  in decreases or increases, respectively, in employer
contributions. Annual changes in assets will be shared by all  employers
and will be spread over the future working lifetimes of active members.
  Summary of relevant resources:
  The  membership  data  used  in  measuring  the impact of the proposed
change was the same as that used in the March 31, 2013  actuarial  valu-
ation.    Distributions  and  other  statistics can be found in the 2013
Report of the  Actuary  and  the  2013  Comprehensive  Annual  Financial
Report.
  The  actuarial assumptions and methods used are described in the 2010,
2011, 2012 and 2013  Annual  Report  to  the  Comptroller  on  Actuarial

S. 7331--A                          3

Assumptions,  and  the  Codes  Rules and Regulations of the State of New
York: Audit and Control.
  The Market Assets and GASB Disclosures are found in the March 31, 2013
New  York  State  and  Local  Retirement System Financial Statements and
Supplementary Information.
  I am a member of the American Academy of Actuaries and meet the Quali-
fication Standards to render the actuarial opinion contained herein.
  This estimate, dated June 12, 2014, and intended for use  only  during
the  2014  Legislative Session, is Fiscal Note No. 2014-152, prepared by
the Actuary for the New  York  State  and  Local  Employees'  Retirement
System  and  the  New  York  State  and Local Police and Fire Retirement
System.

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