BILL NUMBER:S4982

TITLE OF BILL:  An act to amend the retirement and social security
law, in relation to the calculation of employers' contributions to the
New York state and local employees' retirement system and the New York
state and local police and fire retirement system

PURPOSE:

The purpose of this legislation is to provide for the calculation of
the employer contributions to the funding of the New York state and
local employees' retirement system and the New York state and local
police and fire retirement system ( the Retirement System or System)
on the basis of rates established at the beginning of a fiscal year to
be applied to the employees' annual compensation earned in the same
fiscal year as the establishment of the rates for the payment of
contributions due for the next succeeding fiscal year.

SUMMARY OF PROVISIONS:

Section 1 of the bill amends the opening subparagraph of paragraph 1
of subdivision b of section 23 of the retirement and social security
law in relation to the applicability of the rate of contribution for
the Employees' Retirement System.

Section 2 of the bill amends paragraph 1 of subdivision b of section
              

23-a of the retirement and social security law in relation to the
revision of the schedule pertaining to the valuation, billing and
payment of contributions by the state and participating employers
under which the valuation of the assets and liabilities of the
retirement system undertaken on the first day of a fiscal year shall
be used to determine the contribution rates to be applied to the
pensionable salaries of the state and participating employers by
adding language allowing the use of such salaries earned during such
fiscal year for the payment of contributions due for the next
succeeding fiscal year for the Employees' Retirement System.

Section 3 of the bill amends the opening subparagraph of paragraph 1
of subdivision b of section 323 of the retirement and social security
law in relation to the applicability of the rate of contribution for
the Police and Fire Retirement System.

Section 4 of the bill amends paragraph 1 of subdivision b of section
323-a of the retirement and social security law in relation to the
revision of the schedule pertaining to the valuation, billing and
payment of contributions by the state and participating employers
under which the valuation of the assets and liabilities of the
retirement system undertaken on the first day of a fiscal year shall
be used to determine the contribution rates to be applied to the
pensionable salaries of the state and participating employers by
adding language allowing the use of such salaries earned during such
fiscal year for the payment of contributions due for the next
succeeding fiscal year for the for the Police and Fire Retirement
System.

Section 5 of the bill sets forth an immediate effective date.


LEGISLATIVE HISTORY:

New bill.

JUSTIFICATION:

Current law requires that the calculation of the payment of employer
contributions to the funding of the New York state and local
employees' retirement system and the New York state and local police
and fire retirement system be based on an employees' compensation as
of the end of the same fiscal year (March 31).  However, contributions
must be paid by local participating employers no later than February 1
(Retirement and Social Security Law § 17) and by the State no later
than March 1 of the fiscal year (Retirement and Social Security Law
23-a). As a result, the actual fiscal year end amount of an employer's
compensation base is not known when the bill becomes due or, more
importantly, when the Retirement System issues the bill in the
preceding November. Instead, from the partial information then
available, the Retirement System must project the employer salary base
in order to calculate the bill. Once the fiscal year is closed, it is
then necessary for the Retirement System to reconcile the amount paid
with the amount actually owed by each employer, including the State.
The reconciliation may result in a credit due to the employer.
However, the more likely result is an additional amount that must be
paid, with statutory interest at 7.5%, to the Retirement System as
part of the bill for the next year. When the reconciliation results in
an additional payment to the System, it is largely unanticipated to
the employer and not included in their budget for that year.

Because of the current reconciliation process, any large change in
salaries has a three-year impact on the invoice, even though the
actual salaries, regular pension contribution and Group Term Life
Insurance may only change for one year. It unduly complicates the
employer's budgeting process. Smaller employers in particular, are
placed in the position of having to make a payment without having the
funds budgeted to accommodate that payment, unless they have placed
funds in reserve.

The proposed amendment would permit the Retirement System to calculate
the employers' obligations on actual, known salaries. This approach
would eliminate the need for time-consuming reconciliations and, for
the State and participating employers, it would provide them with the
clarity of a known obligation when preparing budgets. There would be
no need for them to budget for a reserve based on the possibility of
owing more after a reconciliation. This change should also result in a
slight downward movement of rates. Although the current contribution
stream is delayed by one year, there is an additional contribution for
each active member in the valuation cohort that stays active for at
least one more year. The increase in the present value of future
billable salary due to that additional contribution is larger than the
decrease due to the one-year delay in the current contribution stream
and should result in a slight reduction of rates.

By the enactment of Chapter 49 of the Laws of 2003, the Legislature
recognized the opportunity for a comprehensive structural reform
program to strengthen the longterm fiscal health of the Retirement
System, reduce the volatility of contribution rates, and provide some


budget certainty for participating employers ( Retirement and Social
Security Law § 23-a). Relevant to the current proposal, the timing of
the billing process required the State to pay its contribution based
on estimates, subject to adjustment plus interest, on the basis of
subsequent calculations. Similarly, participating employers were
forced to adopt budgets based on estimates. The Legislature authorized
the Comptroller, in his or her discretion, to implement revisions of
the schedule pertaining to the valuation, billing and payment of
employer contributions to provide budget certainty.  Unfortunately,
the changes implemented at that time did not address the issues of
budgeting for payments based on estimates and the need for subsequent
reconciliations. By amending Retirement and Social Security Law §§ 23,
23-a, 323 and 323-a to provide for the calculation based on rates
applied to the salary base earned in the same fiscal year for the
payment of contributions due for the next succeeding fiscal year,
these issues can be resolved and provide for even greater budgeting
certainty for employers.

FISCAL IMPLICATIONS FOR STATE:

This bill has no significant State fiscal impact.

EFFECTIVE DATE:

This act shall take effect immediately.