Relates to the maximum amount certain members of the New York state teachers' retirement system may borrow against retirement contributions and makes technical corrections related thereto.
NEW YORK STATE ASSEMBLY MEMORANDUM IN SUPPORT OF LEGISLATION submitted in accordance with Assembly Rule III, Sec 1(f)
BILL NUMBER: A6663
SPONSOR: Abbate TITLE OF BILL:
An act to amend the retirement and social security law, in relation to
the maximum amount certain members of the New York state teachers'
retirement system may borrow against retirement contributions and to
making technical corrections thereto
PURPOSE OF THE BILL:
This bill proposes to amend Retirement and Social Security Law sections
517-b and 613-a to establish a cap on the amount Tier 6 members joining
the New York State Teachers' Retirement System on or after July 1, 2022
may borrow against retirement contributions. The bill also proposes to
amend Retirement and Social Security Law sections 613-b and 1207 to
address a couple of technical corrections in the existing loan
provisions.
SUMMARY AND JUSTIFICATION:
Under current law a member of Tier 3, 4, 5 or 6 of the New York State
Teachers' Retirement System may borrow up to 75 percent of the member
contributions he or she has made to the Retirement System and the stat-
utes require such loans be repaid within five years. The ability to take
a loan from the Retirement System predates Internal Revenue Service
(IRS) rules that deem borrowing above certain limits from a qualified
plan to be a taxable distribution. Currently, pursuant to federal law,
if a qualified plan provides for loans, the plan may limit the amount
that may be taken. The maximum loan amount an active member is permitted
before the loan is taxable is (1) the greater of $10,000 or 50% of the
member's total contribution balance, or (2) $50,000, whichever is less.
This proposed bill intends to comply with the System's Rules and Regu-
lations, conform the borrowing limitations to the IRS rules and deems
borrowing above certain limits from a qualified plan to be a taxable
distribution.
For NYSTRS Fiscal Year ending June 30, 2020, the total number of active
loan accounts was 25,064; meaning 9.6% 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 2019 - 2020, a total of
158 loans went into default. In 2019, 2.7% percent of members who
retired had an outstanding loan balance.
Tier 6 members of the New York State Teachers' 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 affect the member's retirement benefit if not paid in full at the
time of retirement. The loan amendments proposed by this bill are
prospective in nature and, if enacted, would apply to Tier 6 members
with a date of membership on or after July 1, 2022. This provides
sufficient time for the retirement system to educate the membership.
Consequently, the enactment of this legislation would provide uniformity
amongst Tier 6 members of NYSLRS and certain Tier 6 members of the New
York State and Local Employees' Retirement System (NYSLRS). Under Chap-
ter 303 of the Laws of 2017, enacted September 12, 2017, the NYSLRS Tier
6 members who joined on or after January 1, 2018 are also subject to the
same loan limits.
In addition, this bill proposes to make technical corrections to Retire-
ment and Social Security Law sections 613-b and 1207 to address and
clean-up internal references in existing statutory loan provisions.
The New York State Teachers' Retirement System mission is to provide its
members with a secure pension and the System's Rules and Regulations
provide a member loan must satisfy the requirements of section 72(p) of
the Internal Revenue Code. It is with this guidance that the System
recommends statutorily conforming the maximum loan amount to the maximum
amount allowed by the IRS rules before the loan is considered a taxable
distribution. The Retirement System believes a cap on member loans for
Tier 6 members joining on or after July 1, 2022 is necessary to ensure
that members have a secure retirement and, therefore, the Retirement
Board respectfully submits this bill to the Legislature for their
consideration.
EFFECTIVE DATE OF THE BILL:
This act shall take effect immediately; provided, however, that sections
three and four of this act shall be deemed to have been in full force
and effect on and after September 12, 2017.
OTHER AGENCIES TO WHOM THE BILL MAY BE OF INTEREST:
Division of the Budget, Department of Financial Services.
BUDGETARY IMPLICATIONS OF THE BILL:
It is estimated there will be no annual cost to the employers of members
of the New York State Teachers' Retirement System if this bill is
enacted.
