S T A T E   O F   N E W   Y O R K
 ________________________________________________________________________
 
                                  6134--A
 
                        2017-2018 Regular Sessions
 
                             I N  S E N A T E
 
                               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:
 
   Section 1. Paragraph 8 of  subdivision  d  of  section  445-a  of  the
 retirement  and  social security law is REPEALED and paragraphs 9 and 10
 are renumbered paragraphs 8 and 9.
   § 2. Paragraph 12 of subdivision d of section 445-c of the  retirement
 and  social  security  law  is REPEALED and paragraphs 13, 14 and 15 are
 renumbered paragraphs 12, 13 and 14.
   § 3. Paragraph 9 of subdivision e of section 504-a of  the  retirement
 and social security law is REPEALED.
   §  4. Paragraph 13 of subdivision e of section 504-b of the retirement
 and social security law is REPEALED.
   § 5. Subdivision a of section 13-140 of the administrative code of the
 city of New York, as amended by chapter 642 of  the  laws  of  1985,  is
 amended to read as follows:
   a. Any member in city service who shall have been a member continuous-
 ly  at  least  three years, may borrow from the contingent reserve fund,
 subject to such rules and regulations as may be approved by such  board,
 an  amount  not  exceeding THE SUM OF (I) seventy-five per centum of the
 amount in his or her account in the annuity savings fund, (II) ALL ADDI-
 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
 
 MEMBER  PURSUANT  TO SECTION FOUR HUNDRED FORTY-FIVE-A OF THE RETIREMENT
 AND SOCIAL SECURITY LAW, AND (III) ALL ADDITIONAL CONTRIBUTIONS, TOGETH-
 ER WITH INTEREST THEREON, MADE BY SUCH MEMBER PURSUANT TO  SECTION  FOUR
 HUNDRED  FORTY-FIVE-C  OF  THE  RETIREMENT AND SOCIAL SECURITY LAW.  The
 rate of interest payable on any loan made under this  section  shall  be
 two  per  centum  higher than the rate of regular interest creditable to
 the account of the member. The amount so borrowed, together with  inter-
 est  on  any  unpaid  balance  thereof shall be repaid to the retirement
 system in equal installments by deduction from the compensation  of  the
 member at the time the compensation is paid, but such installments shall
 be  at  least five per centum of the member's earnable compensation. All
 payments of principal and interest made by such member shall be credited
 to the contingent reserve fund.
   § 6. Paragraph 1 of subdivision b of section 517-c of  the  retirement
 and  social security law, as amended by chapter 303 of the laws of 2017,
 is amended to read as follows:
   1. A member of the New York  state  and  local  employees'  retirement
 system,  the New York state and local police and fire retirement system,
 the New York city employees' retirement system  or  the  New  York  city
 board  of  education  retirement system in active service who has credit
 for at least one year of member service may borrow, no  more  than  once
 during  each  twelve  month period, an amount not exceeding seventy-five
 percent of the total contributions made pursuant to section FIVE HUNDRED
 FOUR-A (INCLUDING INTEREST CREDITED AT THE RATE SET  FORTH  IN  SUBPARA-
 GRAPH  (II)  OF  PARAGRAPH  EIGHT  OF SUBDIVISION E OF SUCH SECTION FIVE
 HUNDRED FOUR-A COMPOUNDED ANNUALLY),  OR  SECTION  FIVE  HUNDRED  FOUR-B
 (INCLUDING  INTEREST CREDITED AT THE RATE SET FORTH IN SUBPARAGRAPH (II)
 OF PARAGRAPH TWELVE OF SUBDIVISION E OF SUCH SECTION FIVE HUNDRED FOUR-B
 COMPOUNDED ANNUALLY) OR SECTION five hundred seventeen of  this  article
 (including  interest  credited at the rate set forth in subdivision c of
 such section five hundred seventeen compounded annually)  and  not  less
 than  one  thousand  dollars,  provided, however, that the provisions of
 this  section  shall  not  apply  to   a   New   York   city   uniformed
 correction/sanitation  revised  plan  member  or an investigator revised
 plan member.
   § 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.