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.
