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

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-producing role in the investment portfolios of public employee retirement systems. A considerable part of the return realized from real estate investments takes the form of cash income from 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 1-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% respectively.

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 1' 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.

Effective date of the bill

This bill would take effect June 30, 2010, except that this act shall have become a law on or after June 30, 2010, this act shall take effect immediately and shall be deemed to have been in full force and effect on and after June 30, 2010.

Budgetary implications of the bill

New York State Teachers Retirement System (NYSTRS):

The Actuary of the New York State Teachers' Retirement System has estimated that there will be no additional annual cost to the employer's of members of the New York State Teachers' Retirement System if this bill is enacted.

New York City Retirement Systems (NYCRS):

With respect to the NYCRS, the enactment of this proposed legislation would not, in and of itself, result in any change in employer contributions. The ultimate cost of a Retirement Program is the benefits it pays. The financing of that ultimate cost is provided by contributions and investment income.

Investment income depends upon the amount of assets of the respective NYCRS Fund and the rate of return received on those assets. The rate of return depends to a large extent upon the asset allocation policy of the respective NYCRS Fund.

To the extent that the NYCRS increase their investments in the securities authorized by this proposed legislation and those securities produced greater (lesser) rates of return than the rates of return that the NACRES would otherwise have achieved, then employer contributions to the NYCRS will be lesser (greater).

New York State and Local Employees' Retirement System and New York State and Local Police and Fire Retirement System:

If this bill is enacted, insofar as this bill affects the New York State and Local Employees' Retirement System and the New York State and Local Police and Fire Retirement System, we assume that there would be small investment changes as a result of enactment. Any increases or decreases in investment earnings will result in decreases or increases, respectively, in employer contributions. Annual changes in assets will be shared by all employers and will be spread over the future working lifetimes of active members.