A04957 Summary:

BILL NOA04957
 
SAME ASNo Same As
 
SPONSORFitzpatrick
 
COSPNSRGraf, Curran, Friend, McLaughlin, Walter, Corwin, Oaks, Blankenbush, Hawley, Tenney, DiPietro
 
MLTSPNSRCrouch, Lawrence, Lupinacci, McDonald, McKevitt, Paulin, Tedisco, Thiele
 
Add Art 22-A SS1250 - 1255, R & SS L
 
Relates to establishing a defined contribution program of which elected officials are deemed mandatory members.
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A04957 Actions:

BILL NOA04957
 
02/09/2015referred to governmental employees
01/06/2016referred to governmental employees
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A04957 Committee Votes:

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A04957 Floor Votes:

There are no votes for this bill in this legislative session.
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A04957 Memo:

NEW YORK STATE ASSEMBLY
MEMORANDUM IN SUPPORT OF LEGISLATION
submitted in accordance with Assembly Rule III, Sec 1(f)
 
BILL NUMBER: A4957
 
SPONSOR: Fitzpatrick (MS)
  TITLE OF BILL: An act to amend the retirement and social security law, in relation to establishing a defined contribution program for which elected officials are deemed mandatory members   PURPOSE OR GENERAL IDEA OF BILL: This bill creates a defined contribution plan for employees hired on or after April 1, 2012. This plan would be optional for all employees, with the exception that newly elected officials would be deemed mandatory members.   SUMMARY OF SPECIFIC PROVISIONS: Section 1. Creates the defined contribution plan for all public retire- ment systems of the State and New York City, and requires the adminis- trator of each retirement system to adopt rules and regulations regard- ing the standards and requirements of the plan. Establishes that employers will be required to contribute four percent of member's salary into the defined contribution plan. If an employee elects to contribute into the defined contribution plan, an employer would be responsible for matching the employee contribution, with a maximum match of an additional three percent. Establishes that an employee is allowed to contribute an amount up to the maximum allowable amount under Federal Law. Requires elected officials to join the defined contribution plan, and makes the defined contribution plan optional for all other public employees. Establishes a death benefit equal to the member's salary upon his or her completion of one year of service, two years salary upon completion of two years of service and three years of salary upon completion of three years of service. The death benefit payment shall be in lieu of the payment of the basic employer contribution and matching contribution, and the value of the employee contributions shall be payable in addition to the death benefit. Section 2. Provides the effective date.   JUSTIFICATION: This legislation seeks to provide savings to the State and local govern- ments by creating a defined contribution plan that is optional for all newly hired public employees, with the exception that newly elected officials would be required to join the plan. In recent years, the costs of maintaining the State's defined benefit plans have risen to unsus- tainable levels, and offering the defined contribution plan as an option will help to reduce these costs. Also, there is a conflict of interest that exists when elected officials are receiving benefits from a pension system that they have the power to enhance at any time. By requiring elected officials to join the defined contribution plan, the possibility of enhancing their own retirement benefit through the defined benefit plan would be eliminated.   PRIOR LEGISLATIVE HISTORY: 2014 - A.5206 - Held in Governmental Employees Committee   FISCAL IMPLICATIONS: "This bill would provide new members who first join public retirement systems in New York State on or after April 1, 2016 the option to become covered under the provisions of a new defined contribution plan in lieu of the defined benefit plan. This plan would be mandatory for elected officials who first join public retirement systems in New York State on or after April 1, 2016. Pursuant to Chapter 18 of the Laws of 2012, participation is optional in a defined contribution plan for non-union employees hired on or after July 1, 2013 whose salary is $75,000 or higher. "The proposal does not appear to provide sufficient time for the provisions to be implemented by April 1, 2016. "Insofar as this bill would affect the New York State and Local Employ- ees Retirement System (ERS) and the New York State and Local Police and Fire Retirement System (PFRS), the significant design changes to the defined benefit plan include: 1. Mandatory employer contributions of 4% of wages. 