S T A T E   O F   N E W   Y O R K
 ________________________________________________________________________
 
                                   6044
 
                        2023-2024 Regular Sessions
 
                           I N  A S S E M B L Y
 
                              March 31, 2023
                                ___________
 
 Introduced  by  M.  of A. PHEFFER AMATO -- read once and referred to the
   Committee on Governmental Employees
 
 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.
                                                            LBD05726-02-3
              

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 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:
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   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
 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). Loans may be taken no more than once  a  year,  and
 the  dollar  amount  is subject to minimum and maximum restrictions. For
 members with a date of membership before January 1,  2018,  the  members
 may  take out a loan up to 75% of their total contributions plus accumu-
 lated interest. For members with a date of membership on and after Janu-
 ary 1, 2018, the loan is limited to 50% of their total  member  contrib-
 utions plus accumulated interest or $50,000, whichever is less.
   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 and actuarial assumptions and methods described
 herein, the enactment of this proposed legislation  would  increase  the
 Present Value of Future Benefits (PVFB) by approximately $43.7 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 $11.3 million and an increase
 in the Present Value of Future Employer  Normal  Cost  of  approximately
 $32.4 million.
   FINANCIAL  IMPACT  -  RELATED  TO LOST INVESTMENT EARNINGS: Currently,
 member contributions are invested with other  POLICE  assets  which  are
 expected to earn 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.  The
 difference in these rates would lead to smaller asset returns 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.
   As  of  June 30, 2022, members eligible to borrow member contributions
 under this proposed  legislation  had  balances  totaling  approximately
 $387.9 million, $280.2 million of which would be eligible for a loan.
   Based  on  the assumptions described below, the result of this differ-
 ence between the loan repayment rate of 6.0% and the expected investment
 earnings rate of 7.0% is a decrease in the Market Value of Assets (MVA),
 or asset loss, of approximately $0.3 million per year.
   FINANCIAL IMPACT - ANNUAL EMPLOYER  CONTRIBUTIONS:  The  enactment  of
 this  proposed legislation would result in an initial increase in annual
 employer contributions of  approximately  $3.4  million.  This  increase
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 consists  of  an  increase  in  the  Normal  Cost in addition to the UAL
 payment.
   Future  costs  will  vary  based on the amount of member contributions
 eligible for loans. Individual member balances are expected to increase,
 however in the future, a larger portion  of  the  membership  will  have
 membership  dates  on or after January 1, 2018, and therefore be limited
 to a maximum loan percentage  of  50%  and  a  maximum  loan  amount  of
 $50,000.
   New  UAL  attributable to benefit changes are generally amortized over
 the remaining working lifetime of those impacted by the benefit changes.
 The remaining working lifetime for this group is approximately 18  years
 and  the  increase in UAL was therefore amortized over an 18-year period
 (17 payments under the One-Year  Lag  Methodology)  using  level  dollar
 payments.
   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 and was amortized
 over  a  15-year  period (14 payments under the OYLM) using level dollar
 payments.
   CENSUS DATA: The estimates presented herein are based  on  the  census
 data  used  in the June 30, 2022 actuarial valuation of POLICE to deter-
 mine the Preliminary Fiscal Year 2024 employer contributions.
   The 19,375 Tier 3, Tier 3 Revised, and  Tier  3  Enhanced  members  in
 POLICE  as  of  June  30,  2022 had an average age of approximately 32.2
 years, average service of approximately 5.7 years, and an average salary
 of approximately $101,600.
   ACTUARIAL ASSUMPTIONS AND METHODS: The estimates presented herein have
 been calculated based on the actuarial assumptions and methods used  for
 the Preliminary Fiscal Year 2024 employer contributions of POLICE.
   For  the  purposes of this Fiscal Note, it is assumed that the changes
 would be reflected for the first time in the  June  30,  2022  actuarial
 valuation  of POLICE used to determine employer contributions for Fiscal
 Year 2024.
   It has been further assumed that the yield on  30-year  U.S.  Treasury
 securities,  on a long-term basis would equal 3.5% per year and that 25%
 of member balances available for borrowing would be taken  as  loans  at
 retirement.
   RISK  AND  UNCERTAINTY: The costs presented in this Fiscal Note depend
 highly on the realization of the actuarial assumptions used,  demograph-
 ics  of  the  impacted  population and other factors such as investment,
 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.
   Not measured in this Fiscal Note are the following:
   *  The  initial  additional  administrative  costs  to  implement  the
 proposed legislation.
   STATEMENT OF ACTUARIAL OPINION: I, Marek  Tyszkiewicz,  am  the  Chief
 Actuary  for,  and  independent of, the New York City Retirement Systems
 and Pension Funds. I am an Associate of the Society of Actuaries  and  a
 Member of the American Academy of Actuaries. I am a member of NYCERS but
 do  not  believe  it impairs my objectivity and 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
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 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 2023-15 dated March 27,
 2023 was prepared by the Chief Actuary for  the  New  York  City  Police
 Pension  Fund.  This  estimate  is intended for use only during the 2023
 Legislative Session.