S T A T E   O F   N E W   Y O R K
 ________________________________________________________________________
 
                                   6341
 
                        2023-2024 Regular Sessions
 
                           I N  A S S E M B L Y
 
                               April 5, 2023
                                ___________
 
 Introduced  by  M.  of A. DeSTEFANO, ANGELINO, GANDOLFO -- read once and
   referred to the Committee on Governmental Employees
 
 AN ACT to amend the retirement and social security  law,  the  education
   law  and  the administrative code of the city of New York, in relation
   to providing cost-of-living adjustments

   THE PEOPLE OF THE STATE OF NEW YORK, REPRESENTED IN SENATE AND  ASSEM-
 BLY, DO ENACT AS FOLLOWS:
 
   Section  1. Subdivision d of section 78-a of the retirement and social
 security law, as added by chapter 125 of the laws of 2000, is amended to
 read as follows:
   d. The percentage referred to in  this  section  shall  be  determined
 annually  by reference to the consumer price index (all urban consumers,
 CPI-U, U.S. city average, all  items,  1982-84=100),  published  by  the
 United  States  bureau of labor statistics, for each applicable calendar
 year. Said percentage shall equal fifty percent of the annual inflation,
 as determined from the increase in the consumer price index in  the  one
 year period ending on the March thirty-first prior to the cost-of-living
 adjustment  effective  on  the  ensuing September first. Said percentage
 shall then be rounded up to the next higher one-tenth of one percent and
 shall not exceed three percent nor be less than one percent  AND  EFFEC-
 TIVE  THE  FIRST  DAY OF SEPTEMBER, TWO THOUSAND TWENTY-THREE, SHALL NOT
 EXCEED FIVE PERCENT NOR BE LESS THAN ONE PERCENT.
   § 2. Subdivision d of section 378-a of the retirement and social secu-
 rity law, as added by chapter 125 of the laws of  2000,  is  amended  to
 read as follows:
   d.  The  percentage  referred  to  in this section shall be determined
 annually by reference to the consumer price index (all urban  consumers,
 CPI-U,  U.S.  city  average,  all  items, 1982-84=100), published by the
 United States bureau of labor statistics, for each  applicable  calendar
 year. Said percentage shall equal fifty percent of the annual inflation,
 as  determined  from the increase in the consumer price index in the one
 
  EXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets
                       [ ] is old law to be omitted.
                                                            LBD08009-02-3
              

 A. 6341                             2
 
 year period ending on the March thirty-first prior to the cost-of-living
 adjustment effective on the ensuing  September  first.  Said  percentage
 shall then be rounded up to the next higher one-tenth of one percent and
 shall  not  exceed three percent nor be less than one percent AND EFFEC-
 TIVE THE FIRST DAY OF SEPTEMBER, TWO THOUSAND  TWENTY-THREE,  SHALL  NOT
 EXCEED FIVE PERCENT NOR BE LESS THAN ONE PERCENT.
   §  3. Subdivision d of section 532-a of the education law, as added by
 chapter 125 of the laws of 2000, is amended to read as follows:
   d. The percentage referred to in  this  section  shall  be  determined
 annually  by reference to the consumer price index (all urban consumers,
 CPI-U, U.S. city average, all  items,  1982-84=100),  published  by  the
 United  States  bureau of labor statistics, for each applicable calendar
 year. Said percentage shall equal fifty percent of the annual inflation,
 as determined from the increase in the consumer price index in  the  one
 year period ending on the March thirty-first prior to the cost-of-living
 adjustment  effective  on  the  ensuing September first. Said percentage
 shall then be rounded up to the next higher one-tenth of one percent and
 shall not exceed three percent nor be less than one percent  AND  EFFEC-
 TIVE  THE  FIRST  DAY OF SEPTEMBER, TWO THOUSAND TWENTY-THREE, SHALL NOT
 EXCEED FIVE PERCENT NOR BE LESS THAN ONE PERCENT.
   § 4. Subdivision d of section 13-696 of the administrative code of the
 city of New York, as added by chapter  125  of  the  laws  of  2000,  is
 amended to read as follows:
   d.  The  percentage  referred  to  in this section shall be determined
 annually by reference to the consumer price index (all urban  consumers,
 CPI-U,  U.S.  city  average,  all  items, 1982-84=100), published by the
 United States bureau of labor statistics, for each  applicable  calendar
 year. Said percentage shall equal fifty percent of the annual inflation,
 as  determined  from the increase in the consumer price index in the one
 year period ending on the March thirty-first prior to the cost-of-living
 adjustment effective on the ensuing  September  first.  Said  percentage
 shall then be rounded up to the next higher one-tenth of one percent and
 shall  not  exceed three percent nor be less than one percent AND EFFEC-
 TIVE THE FIRST DAY OF SEPTEMBER, TWO THOUSAND  TWENTY-THREE,  SHALL  NOT
 EXCEED FIVE PERCENT NOR BE LESS THAN ONE PERCENT.
   § 5. This act shall take effect immediately.
   FISCAL NOTE.--Pursuant to Legislative Law, Section 50:
   This  bill  would  provide an increase in the defined benefit cost-of-
 living adjustment (COLA) for New York public retirement systems.  Start-
 ing with a payment in September 2023, the maximum percentage  calculated
 for the annual cost of living increase shall increase from three percent
 to five percent.
   Insofar  as  this bill affects the New York State and Local Employees'
 Retirement System (NYSLERS), pursuant to Section 25  of  the  Retirement
 and  Social Security Law, the increased costs would be borne entirely by
 the State of New York and would require an itemized appropriation suffi-
 cient to pay the cost of the provision. If this bill were enacted during
 the 2023 legislative session, the increase in the present value of bene-
 fits would be approximately $916 million.
   In the NYSLERS, this benefit improvement will be funded by (1) billing
 a past service cost to cover retrospective  benefit  increases  and  (2)
 increasing the billing rates charged annually to cover prospective bene-
 fit increases, as follows:
   (1)  To  fund  retrospective  costs,  the  State  of  New York will be
 required to pay $895 million as of March 1, 2024.
 A. 6341                             3