2. Matching employer contributions for voluntary employee contributions of up to 3% of wages. 3. Employee and employer contributions are subject to limits in Federal Law. 4. A death benefit equal to - the member's salary after completion of one year of service, - two year's salary after completion of two year's service, and - three year's salary after completion of three year's service, reduced by the employer contributions already made to the employee's defined contribution account. 5. There is no disability benefit. 6. Members may not opt out of the defined contribution plan once they have opted in. 7. The defined contribution plan is to be administered by the New York State and Local Retirement System, which may enter into agreements with qualified providers for investment of member accounts and general admin- istration of the plan. "Assuming that employees contribute 3% or more to maximize the employer match, the long term expected total annual employer contribution rate for all members who choose the defined contribution plan (includes the death benefit and the ongoing administrative rate) would be approximate- ly 7.7% of payroll. "There would also be additional NYSLRS administrative expenses to estab- lish the new defined contribution plan. Such expenses would include legal costs to draft and submit plan documents for review by the Inter- nal Revenue Service, drafting and promulgating such rules and regu- lations as may be necessary or required to implement the defined contribution program, entering into general agreements with qualified providers for the investment of member accounts and general adminis- tration of the plan, informing employers and new members of the new plan provisions, and establishing the DC death benefit. These establishment expenses are currently estimated at $3 to 10 million. "Additionally, the .state and participating employers will incur costs to modify their payroll systems and procedures in order to collect employee contributions and remit them along with mandatory employer contributions shortly after each payroll. Such costs are estimated to be $1 million for changes to the state payroll system related to the defined benefit and defined contribution plans. Remittance of employer contributions on a payroll schedule, rather than annually under the defined benefit plan, will affect employers' cash management. It also seems extremely unlikely that such a plan could be implemented by April 1, 2016. Further, the bill contains no appropriation to support the additional payroll administrative expense to the Office of the State Comptroller or the implementation and ongoing expenses of NYSLRS related to the new plan. "In addition, employees will incur management and investment expenses for their defined contribution accounts estimated to average 0.5% of the account balance annually. "Summary of relevant resources: "The membership data used in measuring the impact of the proposed change was the same as that used in the March 31, 2014 actuarial valuation. Distributions and other statistics can be found in the 2014 Report of the Actuary and the 2014 Comprehensive Annual Financial Report. "The actuarial assumptions and methods used are described in the 2010, 2011, 2012, 2013 and 2014 Annual Report to the Comptroller on Actuarial Assumptions, 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, 2014 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 estimate, dated January 20, 2015, and intended for use only during the 2015 Legislative Session, is Fiscal Note No. 2015-37, prepared by the Actuary for the ERS-and PFRS."   EFFECTIVE DATE: This Act shall effect April 1, 2015.
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A04957 Text:



