At the end of March, we alerted readers to a bill that would amend Sections 218 and 219 of the New York State General Municipal Law to increase the maximum years of service credit that can be earned by a participant from 40 to 50 years. You can read that post here.
The bill is S1091A in the Senate and A2239A in the Assembly. On April 28, 2021, the Senate approved its version of the bill. It was then delivered to the Assembly and referred to the Local Government Committee.
Given the activity on these bills, including recent amendments to them, we believe it is very likely that that the Assembly will also pass its version of the bill, paving the way for it to be delivered to the Governor for signature into law.
The bill would specifically allow a LOSAP sponsor to extend the maximum years of service credit for up to an additional ten years (i.e., from 40 to 50 years). Additionally, it stipulates that a sponsor could implement that extension in increments or all at once. Finally, the bill clarifies that to amend the program, the sponsor must adopt a resolution and then seek voter approval through a mandatory referendum.
The cost impact of increasing the maximum years of service credit will depend on the type of program (DB or DC) and, for DB plans, the actuarial methodology used to determine the contributions.
For a defined contribution (DC) plan, there is no immediate cost increase as a result of allowing participants to earn the additional ten years. Instead, the sponsor is simply extending the current cost of the program. Another way to think about it is that the sponsor is postponing a potential cost savings, since costs would decrease once participants reached the maximum years of service credit and could no longer earn a contribution.
For a defined benefit (DB) plan, if the actuary is using a funding method that projects benefits into the future, then there could be an immediate cost increase for extending the service cap. If the actuary is not using a projection method, then there likely will be no immediate cost increase. Similar to the DC plan, the sponsor is instead extending the current cost for another ten years. We suggest contacting your actuary for more details.
As we follow the progress of these bills, we will post updates here.