GOVERNOR SIGNS BILL TO INCREASE DC CONTRIBUTION

Today, Governor Cuomo signed bill A07552 / S4207a into law – Chapter 474 of the laws of 2019 – which increases the maximum allowable Defined Contribution (DC) benefit in New York State from $700 to $1,200. This does not impact those municipalities that sponsor a Defined Benefit (DB) plan – those benefits remain unchanged.

For a municipality that sponsors a DC plan to increase the contribution for its LOSAP, it must approve the increase by resolution of the governing board, then seek voter approval of the increase in a mandatory referendum. The amendment would be effective the January 1st following the date of the referendum. 

The earliest a sponsor could make this effective is January 1, 2020; and that's only if the sponsor were able to hold the referendum on or before December 31, 2019.

Note that a sponsor does not have to go straight to $1,200, but could instead select a smaller amount. In the past, some sponsors implemented a step-up in the contribution over a period of time - say to $950 effective January 1, 2020 and then to $1,200 effective January 1, 2021.

Typically, this type of amendment is administered such that the increased contribution is earned based on service credit accrued after the effective date. In other words, if an increase from $700 to $1,200 was effective January 1, 2020, then service credit earned in 2020 would result in the volunteer being credited with a $1,200 contribution to his/her account in 2021. The 2019 service credit year would remain at the $700 level. This also means that the municipal budget is not increased until 2021 (assuming a calendar year fiscal year). We encourage you to check with your attorney if an alternative interpretation can be made, especially for Villages that likely do not have a scheduled election until March 2020.

The first version of the bill would have increased the maximum contribution to $2,100, but the bill was amended to $1,200 in May 2019. 

The original State law provided for a maximum contribution of $480 per year of service credit. The maximum contribution was increased to $700 in 2004, with the earliest administrative effective date of January 1, 2005. This means that the previous $700 maximum contribution limit was in effect for 15 years. 

As a point of comparison, the federal maximum is $6,000.  In New Jersey the initial maximum contribution was $1,150, and the statute provides for an annual CPI (Consumer Price Index) adjustment since 2000. With those adjustments, the maximum contribution is now slightly over $1,700. Although we are thrilled that the contribution was increased, we hope it will not be another 15 years until our New York State volunteers can earn a contribution comparable to volunteers in New Jersey.

That being said, here in New York State municipalities have the option to adopt a DB plan, which can provide a higher level of benefit – but this is very dependent on several factors. This comparison was discussed in previous blog posts. But the DB plan comes with certain potential for cost volatility that are largely outside of the control of the municipality. Therefore, having a DC benefit that is relatively equal to the DB benefit would have a significant impact on the landscape of LOSAP here in New York. We hope this amendment is a step in the right direction.