 
                STATE OF NEW YORK
        ________________________________________________________________________
 
                                          4957
 
                               2015-2016 Regular Sessions
 
                   IN ASSEMBLY
 
                                    February 9, 2015
                                       ___________
 
        Introduced  by  M.  of A. FITZPATRICK, GRAF, CURRAN, FRIEND, McLAUGHLIN,
          WALTER, CORWIN, OAKS, BLANKENBUSH, HAWLEY, TENNEY  --  Multi-Sponsored
          by  -- M. of A. CROUCH, McDONALD, McKEVITT, PAULIN, TEDISCO, THIELE --
          read once and referred to the Committee on Governmental Employees
 
        AN ACT to amend the retirement and social security law, in  relation  to
          establishing  a  defined  contribution program for which elected offi-
          cials are deemed mandatory members
 
          The People of the State of New York, represented in Senate and  Assem-
        bly, do enact as follows:
 
     1    Section  1.    The  retirement  and  social security law is amended by
     2  adding a new article 22-A to read as follows:
     3                                ARTICLE 22-A
     4                        DEFINED CONTRIBUTION PROGRAM
     5  Section 1250. Definitions.
     6          1251. Defined contribution programs established.
     7          1252. Rates of contribution.
     8          1253. Enrollment.
     9          1254. Death benefit.
    10          1255. Inconsistent provisions of other acts superseded.
    11    § 1250. Definitions. Wherever used in this article the following terms
    12  shall have the following meanings:
    13    a. The term "public retirement system of the state" shall mean the New
    14  York state and local employees' retirement system, the  New  York  state
    15  teachers'  retirement  system,  the  New York state and local police and
    16  fire retirement system, the New York city employees' retirement  system,
    17  the  New  York city teachers' retirement system, the New York city board
    18  of education retirement system, the New York city police  pension  fund,
    19  and the New York city fire pension fund.
    20    b.  The  terms  "optional  member"  and  "optional members" mean those
    21  employees who are members of a public retirement system of the state who
    22  first became members of such systems on or after April first, two  thou-
 
         EXPLANATION--Matter in italics (underscored) is new; matter in brackets
                              [ ] is old law to be omitted.
                                                                   LBD05785-02-5

        A. 4957                             2
 
     1  sand  sixteen  and  make  an  election  to join the defined contribution
     2  program established pursuant to this article pursuant to the  provisions
     3  of section twelve hundred fifty-three of this article.
     4    c.    The  terms "mandatory member" and "mandatory members" mean those
     5  elected officials who are members of a public retirement system  of  the
     6  state  who first became members of such systems on or after April first,
     7  two thousand sixteen  pursuant  to  the  provisions  of  section  twelve
     8  hundred fifty-three of this article.
     9    d.  The  terms  "program  participant" and "program participants" mean
    10  those employees electing to  participate  in  the  defined  contribution
    11  program.
    12    e.  The  term  "defined  contribution  program"  means  the retirement
    13  program established pursuant to this article.
    14    f. The term "wages" shall mean regular compensation earned by and paid
    15  to a member by a public employer, except that the following items  shall
    16  not  be  included  in the definition of wages: (i) overtime compensation
    17  paid under any law or policy under which employees are paid  at  a  rate
    18  greater  than  their  standard  rate  for  additional  hours beyond that
    19  required, including section one hundred thirty-four of the civil service
    20  law and section ninety of the  general  municipal  law,  (ii)  wages  in
    21  excess  of  the  annual  salary paid to the governor pursuant to section
    22  three of article four of the state constitution, (iii) lump sum payments
    23  for deferred compensation, sick leave,  accumulated  vacation  or  other
    24  credits  for  time not worked, (iv) any form of termination pay, and (v)
    25  any additional compensation paid in anticipation of retirement.
    26    § 1251. Defined contribution programs  established.  There  is  hereby
    27  established a defined contribution program within each public retirement
    28  system  of  the state which shall provide for retirement benefits for or
    29  on behalf of program participants.  Under such program  the  state,  the
    30  city  of  New  York and other participating employers and such employees
    31  shall contribute, to the extent authorized or required, to such  defined
    32  contribution accounts. The programs shall be administered by the retire-
    33  ment  system  in which the program participant is a member.  Each public
    34  retirement system of the state is  authorized  to  promulgate  all  such
    35  rules  and  regulations as may be necessary or required to implement the
    36  defined contribution programs  established  pursuant  to  this  article,
    37  including  such rules and regulations as may be necessary to comply with
    38  the applicable provisions of title twenty-six of the United States  Code
    39  relating to defined contribution plans and their qualification and oper-
    40  ation and all such rules and regulations as may be necessary or required
    41  regarding  the  collection of employer and member contributions, invest-
    42  ment of contributions, withdrawals and distribution of member  accounts,
    43  nomination  of beneficiaries, the assessment and collection from employ-
    44  ers of costs and expenses incurred in the establishment and operation of
    45  the plan, and all other matters pertaining thereto. Each public  retire-
    46  ment  system  of  the  state is authorized to enter into such agreements
    47  with qualified providers as  may  be  necessary  or  desirable  for  the
    48  investment  of  member  accounts  and  the general administration of the
    49  plan.
    50    § 1252. Rates of  contribution.  a.  1.  The  employer  shall  make  a
    51  contribution  equal to four percent of each program participant's wages.
    52  Such contributions shall be known as "basic employer contributions".
    53    2. The employer shall contribute an amount equal to  the  contribution
    54  made by each program participant, provided however, that such additional
    55  contributions  shall  not  exceed  three percent of each program partic-

