STATE OF NEW YORK ________________________________________________________________________ 6158--A 2023-2024 Regular Sessions IN SENATE March 31, 2023 ___________ Introduced by Sens. JACKSON, HARCKHAM -- read twice and ordered printed, and when printed to be committed to the Committee on Civil Service and Pensions -- recommitted to the Committee on Civil Service and Pensions in accordance with Senate Rule 6, sec. 8 -- committee discharged, bill amended, ordered reprinted as amended and recommitted to said commit- tee AN ACT to amend the retirement and social security law, the education law and the administrative code of the city of New York, in relation to providing cost-of-living adjustments The People of the State of New York, represented in Senate and Assem- bly, do enact as follows: 1 Section 1. Subdivision d of section 78-a of the retirement and social 2 security law, as added by chapter 125 of the laws of 2000, is amended to 3 read as follows: 4 d. The percentage referred to in this section shall be determined 5 annually by reference to the consumer price index (all urban consumers, 6 CPI-U, U.S. city average, all items, 1982-84=100), published by the 7 United States bureau of labor statistics, for each applicable calendar 8 year. Said percentage shall equal fifty percent of the annual inflation, 9 as determined from the increase in the consumer price index in the one 10 year period ending on the March thirty-first prior to the cost-of-living 11 adjustment effective on the ensuing September first. Said percentage 12 shall then be rounded up to the next higher one-tenth of one percent and 13 shall not exceed three percent nor be less than one percent and effec- 14 tive the first day of September, two thousand twenty-five, shall not 15 exceed five percent nor be less than one percent. 16 § 2. Subdivision d of section 378-a of the retirement and social secu- 17 rity law, as added by chapter 125 of the laws of 2000, is amended to 18 read as follows: 19 d. The percentage referred to in this section shall be determined 20 annually by reference to the consumer price index (all urban consumers, EXPLANATION--Matter in italics (underscored) is new; matter in brackets [] is old law to be omitted. LBD08009-05-4S. 6158--A 2 1 CPI-U, U.S. city average, all items, 1982-84=100), published by the 2 United States bureau of labor statistics, for each applicable calendar 3 year. Said percentage shall equal fifty percent of the annual inflation, 4 as determined from the increase in the consumer price index in the one 5 year period ending on the March thirty-first prior to the cost-of-living 6 adjustment effective on the ensuing September first. Said percentage 7 shall then be rounded up to the next higher one-tenth of one percent and 8 shall not exceed three percent nor be less than one percent and effec- 9 tive the first day of September, two thousand twenty-five, shall not 10 exceed five percent nor be less than one percent. 11 § 3. Subdivision d of section 532-a of the education law, as added by 12 chapter 125 of the laws of 2000, is amended to read as follows: 13 d. The percentage referred to in this section shall be determined 14 annually by reference to the consumer price index (all urban consumers, 15 CPI-U, U.S. city average, all items, 1982-84=100), published by the 16 United States bureau of labor statistics, for each applicable calendar 17 year. Said percentage shall equal fifty percent of the annual inflation, 18 as determined from the increase in the consumer price index in the one 19 year period ending on the March thirty-first prior to the cost-of-living 20 adjustment effective on the ensuing September first. Said percentage 21 shall then be rounded up to the next higher one-tenth of one percent and 22 shall not exceed three percent nor be less than one percent and effec- 23 tive the first day of September, two thousand twenty-five, shall not 24 exceed five percent nor be less than one percent. 25 § 4. Subdivision d of section 13-696 of the administrative code of the 26 city of New York, as added by chapter 125 of the laws of 2000, is 27 amended to read as follows: 28 d. The percentage referred to in this section shall be determined 29 annually by reference to the consumer price index (all urban consumers, 30 CPI-U, U.S. city average, all items, 1982-84=100), published by the 31 United States bureau of labor statistics, for each applicable calendar 32 year. Said percentage shall equal fifty percent of the annual inflation, 33 as determined from the increase in the consumer price index in the one 34 year period ending on the March thirty-first prior to the cost-of-living 35 adjustment effective on the ensuing September first. Said percentage 36 shall then be rounded up to the next higher one-tenth of one percent and 37 shall not exceed three percent nor be less than one percent and effec- 38 tive the first day of September, two thousand twenty-five, shall not 39 exceed five percent nor be less than one percent. 