Authorizes the eight New York state public retirement systems to increase their asset investments in real property to ten percent

Summary and Justification: Public employee retirement systems may only invest in capital assets to the extent permitted by law. Systems gener- ally rely upon the investment authorizations contained in section 17? of the Retirement and Social Security Law, the so-called "legal list". Over the years, the authorizations in that section have been liberalized to reflect changes in the universe of investable capital assets and trends in institutional investment. The most recent change in the legal list occurred in 1997 with the enactment of Chapter 560 of the Laws of 1997 which made a number of significant changes in the list for the benefit of the systems and public employee members and retirees that they serve.

With the aging of the "baby boom" generation, public employee retirement systems are experiencing an ever increasing number of retirements and a growth in the retirement payroll that must be funded. Hence, public employee retirement systems are looking more at investments in the types of capital assets which can provide a steady stream of income to help fund the growing retirement payroll.

Real estate is an asset which is ideally suited to play an income-pro- ducing role in the investment portfolios of public employee retirement systems. A considerable part of the return realized from real estate investments takes the i-mll of cash income {100m rents. Moreover. institutional quality properties with stable tenant bases of income are usually well-situated to maintain their income streams through the ups and downs of the business cycle. For example, on a fiscal year basis (July I-June 30), the System's annualized returns from equity real estate over the past 3 and 5 turbulent years have been 16.4% and 14.0% respectively, the income portion of which are 5.8% and 6.7% respective- ly.

Subdivision 6 of RSSL § 177 is the provision in the legal list which expressly authorizes investments in real estate. Investments under that subdivision, however, are currently limited to 5% of a system's assets.

Any additional investments in real estate must be made under the "basket clause". subdivision 9 of RSSL .177.

The Retirement Board requests the Legislature give recognition to the growing importance of the role real estate investments will have to play in enabling retirement systems to meet growing retirement payrolls by

increasing the limit on real estate investment in RSSL § 177( 6) from five to ten percent. The Retirement Board also requests the addition of a new paragraph l' to allow real estate oriented funds or partnerships in which a retirement system might invest to be classified, at the system's election, as a real estate asset for the purposes of the proposed ten percent limitation. New paragraph 1' would enable a system more easily to classify investments in real estate oriented funds and partnerships which invest in a variety of different types of real estate assets.

Other Agencies to Whom the Bill May Be of Interest: Division of the Budget, Department of Insurance, State Comptroller, New York City.

Effective Date of the Bill: This bill would take effect June 30. 2009, except that this act shall have become a law on or after June 30, 2009, this act shall take effect immediately and shall be deemed to have been in full force and effect on and after June 30. 2009.

Budgetary Implications of the Bill: The Actuary of the New York State Teachers' Retirement System has estimated that there will be no addi- tional annual cost to the employers of members of the New York State Teachers' Retirement System if this bill is enacted.