        A. 4957                             3
 
     1  ipant's wages. Such contributions shall be known as  "matching  employer
     2  contributions".
     3    b. In the case of any program participants, employees shall be allowed
     4  to contribute an amount up to the maximum allowable amount, inclusive of
     5  basic  and  matching employer contributions, permitted by federal law in
     6  26 U.S.C. 401 et seq. and the rules and regulations of the United States
     7  department of the treasury promulgated thereunder.
     8    c. No contributions pursuant to subdivision a of this section shall be
     9  made by the employer until the program participant completes one year of
    10  service and continues in service thereafter. At the  end  of  a  program
    11  participant's  initial  year  of  service,  a  single contribution in an
    12  amount determined pursuant to subdivision a of this section, with inter-
    13  est at the rate of four per centum per  annum,  shall  be  made  by  the
    14  employer, on behalf of such program participant continued in service.
    15    § 1253. Enrollment.  a. Employees who first become members of a public
    16  retirement  system  of  the  state on or after April first, two thousand
    17  sixteen, within thirty days of his or her entry into service, shall have
    18  the ability to elect the defined contribution program established pursu-
    19  ant to this article. Such election shall be in writing,  shall  be  duly
    20  executed  and  filed  with the retirement system of which he or she is a
    21  member and shall be irrevocable as long as such person is a member of  a
    22  public  retirement system of the state. All eligible employees who elect
    23  the defined contribution program shall not accrue credited  service  for
    24  any  purpose under any other article of this chapter or any other appli-
    25  cable law.
    26    b. All program  participants  enrolled  in  the  defined  contribution
    27  program  shall  not  accrue  credited service to be used for any purpose
    28  under any other article of this chapter or any other applicable law.
    29    c. Any elected official or elected officials who first become  members
    30  of  a public retirement system of the state on or after April first, two
    31  thousand sixteen, shall be a  mandatory  member  or  mandatory  members,
    32  required  to participate in the defined contribution program established
    33  pursuant to this article. For all such  elected  officials  the  defined
    34  contribution  program  shall not accrue credited service for any purpose
    35  under any other article of this chapter or any other applicable law.
    36    § 1254. Death benefit.  a.  Program  participants  shall  receive  the
    37  following financial protection in the event of death in service: a bene-
    38  fit  upon  the death of a member in service equal to the member's salary
    39  upon his or her completion of one year of  service,  two  years'  salary
    40  upon  completion  of  two years of service, and three years' salary upon
    41  completion of three years of service.
    42    b. For the purposes of this section:
    43    1. the death benefit payable shall be in lieu of the  payment  of  the
    44  basic  employer  contributions  and matching employer contributions made
    45  pursuant to this article, but shall not be less than the value  of  such
    46  contributions and
    47    2.  the  value of the employee contributions shall be payable in addi-
    48  tion to the death benefit payable pursuant to this section.
    49    § 1255. Inconsistent provisions of other acts superseded.  Insofar  as
    50  the  provisions  of this article are inconsistent with the provisions of
    51  any other act, general or special, the provisions of this article  shall
    52  be controlling.
    53    § 2. This act shall take effect April 1, 2015.
          FISCAL NOTE.--Pursuant to Legislative Law, Section 50:
          This  bill  would provide new members who first join public retirement
        systems in New York State on or after April 1, 2016 the option to become

