S T A T E   O F   N E W   Y O R K
 ________________________________________________________________________
 
                                   9327
 
                             I N  S E N A T E
 
                               May 17, 2022
                                ___________
 
 Introduced  by  Sen.  BAILEY -- 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
 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
 
  EXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets
                       [ ] is old law to be omitted.
              

                                                            LBD11444-02-2
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 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:
   SUMMARY OF BILL: This proposed legislation would amend the  Retirement
 and  Social  Security  Law  (RSSL) to permit Tier 3, Tier 3 Revised, and
 Tier 3 Enhanced members (who are subject to Article 14) of the New  York
 S. 9327                             3
 
 City  Police  Pension Fund (POLICE), to take loans against their accumu-
 lated 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 $40.0 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 $9.4 million and an increase in
 the Present Value of future employer Normal Cost of $30.6 million.
   FINANCIAL  IMPACT  -  RELATED  TO LOST INVESTMENT EARNINGS: Currently,
 member contributions are invested with other POLICE assets in accordance
 with its 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 at 6.0%  per  annum  prior  to  retirement.
 Thus,  POLICE  asset  earnings  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, 2021, members eligible to borrow  member  contributions  under  this
 proposed legislation had balances totaling approximately $316.3 million,
 $230.6  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 $0.3
 million per year.
   FINANCIAL IMPACT - ANNUAL EMPLOYER CONTRIBUTIONS: In  accordance  with
 Section  13-638.2(k-2)  of  the  Administrative  Code of the City of New
 S. 9327                             4
 
 York, new UAL attributable to benefit changes are  to  be  amortized  as
 determined by the Actuary but are generally amortized over the remaining
 working  lifetime  of  those impacted by the benefit changes. As of June
 30,  2021, the remaining working lifetime of the members in Tier 3, Tier
 3 Revised, and Tier 3 Enhanced Plan is approximately 18 years.
   For the purposes of this Fiscal Note, the increase in  UAL  was  amor-
 tized over an 18-year period (17 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 $3.0 million each year. Assuming a homo-
 geneous population, this cost will decrease by  approximately  10%  over
 time  as a larger portion of the membership is limited to a maximum loan
 percentage of 50% and a maximum loan amount of $50,000.
   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 $0.3 million per year.
   Therefore, the total cost for this legislation, if enacted, is approx-
 imately $3.3 million per year.
   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 Final June 30, 2021 actuar-
 ial 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 2023.
   CENSUS DATA: The estimates presented herein are based  on  the  census
 data  used in the Preliminary June 30, 2021 (Lag) actuarial valuation of
 POLICE to determine the Preliminary Fiscal Year 2023  employer  contrib-
 utions.
   The  17,963  Tier  3,  Tier  3 Revised, and Tier 3 Enhanced members in
 POLICE as of June 30, 2021 had an  average  age  of  approximately  31.8
 years, average service of approximately 5.3 years, and an average salary
 of approximately $97,600.
   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 Preliminary June
 30,  2021  (Lag)  actuarial valuations used to determine the Preliminary
 Fiscal Year 2023 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 3.5% per year. Finally, it has  been  assumed  that  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
 S. 9327                             5
 
   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, Michael J. Samet, am the Interim
 Chief Actuary for, and independent of,  the  New  York  City  Retirement
 Systems and Pension Funds. I am a Fellow of the Society of Actuaries and
 a  Member of the American Academy of 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 2022-44 dated May 5, 2022
 was prepared by the Interim Chief Actuary for the New York  City  Police
 Pension  Fund.  This  estimate  is intended for use only during the 2022
 Legislative Session.