Provides for compliance by the NYS&LERS and NYS&LP&FRS with the requirements of the federal older workers' benefit protection act

Summary of provisions

Section 1 of the bill is a declaration of legislative intent.

Section 2 of the bill would amend RSSL §62(b)(1) to except members enrolled in a plan under §§ 70-a, 71 or 75 from its general rule which provides that individuals who are granted ordinary disability benefits after attaining age 60 shall receive benefits equal to the amount of service retirement that would be payable. It further provides that such plan members shall receive an amount calculated under § 62(b)(2)(c)(2).

Section 3 of the bill would amend RSSL §362 to except members enrolled in a plan under §§ 370-a, 371 or 375 from its general rule which provides that individuals who are granted ordinary disability benefits after attaining age 60 shall receive benefits equal to the amount of service retirement that would be payable. It further provides that such plan members shall receive an amount calculated under § 362(b)(2)(c)(2).

Section 4 of the bill would amend RSSL §448(a) (2) to change the rate of reduction of death benefit amounts payable to individuals based on the age at which the member entered service. It eliminates for Retirement System members, death benefit reductions of 10% per year from age 61, up to a maximum of 90% reduction. It substitutes, for certain members of the Retirement Systems, a benefit reduction formula of 3% per year from age 61, not to exceed 60% of the original benefit. Most members of The New York State and Local Retirement System ("NYSLERS"), upon reaching age 61, will have death benefit reductions of 4% a year, not to exceed 60% of the original benefit. It further provides that the post-retirement death benefit for a NYSLERS member will not be less than 10% of the benefit in force at the time of retirement.

Section 5 of the bill would amend RSSL §506(a) to exempt members of the NYSLERS from its provision otherwise disqualifying individuals from

ordinary disability benefit eligibility because of the member's eligibility for normal service retirement benefits.

Section 6 of the bill would amend RSSL §507(a) to exempt members of the NYSLERS from ineligibility for accidental disability benefits because of the member's eligibility for normal service retirement benefits. Section 6-a of the bill would amend RSSL §507(c) to change the accidental disability benefits available to NYSLERS members to a pension equal to 60% of final average salary less 50% of the primary social security disability benefit, if any, and 100% of the workers compensation benefits.

Section 7 of the bill would amend RSSL §508(a)(2) to change the rate of reduction of death benefit amounts payable to individuals based on the age of the member when he or she last joined the system. It also eliminates for Retirement System members, death benefit reductions of 10% per year from age 61, up to a maximum of 90% reduction. It substitutes, for certain members of the Retirement Systems, a benefit reduction formula of 3% per year from age 61, not to exceed 70% of the original benefit. Most members of NYSLERS, upon reaching 61, will have death benefit reductions of 4% a year, not to exceed 60% of the original benefit. It further provides that the post-retirement death benefit for a NYSLERS member will not be less than 10% of the benefit in force at the time of retirement.

Section 8 of the bill would amend RSSL §508 to increase death benefits, in an OWBPA compliant manner, to a limited group of Retirement System members who have a constitutional right to coverage by a repealed provision of such section.

Section 9 of the bill would amend RSSL §605(d) to add a new paragraph 4 to provide a minimum death benefit for NYSLERS members who are disabled as a result of an accident sustained in the performance of duties in active service to one-third of the member's final average salary.

Section 10 of the bill would amend RSSL §606 (a)(2) to change the rate of reduction of death benefit amounts payable to individuals based on the age of the member when he or she last joined the system. It also eliminates for Retirement System members, death benefit reductions of 10% per year from age 61, up to a maximum of 90% reduction. It substitutes, for certain members of the Retirement Systems, a benefit reduction formula of 3% per year from age 61, not to exceed 70% of the original benefit. Most members of the New York State and Local Retirement System ("NSLERS"), upon reaching age 61, will have death benefit reductions of 4% a year, not to exceed 60% of the original benefit. It further provides that the post-retirement death benefit for a NYSLERS member will not be less than 10% of the benefit in force at the time of retirement.