        A. 4957                             4
 
        covered under the provisions of a new defined contribution plan in  lieu
        of  the  defined  benefit plan. This plan would be mandatory for elected
        officials who first join public retirement systems in New York State  on
        or  after  April  1,  2016.  Pursuant to Chapter 18 of the Laws of 2012,
        participation is optional in a defined contribution plan  for  non-union
        employees  hired  on  or  after  July 1, 2013 whose salary is $75,000 or
        higher.
          The proposal does not  appear  to  provide  sufficient  time  for  the
        provisions to be implemented by April 1, 2016.
          Insofar as this bill would affect the New York State and Local Employ-
        ees  Retirement System (ERS) and the New York State and Local Police and
        Fire Retirement System (PFRS), the significant  design  changes  to  the
        defined benefit plan include:
          1. Mandatory employer contributions of 4% of wages.
          2.  Matching  employer  contributions  for voluntary employee contrib-
        utions of up to 3% of wages.
          3. Employee and employer contributions are subject to limits in Feder-
        al Law.
          4. A death benefit equal to
          -the member's salary after completion of one year of service,
          -two year's salary after completion of two year's service, and
          -three year's salary after completion of three year's service,
          reduced by the employer contributions already made to  the  employee's
        defined contribution account.
          5. There is no disability benefit.
          6. Members may opt out of the defined contribution plan once they have
        opted in.
          7. The defined contribution plan is to be administered by the New York
        State  and Local Retirement System, which may enter into agreements with
        qualified providers for investment of member accounts and general admin-
        istration of the plan.
          Assuming that employees contribute 3% or more to maximize the employer
        match, the long term expected total annual  employer  contribution  rate
        for  all  members who choose the defined contribution plan (includes the
        death benefit and the ongoing administrative rate) would be approximate-
        ly 7.7% of payroll.
          There would also  be  additional  NYSLRS  administrative  expenses  to
        establish the new defined contribution plan. Such expenses would include
        legal  costs to draft and submit plan documents for review by the Inter-
        nal Revenue Service, drafting and  promulgating  such  rules  and  regu-
        lations  as  may  be  necessary  or  required  to  implement the defined
        contribution program, entering into general  agreements  with  qualified
        providers  for  the  investment  of member accounts and general adminis-
        tration of the plan, informing employers and new members of the new plan
        provisions, and establishing the DC death benefit.  These  establishment
        expenses are currently estimated at $3 to 10 million.
          Additionally,  the  state and participating employers will incur costs
        to modify their payroll systems  and  procedures  in  order  to  collect
        employee  contributions  and  remit  them  along with mandatory employer
        contributions shortly after each payroll.  Such costs are  estimated  to
        be  $1  million  for  changes to the state payroll system related to the
        defined benefit and defined contribution plans. Remittance  of  employer
        contributions  on  a  payroll  schedule,  rather than annually under the
        defined benefit plan, will affect employers' cash  management.  It  also
        seems  extremely unlikely that such a plan could be implemented by April
        1, 2016. Further, the bill contains  no  appropriation  to  support  the

        A. 4957                             5
 
        additional  payroll  administrative  expense  to the Office of the State
        Comptroller or the implementation and ongoing expenses of NYSLRS related
        to the new plan.
          In  addition,  employees will incur management and investment expenses
        for their defined contribution accounts estimated to average 0.5% of the
        account balance annually.
          Summary of relevant resources:
          The membership data used in  measuring  the  impact  of  the  proposed
        change  was  the same as that used in the March 31, 2014 actuarial valu-
        ation.  Distributions and other statistics can  be  found  in  the  2014
        Report  of  the  Actuary  and  the  2014  Comprehensive Annual Financial
        Report.
          The actuarial assumptions and methods used are described in the  2010,
        2011,  2012, 2013 and 2014 Annual Report to the Comptroller on Actuarial
        Assumptions, 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, 2014
        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 estimate, dated January 20,  2015,  and  intended  for  use  only
        during  the  2015  Legislative  Session,  if  Fiscal  Note  No. 2015-37,
        prepared by the Actuary for the ERS and PFRS.
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