S T A T E   O F   N E W   Y O R K
 ________________________________________________________________________
 
                                   5906
 
                        2019-2020 Regular Sessions
 
                             I N  S E N A T E
 
                               May 16, 2019
                                ___________
 
 Introduced by Sen. GOUNARDES -- 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
   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.
   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
 
  EXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets
                       [ ] is old law to be omitted.
              

                                                            LBD09957-02-9

 S. 5906                             2
 
 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
 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:

 S. 5906                             3
 
   We  have  estimated  the  impact  of  the  Loan Bill, on the projected
 employer contributions of the New York City Police Pension Fund. A brief
 summary of the new provisions is outlined below:
   * Members before 1/1/2018 w/ 1+ years of service:
   *  Can  borrow up to 75% of total contributions made (including inter-
 est)
   * Members hired on/after 1/1/2018 w/ 1+ years of service:
   * Can borrow up to 50% to total contributions made  (including  inter-
 est).
   *  If members retired with outstanding loan balance, retirement allow-
 ance is reduced by actuarially equivalent annuity  equal  to  amount  of
 outstanding loan.
   The  table  below  summarizes the additional contributions that result
 from this bill by year.
 (in millions)
 ________________________
 Annual Cost
 ________________________
 2022                7.3
 2023                8.3
 2024                9.3
 2025               10.5
 2026               11.5
   Specific to this bill, participants are assumed to  take  the  maximum
 loan allowable at retirement:
   * 75% of accumulated contributions for members hired before January 1,
 2018
   *  50% of accumulated contributions for members hired after January 1,
 2018
   The assumptions used in this analysis were those released by  the  New
 York  City  Office  of  the  Actuary on January 2, 2019 in the "Proposed
 Changes in Actuarial Assumptions and Methods Used in Determining Employ-
 er Contributions for Fiscal Years Beginning on and After  July  1,  2018
 for  the  New  York City Police Pension Fund" document, and subsequently
 approved by the Police Pension Fund's Board on March 6, 2019.  The  data
 used  to  determine the cost was provided by the Police Pension Fund and
 was a snapshot of the active plan participants as of July 1, 2018.
   This fiscal note, dated May 6, 2019, is intended only for use  in  the
 2019 legislative session.
   The  source  of  this fiscal note is Heidi E. Andorfer, FSA, EA, MAAA,
 Foster & Foster, Actuaries and Consultants, who  is  familiar  with  the
 immediate  and  long-term  aspects of pension calculations and meets the
 Qualification Standards of the American Academy of  Actuaries  necessary
 to render the actuarial opinions contained herein.

                            
 
                     S T A T E   O F   N E W   Y O R K
 ________________________________________________________________________
 
                                  5906--A
 
                        2019-2020 Regular Sessions
 
                             I N  S E N A T E
 
                               May 16, 2019
                                ___________
 
 Introduced  by  Sens.  GOUNARDES,  COMRIE,  KAMINSKY  --  read twice and
   ordered printed, and when printed to be committed to the Committee  on
   Civil  Service  and  Pensions  --  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.
   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
 
  EXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets
                       [ ] is old law to be omitted.
              

                                                            LBD09957-03-9

 S. 5906--A                          2
 
 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
 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.

 S. 5906--A                          3
 
   § 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.
   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.
   It is assumed that each applicable participant will borrow the maximum
 amount of his or her total member contributions at retirement.
   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:  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
 POLICE. 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 Benefits (PVFB) by approximately $1,257.9 million.
   Under  the Entry Age Normal cost method used to determine the employer
 contributions to POLICE, there would  be  an  increase  in  the  Accrued
 Liability  (AL)  of  approximately $180.5 million and an increase in the
 Present Value of future employer Normal Cost of $1,077.4 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-

 S. 5906--A                          4
 
 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
 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,  2018,  members  eligible  to borrow member contributions under this
 proposed legislation had balances totaling approximately $137.0 million,
 $102.7 million of which would be eligible for a  loan.  If  all  members
 borrowed  the maximum amount, the result would be a decrease in the MVA,
 or asset loss, of approximately $0.5 million per year.
   FINANCIAL IMPACT - ANNUAL EMPLOYER CONTRIBUTIONS: In  accordance  with
 Administrative   Code   of   the   City  of  New  York  (ACCNY)  Section
 13-638.2(k-2), new Unfunded AL attributable to benefit changes are to be
 amortized as determined by the Actuary but generally over the  remaining
 working  lifetime  of  those impacted by the benefit changes. As of June
 30, 2018, 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 AL was amortized
 over  a  19-year  period (18 payments under the One-Year Lag Methodology
 (OYLM)) using level dollar payments. This payment plus the  increase  in
 the  Normal Cost results in an increase in annual employer contributions
 of approximately $76.6 million each year.
   Since the changes in 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 were 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 $0.5 million per year.
   Therefore, the total cost for this legislation, if enacted, will ulti-
 mately be $77.1 million per year.
   OTHER COSTS: 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.
   CONTRIBUTION  TIMING:  For  the  purposes  of  this Fiscal Note, it is
 assumed that the  changes  in  the  Present  Value  of  future  employer
 contributions  and  annual employer contributions would be reflected for
 the first time in the June 30, 2018 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 2020.
   CENSUS  DATA:  The  estimates presented herein are based on the census
 data used in the Preliminary June 30, 2018 (Lag) actuarial valuation  of
 POLICE  to  determine the Preliminary Fiscal Year 2020 employer contrib-
 utions.
   The 14,419 Tier 3, Tier 3 Revised, and  Tier  3  Enhanced  members  in
 POLICE  as  of  June  30,  2018 had an average age of approximately 30.2
 years, average service of approximately 3.8 years, and an average salary
 of approximately $81,000.
   ACTUARIAL ASSUMPTIONS AND METHODS: The changes in the Present Value of
 future  employer  contributions  and   annual   employer   contributions
 presented herein have been calculated based on the actuarial assumptions
 and  methods  in effect for the June 30, 2018 (Lag) actuarial valuations

 S. 5906--A                          5
 
 used to determine the Preliminary Fiscal  Year  2020  employer  contrib-
 utions of POLICE.
   RISK  AND  UNCERTAINTY: The costs presented in this Fiscal Note depend
 highly on the actuarial assumptions and methods used and are subject  to
 change  based  on  the realization of potential investment, demographic,
 contribution, and other risks. If actual experience deviates from  actu-
 arial  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.
   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 2019-28 dated May 31,
 2019 was prepared by the Chief Actuary for  the  New  York  City  Police
 Pension  Fund.  This  estimate  is intended for use only during the 2019
 Legislative Session.