   (2) To fund prospective costs, the annual contribution required of all
 participating employers in NYSLERS  is  0.04%  of  billable  salary,  or
 approximately  $5.2  million  to the State of New York and approximately
 $7.5 million to the local participating employers  in  the  fiscal  year
 ending  March  31,  2025. This PERMANENT ANNUAL COST will vary in subse-
 quent billing cycles with changes in the billing rate and salary of  the
 affected members.
   Insofar  as  this bill affects the New York State and Local Police and
 Fire Retirement System (NYSLPFRS), the increased costs would  be  shared
 by  the  State  of  New  York  and  all  participating  employers in the
 NYSLPFRS. If this bill were enacted during the 2023 legislative session,
 the increase in the present value of benefits would be approximately $99
 million.

           NYSLPFRS        Increase in present     Increase in future
                           value benefits          contributions
           Tiers 1 - 5     $90 million             $53 million
           Tier 6          $9 million              $46 million
           Total           $99 million             $99 million
 
   In the NYSLPFRS, this benefit improvement will be funded by increasing
 the billing rates charged  annually  to  cover  both  retrospective  and
 prospective  benefit increases.  The annual contribution required of all
 participating employers in the NYSLPFRS is 0.2% of billable  salary,  or
 approximately  $1.7  million  to the State of New York and approximately
 $6.8 million to the local participating employers  in  the  fiscal  year
 ending  March  31,  2025. This PERMANENT ANNUAL COST will vary in subse-
 quent billing cycles with changes in the billing rate and salary of  the
 affected members.
   To  develop the costs above, the Monte Carlo method was used to create
 a collection of possible outcomes to better understand the fiscal impact
 and risks associated with this bill. A collection of 5,000  Monte  Carlo
 simulations  were  developed.  Each  simulation  consisted  of a 30-year
 projection of the annual CPI-U.
   In 4,000 of the 5,000 simulations, inflation exceeded 6% in  at  least
 one  year and this bill would provide additional COLA benefits for reti-
 rees. In these 4,000 simulations, inflation exceeded 6% for  an  average
 of  four years over the 30-year period, with three of those years occur-
 ring sequentially. Over that three-year period, we would expect a perma-
 nent annual increase in the employer billing rates equal to:
   * approximately 1.3% under the current 3% maximum COLA percentage, and
   * approximately 2.2% under the proposed 5% maximum COLA percentage.
   In 1,500 of the 5,000 simulations, inflation exceeded 10% in at  least
 one year. In these 1,500 simulations, inflation exceeded 6% for an aver-
 age  of  seven  years  over the 30-year period, with five of those years
 occurring sequentially. Over that five-year period, we  would  expect  a
 permanent annual increase in the employer billing rates equal to:
   * approximately 2.1% under the current 3% maximum COLA percentage, and
   * approximately 3.6% under the proposed 5% maximum COLA percentage.
   The  current corridor of 1% and 3% provides an average COLA percentage
 that is approximately equal  to  half  the  rate  of  inflation  over  a
 retiree's lifetime. By maintaining the 1% floor but increasing the maxi-
 mum  to  5%, this bill provides a larger retiree COLA percentage in high
 inflationary environments, but at a cost  that  includes  more  volatile
 employer  contribution  rates. Prefunding COLA benefits cannot eliminate
 A. 6341                             4
 
 or mitigate the increased volatility in the billing rates caused by this
 benefit improvement.
   Summary of relevant resources:
   Membership  data as of March 31, 2022 was used in measuring the impact
 of the proposed change, the same data used in the April 1, 2022 actuari-
 al valuation. Distributions and other statistics can  be  found  in  the
 2022  Report  of the Actuary and the 2022 Annual Comprehensive Financial
 Report.
   The actuarial assumptions and methods used are described in the  2020,
 2021,  and  2022  Annual  Report to the Comptroller on Actuarial Assump-
 tions, 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, 2022
 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 fiscal note does not constitute a legal opinion on the  viability
 of  the  proposed change nor is it intended to serve as a substitute for
 the professional judgment of an attorney.
   This estimate, dated March 30, 2023, and intended for use only  during
 the  2023  Legislative  Session, is Fiscal Note No. 2023-68, prepared by
 the Actuary for the New York State and Local Retirement System.