40 § 5. This act shall take effect immediately. FISCAL NOTE.--Pursuant to Legislative Law, Section 50: This bill would provide an increase in the defined benefit cost-of- living adjustment (COLA) for New York public retirement systems. Start- ing with a payment in September 2025, the maximum percentage calculated for the annual cost of living increase shall increase from three percent to five percent. Insofar as this bill affects the New York State and Local Employees' Retirement System (NYSLERS), pursuant to Section 25 of the Retirement and Social Security Law, the increased costs would be borne entirely by the State of New York and would require an itemized appropriation suffi- cient to pay the cost of the provision. If this bill were enacted during the 2024 Legislative Session, the increase in the present value of bene- fits would be approximately $921 million. In the NYSLERS, this benefit improvement will be funded by (1) billing a past service cost to cover retrospective benefit increases and (2)S. 6158--A 3 increasing the billing rates charged annually to cover prospective bene- fit increases, as follows: (1) To fund retrospective costs, the State of New York will be required to pay $897 million (including interest) as of March 1, 2025. (2) To fund prospective costs, the annual contribution required of all participating employers in NYSLERS is 0.04% of billable salary, or approximately $5.1 million to the State of New York and approximately $7.7 million to the local participating employers. This permanent annual cost will vary in subsequent billing cycles with changes in the billing rate and salary of the affected members. Insofar as this bill affects the New York State and Local Police and Fire Retirement System (NYSLPFRS), the increased costs would be shared by the State of New York and the local participating employers in the NYSLPFRS. If this bill were enacted during the 2024 Legislative Session, the increase in the present value of benefits would be approximately $98.7 million. NYSLPFRS Increase in present Increase in required value benefits contributions Tiers 1 - 5 $88.2 million $46.7 million Tier 6 $10.5 million $52.0 million Total $98.7 million $98.7 million In the NYSLPFRS, this benefit improvement will be funded by increasing the billing rates charged annually to cover both retrospective and prospective benefit increases. The annual contribution required of all participating employers in NYSLPFRS is 0.2% of billable salary, or approximately $1.7 million to the State of New York and approximately $7.0 million to the local participating employers. This permanent annual cost will vary in subsequent billing cycles with changes in the billing rate and salary of the affected members. The current corridor of 1% and 3% provides an average COLA percentage that is approximately equal to half the rate of inflation over a retiree's lifetime. By maintaining the 1% floor but increasing the maxi- mum to 5%, this bill provides a larger retiree COLA percentage in high inflationary environments but results in more volatile employer contrib- ution rates. Prefunding COLA benefits cannot eliminate or mitigate the increased volatility in the billing rates caused by this benefit improvement. To develop the costs above, our models included a Monte Carlo method of 5,000 simulations, each consisting of 30-year CPI-U projections. In approximately 3,800 of the 5,000 simulations, inflation exceeded 6%. In these 3,800 simulations, high inflationary environments persisted for a three-year period. Employer billing rates would increase approximately 2.2% under this proposal, instead of 1.3% under the current program. In approximately 1,500 of the 5,000 simulations, inflation exceeded 10%. In these 1,500 simulations, high inflationary environments persisted for a seven-year period. Employer billing rates would increase approximately 4.3% under this proposal, instead of 2.5% under the current program. Summary of relevant resources: Membership data as of March 31, 2023 was used in measuring the impact of the proposed change, the same data used in the April 1, 2023 actuari- al valuation. Distributions and other statistics can be found in theS. 6158--A 4 2023 Report of the Actuary and the 2023 Annual Comprehensive Financial Report. The actuarial assumptions and methods used are described in the 2023 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, 2023 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 fiscal note does not constitute a legal opinion on the viability of the proposed change nor is it intended to serve as a substitute for the professional judgment of an attorney. This estimate, dated March 8, 2024, and intended for use only during the 2024 Legislative Session, is Fiscal Note No. 2024-142, prepared by the Actuary for the New York State and Local Retirement System.