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A08093 Memo:

NEW YORK STATE ASSEMBLY
MEMORANDUM IN SUPPORT OF LEGISLATION
submitted in accordance with Assembly Rule III, Sec 1(f)
 
BILL NUMBER: A8093
 
SPONSOR: Abbate
  TITLE OF BILL: An act to amend the retirement and social security law, in relation to the maximum amount that certain members of the New York state and local employees' retirement system and the New York state and local police and fire retirement system may borrow against retirement contributions   PURPOSE: To establish a cap on the amount that certain Tier 6 members of the New York State and Local Employees' Retirement System and the New York State and Local Police and Fire Retirement System (collectively "the New York State and Local Retirement System") may borrow against retirement contributions.   SUMMARY OF PROVISIONS: Section 1 of this bill amends Subdivision b of Section 517-c of the Retirement and Social Security Law to establish that a member of the New York State and Local Employees' Retirement System in the uniformed personnel in institutions under the jurisdiction of the department of correctional services of New York State who first joins such system on or after the effective date of this bill may not borrow from the New York State and Local Employees' Retirement System an amount which would cause the total balance owed on all retirement system loans, including any loans then outstanding, to exceed fifty percent of a member's contributions or fifty thousand dollars, whichever is less. Section 2 of this bill amends Subdivision b of Section 613-b of the Retirement and Social Security Law to establish that a member of the New York State and Local Employees' Retirement System who first joins such system on or after the effective date of this bill may not borrow from the New York State and Local Employees' Retirement System an amount which would cause the total balance owed on all retirement system loans, including any loans then outstanding, to exceed fifty percent of a member's contributions or fifty thousand dollars, whichever is less. Section 3 of this bill amends Subdivision a of section 1207 of the Retirement and Social Security Law to establish that a member of the New York State and Local Police and Fire Retirement System who first joins such system on or after the effective date of this bill may not borrow from the New York State and Local Police and Fire Retirement System an amount which would cause the total balance owed on all retirement system loans, including any loans then outstanding, to exceed fifty percent of a member's contributions or fifty thousand dollars, whichever is less. Section 4 of this bill provides for an effective date of immediately.   PRIOR LEGISLATIVE HISTORY: New Bill.   JUSTIFICATION: Current law allows a member of Tier 3, 4, 5 or 6 of the New York State and Local Employees' Retirement System or a member of Tier 3, 5 or 6 of the New York State and Local Police and Fire Retirement System to borrow up to 75 percent of the contributions he or she has made to such Retire- ment System and requires that such loans be repaid within five years. The ability to take a loan from the New York State and Local Retirement System is a popular feature, which predates Internal Revenue Service rules (IRS) that deem borrowing above certain limits from a qualified plan to be a taxable distribution. Currently, pursuant to federal law, the maximum loan amount that an active member is permitted before the loan is taxable is (1) the greater of $10,000 or 50% of the member's vested account balance, or (2) $50,000, whichever is less. This bill conforms the maximum loan amount available to NYSLRS members with IRS rules thereby preventing members from taking out taxable loans. For the State Fiscal Year ending March 31, 2016, the total number of active loan accounts for members of the New York State and Local Retire- ment System was 231,254, meaning 19.89 percent of members had loans outstanding. Unfortunately, many members with outstanding loan balances at the time of retirement either go into default or have not completed repayment prior to retiring. Members suffer adverse tax consequences if they do not pay back the loan within the required repayment plan and a lifetime actuarial reduction of retirement benefits if they do not pay the loan back before retirement. For fiscal year 2015 - 2016, a total of 3,847 loans went into default. In 2015, 17 percent of ERS members who retired had an outstanding loan balance. Tier 6 members of the New York State and Local Retirement System, as established by chapter 18 of the laws of 2012, contribute to their pensions for their entire careers. As a result, there exists the poten- tial for significant contribution balances and large loan amounts that could devastate the member's retirement benefit if not paid in full at the time of retirement. The State Comptroller as the administrative head of the New York State and Local Retirement System believes a cap on such loans is necessary to ensure that members have a secure retirement and therefore urges passage of this legislation.   BUDGET IMPLICATIONS: This bill has no significant fiscal impact.   EFFECTIVE DATE: This bill would take effect immediately.
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