S T A T E   O F   N E W   Y O R K
 ________________________________________________________________________
 
                                  7782--A
 
                        2019-2020 Regular Sessions
 
                           I N  A S S E M B L Y
 
                               May 21, 2019
                                ___________
 
 Introduced by M. of A. ABBATE, PHEFFER AMATO, D'URSO, BRAUNSTEIN, SOLAG-
   ES,  ORTIZ,  COLTON, PERRY, BARNWELL, DenDEKKER, D. ROSENTHAL, LENTOL,
   WEPRIN, M. G. MILLER, GRIFFIN, CRUZ, WILLIAMS, FALL -- Multi-Sponsored
   by -- M.  of A. HEVESI -- read once and referred to the  Committee  on
   Governmental Employees -- recommitted to the Committee on Governmental
   Employees  in  accordance  with  Assembly  Rule 3, sec. 2 -- 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:
 
   Section 1. Paragraphs 1 and 2 of subdivision b of section 517-c of the
 retirement and social security law, paragraph 1 as amended and paragraph
 2  as  added  by chapter 303 of the laws of 2017, are 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 OR THE NEW YORK CITY POLICE PENSION
 FUND  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 seventeen of this article (includ-
 ing 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.

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

                                                            LBD09957-06-0

 A. 7782--A                          2
 
   2.  A  member  of  the  New York state and local employees' retirement
 system who first joins such system on or after January first, two  thou-
 sand  eighteen, OR A MEMBER OF THE NEW YORK CITY POLICE PENSION FUND WHO
 FIRST JOINS SUCH SYSTEM ON OR AFTER JANUARY FIRST, TWO THOUSAND EIGHTEEN
 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 less than one thousand dollars and which would not cause the
 balance owed pursuant to this section, including  any  amounts  borrowed
 then  outstanding,  to  exceed  (i)  fifty percent of the member's total
 contributions made pursuant to section five hundred  seventeen  of  this
 article  (including  interest credited at the rate set forth in subdivi-
 sion c of such section five hundred seventeen compounded  annually);  or
 (ii) fifty thousand dollars, whichever is less.
   §  2.  Subdivisions  d  and  i  of section 517-c of the retirement and
 social security law, subdivision d as added by chapter 920 of  the  laws
 of 1990 and subdivision i as amended by chapter 426 of the laws of 2018,
 are amended to read as follows:
   d.  The  rate  of  interest  payable  upon loans made pursuant to this
 section shall: (1) for members of the New York state and  local  employ-
 ees'  retirement  system, be one percent less than the valuation rate of
 interest adopted for such system, however, in no event shall the rate be
 less than the rate set forth in subdivision c of  section  five  hundred
 seventeen  of this article; (2) for members of the New York city employ-
 ees' retirement system, be one percent less than  the  regular  interest
 rate  established  pursuant  to  [subdivision  (c) of section 13-101.12]
 PARAGRAPH (C) OF SUBDIVISION TWELVE OF SECTION 13-101 of the administra-
 tive code of the city of New York for such system, however, in no  event
 shall  the  rate  be  less  than  the rate set forth in subdivision c of
 section five hundred seventeen of this article; [and] (3) for members of
 the New York city board of education retirement system, be  one  percent
 less than the regular interest rate established pursuant to subparagraph
 four  of  paragraph  (b)  of  subdivision sixteen of section twenty-five
 hundred seventy-five of the education law for such system,  however,  in
 no event shall the rate be less than the rate set forth in subdivision c
 of  section  five hundred seventeen of this article; AND (4) FOR MEMBERS
 OF THE NEW YORK CITY POLICE PENSION FUND, BE ONE PERCENT LESS  THAN  THE
 REGULAR  INTEREST  RATE ESTABLISHED PURSUANT TO SUBDIVISION B OF SECTION
 13-638.2 OF THE ADMINISTRATIVE CODE OF THE CITY OF  NEW  YORK  FOR  SUCH
 SYSTEM,  HOWEVER,  IN  NO EVENT SHALL THE RATE BE LESS THAN THE RATE SET
 FORTH IN SUBDIVISION  C  OF  SECTION  FIVE  HUNDRED  SEVENTEEN  OF  THIS
 ARTICLE.    Whenever there is a change in the interest rate, it shall be
 applicable to loans made or renegotiated after the date of  such  change
 in the interest rate.
   i.  Notwithstanding  the provisions of section five hundred sixteen of
 this article, whenever a member of such a retirement system, for whom  a
 loan  is  outstanding, retires, the retirement allowance payable without
 optional modification shall be reduced by a life annuity which is  actu-
 arially  equivalent to the amount of the outstanding loan (all outstand-
 ing loans shall continue to accrue interest charges  until  retirement),
 such life annuity being calculated utilizing the interest rate on thirty
 year  United  States  treasury bonds as of January first of the calendar
 year of the effective date of retirement and the  mortality  tables  for
 options available under section five hundred fourteen of this article. A
 retiree  of  the  New  York  city employees' retirement system, board of
 education retirement system of the city of New York, [or] the  New  York
 state  and  local  employees'  retirement  system,  OR THE NEW YORK CITY

 A. 7782--A                          3
 
 POLICE PENSION FUND whose benefit has been  so  reduced  may  repay  the
 outstanding balance of the loan at any time.  Benefits payable after the
 repayment  of  the  loan shall not be subject to the actuarial reduction
 required by this subdivision.
   § 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

 A. 7782--A                          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-

 A. 7782--A                          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.