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

1 Co-sponsor

• Diane J. Savino

BILL NUMBER:S3402

Title of bill

An act to amend the retirement and social security law, in relation to increasing to ten percent the amount of assets of the New York state teachers' retirement system which may be invested in real property

Purpose of the bill

This bill would increase the percentage of assets which may be invested by public employee retirement systems in real estate under Retirement and social Security Law §177(6) from five to ten percent.

Summary and justification

Public employee retirement systems may only invest in capital assets to the extent permitted by law. Systems generally rely upon the investment authorizations contained in section 177 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 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.

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 f 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 f 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.

Fiscal implications

None.

Effective date

Immediately.