Section 11 provides for an immediate effective date, retroactive to October 16, 1992, with certain qualifications.

Justification

The federal Older Workers' Benefit Protection Act ("OWBPA") was enacted in October 1990. OWBPA prohibits certain aged-based discriminatory distinctions in disability and death benefits provided by employers. OWBPA applies to disability retirement benefits payable by the Retirement Systems on or after October 16, 1992, and to all death benefits which became payable on account of deaths which occurred on or after such date.

Because the Legislature has yet to amend the pertinent provisions of the Retirement and Social Security Law, the Retirement Systems have restructured the disability and death benefit formulas to comply with OWBPA. The new formulas have been in place since June, 1996 and the Retirement Systems have been paying all new benefits under the restructured formulas, as well as making adjustments retroactive to the October 16, 1992 compliance date to all individuals who were previously paid under non-complying formulas.

The Retirement Systems' benefit structure is now in full compliance with OWBPA and we believe that the New York State Constitution's prohibition against diminution of established pension rights and benefits renders these changes permanent. Nevertheless, the federal Equal Employment Opportunity Commission has advised the Retirement Systems that it may view the legislature's continuing failure to change the pertinent provisions of the RSSL to comply with OWBPA to be a "willful violation" of Federal Law, which could give rise to "double damages" to large classes of disability pensioners and death benefit beneficiaries. In view of this potential, substantial liability and the fact that Federal Law requires the statutory changes that would be accomplished by this bill, we believe enactment of this measure is imperative.

In 1992, the Comptroller commissioned Buck Consultants, Inc. (hereinafter referred to as "Buck") to analyze the death benefit structure to determine whether and to what extent such structure violated OWBPA. The resulting report contained recommendations as to the best possible approaches to amending the benefit structure to comply with OWBPA in a manner consistent with the Comptroller's fiduciary responsibilities as Trustee of the New York State Common Retirement Fund. The analyses and recommendations contained in the resulting report were utilized and followed in the development of the OWBPA-complying disability and death benefit structures that have been adopted by the Retirement Systems and are provided by this measure.

There are two ways in which an employer may provide employee disability and death benefit plans that comply with OWBPA. The first of the two - the "equal benefits" approach - is to provide benefits under which the calculations and eligibility requirements do not contain age-based distinctions. The second means of compliance is commonly referred to as the "equal costs" method, under which the costs of providing benefits to different aged individuals are equal. To use the more common terminology, a benefit plan with age-based distinctions may comply with OWBPA if the age-based distinctions can be "cost-justified".

In order to comply with both OWBPA and the New York State constitution, the death benefit structure had to be revised so as to increase benefits payable on account of the deaths of older members - without decreasing amounts payable on account of younger members. In view of this constitutional mandate to comply with OWBPA in such a manner, it was less costly for the Retirement Systems to adopt and implement "cost-justified" death and disability retirement benefit structures than it would have been to implement "equal benefits" structures. Minimizing the cost of complying with OWBPA, however, is not the only reason that a cost-justified approach was utilized by the Retirement systems. The Comptroller had a fiduciary obligation to accomplish compliance in a manner that followed the existing state statutory benefit structure as closely as possible. The fact that the existing provisions of the RSSL did make; aged-based distinctions in benefit calculations required adoption of a "cost-justified" benefit structure.

Not all of the RSSL death and disability benefit provisions are violative of OWBPA. Accordingly, only the offending provisions are affected by this measure. One of the two death benefits which Tier 2, 3 and 4 members of the Employees' Retirement System may elect to pursuant to RSSL sections 448, 508 and 606 contains age-based benefit reductions that are not cost-justified. These sections provide for reductions in benefits based on the age of the individual at the time of entry into membership, and for additional reductions based on the age at death (if death occurs following attainment of age 61). Based on the Buck report findings, we have determined that there is no cost justification for any reduction based on age at entry to membership, and accordingly, the restructured benefit formula removes the existing reductions for age at membership.

These same sections of law provide for a second adjustment based on the age of the member at the time of death. The reduction is 10% of the benefit otherwise payable (on account of a qualifying death before attainment of age 61) for each year by which the age at death exceeds age 60. Reductions at this rate continue until attainment of age 69, at which point the benefit is reduced by 90% of the amount payable. Under the statute, the reduction may not exceed 90%.

We have determined that the statutory reduction of 10% for death at age 61 and an additional 10% for each year between age 61 and 69 is not cost-justified. Rather, it was determined that the appropriate cost-justified amount of the reduction for age at death following attainment of age 61 for most Employees' Retirement System members is 4% for each year by which the age at death exceeds 60. With respect to Police and Fire System members (and Employees' Retirement System members in special plans), it has been determined that the appropriate cost-justified amount of the reduction for age at death is 3% for each year by which the age at death exceeds 60. The maximum reduction, which applies when death occurs at age 70 or thereafter, is 40% for most Employees' Retirement System members and 30% for Police and Fire System members (and for Employees' Retirement System members in special plans). The restructured benefit structure reflected by this measure adopts these cost-justified reduction

percentages. However, we note that the provisions requiring aged-based reductions apply only to a small minority of the Tier 2 Police and Fire System membership.

Similarly, this bill would amend provisions of the RSSL that make age-based distinctions for disability retirement benefits available to members of the New York State and Local Retirement System that are impermissible under OWBPA. Under the existing provisions of sections 62 and 362, the ordinary disability benefits payable to the very few (if any) contributory Tier 1 and 2 members of both Systems who have attained age 60 are limited to the amount of the service retirement benefit that would be payable to such individuals. This measure would amend those sections to provide that the disability benefits for such individuals shall be calculated under statutory formulas applicable to younger applicants. Sections 506 and 507 of the RSSL, which provide disability retirement benefits for Tier 3 members of the Employees' Retirement System, currently provide that individuals eligible for "normal" retirement shall not be eligible. The phrase "normal retirement benefits" refers to benefits which are not reduced for early retirement (prior to attainment of age 62 for most Tier 3 members; 55 for those with 30 years of credited service). Accordingly, these sections effectively provide that individuals who have attained age 62 (or 55, with 30 years of credited service) are ineligible for disability retirement. This measure would remove these limitations, and make such disability benefits available to individuals without regard to age. Lastly, this bill would amend section 605 of the RSSL which currently provides for impermissible age-based reductions in the benefit calculation. Under this measure, section 605 provides a benefit equal to one-third of final average salary to all applicants who are permanently incapacitated as the result of an accident.

In conclusion, this measure would bring the statutory provisions pertaining to disability and death benefits for members of the New York State and Local Retirement Systems into compliance with OWBPA. Enactment of this measure would not produce any additional costs to the State or participating employers because the changes to the benefit structure provided herein have already been implemented in order to comply with OWBPA, and the employer billing rates in effect already reflect these changes. We emphasize that federal law requires these changes, and failure to amend the technically offending provisions of the Retirement and Social Security Law may be viewed as a "willful violation" of federal law that possibly could result in damages.

In view of the foregoing, the Comptroller respectfully urges enactment of this measure.

Fiscal note

This bill would change the Retirement and Social Security Law as it affects the New York State and Local Employees' Retirement System (NYSLERS) and the New York State and Local Police and Fire Retirement System (NYSLPFRS) to comply with the requirements of the Federal Older Workers' Benefit Protection Act ("OWBPA"). Provisions relating to disability benefits, ordinary death benefits, and post-retirement death benefits would be modified to be consistent with the benefits currently being paid by the Retirement Systems, as required by OWBPA.

If this bill is enacted, there will be no increase in benefits being paid by the NYSLERS and NYSLPFRS to members or beneficiaries. Therefore, there will be no cost if this bill is enacted.