A bill relating to the application of certain provisions of the Internal Revenue Code of 1954 to specified transactions by certain public employee retirement systems created by the State of New York or any of its political subdivisions.
PL 95-497 (H.R.12051), enacted 10/21/1978

PUBLIC LAW 95-497—OCT. 21, 1978 
92 STAT. 1665 
Public Law 95-497 
95th Congress 
An Act 
Relating to the application of certain provisions of the Internal Revenue Code 
of 1954 to specified transactions by certain public employee retirement systems 
created by the State of New York or any of its political subdivisions. 
Be it enacted hy the Senate and House of Representatives of the 
United States of America in Congress assembled, 
SECTION 1. QUALIFIED STATUS OF PARTICIPATING PENSION PLANS. 
(a) GENERAL RULE.—A participating pension plan shall not be 
considered to fail to satisfy the requirements of section 401(a) of the 
Internal Revenue Code of 1954, and shall not be considered to have 
engaged in a prohibited transaction described in section 503(b) of 
such Code, merely because— 
(1) during the period beginning on July 1,1978, and ending on 
June 30,1982, the plan acquires city indebtedness which meets the 
applicable requirements of section 2, or 
(2) the plan continues to hold any city indebtedness acquired— 
(A) pursuant to this Act or Public Law 94-236, or 
(B) before November 26,1976. 
(b) ACQUISITION OF INDEBTEDNESS PURSUANT TO AGREEMENT.—The 
acquisition of city indebtedness by a participating pension plan under 
an agreement for the acquisition of city indebtedness meets the appli-
cable requirements of section 2 if— 
(1) the agreement is not disapproved by the Secretary under 
subsection (c), and 
(2) the plan certifies to the Secretary (and furnishes to the 
Secretary and to the appropriate committees of the Congress such 
supporting information and documentation as the Secretary shall 
require) that the acquisition— 
(A) is made under the agreement, and 
(B) meets the applicable requirements of section 2 (deter-
mined without regard to the provisions of subsections (b), 
(c),and (f) of section 2). 
(c) SIXTY-DAY PERIOD FOR DISAPPROVAL.— 
(1) I N GENERAL.—Before entering into an agreement described 
in subsection (b), and before acquiring any city indebtedness not 
covered by such an agreement, the participating pension plan 
shall notify the Secretary of the proposed agreement or acquisi-
tion. If the Secretary determines (not later than 60 days after 
the date of such submission or such shorter period as the Secretary 
may establish) that such agreement or acquisition does not meet 
any requirement of section 2, the Secretary shall disapprove such 
agreement or acquisition (as the case may be). For purposes 
of this subsection, an amendment, or a waiver of any provision, of 
such an agreement shall be treated as a new agreement. 
(2) NOTIFICATION.—The Secretary shall, not later than the 10th 
day after the close of the period applicable under paragraph (1), 
notify the appropriate committees of the Congress of the deter-
minations he has made with respect to the submission and the 
reasons on which such determinations were based. 
Oct. 21. 1978 
[H.R. 12051] 
Taxes. 
New York public 
employees. 
Retirement 
systems. 
26 use 41. 
26 use 503. 
90 Stat. 238. 
39-194 O—80—pt. 2 
25 : QL3 
92 STAT. 1666 
PUBLIC LAW 95-497—OCT. 21, 1978 
SEC. 2. REQUIREMENTS. 
i 
(a) LIMITATIONS ON AMOUNT OF DEBT T O B E ACQUIRED.— 
(1) PERCENTAGE LIMITATIONS.—An acquisition of city indebted-
ness by a participating pension plan does not meet the require-
ments of this section if— 
(A) AGGREGATE LIMIT ON ACQUISITIONS BY CITY PLANS.—In 
the case of a city plan, the plan acquires any city indebtedness 
after June 30, 1979, and before the city plans meet the per-
centage limitation on holdings of city indebtedness applicable 
under this subparagraph for the 12-month period ending on 
the most recently preceding June 30. The percentage limita-
. . . . 
tion on holdings of city indebtedness under this subparagraph 
is not met if the value of city indebtedness held by all city 
f . 
plans exceeds a percentage of the aggregate assets of all city 
l. -. ' 
plans equal to— 
(i) 40 percent for the 12-month period ending on 
June 30, 1979, 
i. . 
(ii) 36 percent for the 12-month period ending on 
June 30, 1980, 
(iii) 33 percent for the 12-month period ending on 
June 30, 1981, and 
• 
- 
(iv) 30 percent for the 12-month period ending on 
June 30, 1982. 
(B) L I M I T ON ACQUISITIONS BY EACH CITY PLAN.—In the 
case of a city plan, the plan acquires any city indebtedness 
which, when added to other city indebtedness held by such 
plan, would cause such holdings to exceed 50 percent of the 
assets of such plan at the time of the acquisition. 
(C) L I M I T ON ACQUISITIONS BY STATE PLAN.—In the case of 
a State plan, the plan acquires any city indebtedness which, 
when added to other city indebtedness held by such plan, 
' would cause such holdings to exceed 10 percent of the assets 
of such plan at the time of the acquisition. 
(D) DETERMINATIONS or WHETHER THE PERCENTAGE LIMITA-
- • 
• 
TIONS HAVE BEEN MET. 
(i) AGGREGATE LIMIT.—For the purpose of determin-^ 
ing whether the percentage limitation on holdings of city 
indebtedness under subparagraph (A) has been met for 
• • 
; 
s 
any 12-montli period described in that subparagraph, the 
plan shall use the arithmetic mean (expressed as a per-
centage) of 4 fractions, the numerators of which are the 
value of city indebtedness held by all city plans as of 
'
*
• 
the close of each calendar quarter within the 12-month 
period for which the determination is being made and 
the denominators of which are the value of the assets of 
all city plans as of the close of each such calendar quarter. 
- 
. 
If the percentage limitation under subparagraph (A) is 
' .. 
not met for a 12-month period on the basis of the 4 frac-
tions for the 4 calendar quarters within that 12-month 
period, the plan shall make a redetermination for that 
12-month period as of the close of the first calendar 
quarter, if necessary, the second calendar quarter and, if 
. ' 
• 
necessary, the third calendar quarter following the 
12-month period using the 4 fractions for the 12-month 
PUBLIC LAW 95-497—OCT. 21, 1978 
92 STAT. 1667 
period and the fraction or fractions for the additional 
quarter or quarters. If the value of city indebtedness or 
plan assets is not available for any quarter at the time 
: 
the determination of the fraction for that quarter is 
being made, the plan shall use a value derived from inter-
polations from the most recently available semi-annual 
valuations. 
(ii) 
PLAN LIMIT.—In making a determination of 
whether or not an acquisition of city indebtedness meets 
the requirements of subparagraph (B) or (C), the plan 
shall make determinations based on the most current 
data available as to the holdings of city indebtedness and 
on the basis of the most recently available semiannual 
valuation of assets of the plan. 
(2) METHOD or VALUATION.—For purposes of this subsection— 
(A) city indebtedness is to be valued by the plan at its face 
value, and 
(B) all other assets are to be valued by the plan under 
methods determined by the Secretary to be consistent with 
the methods of valuing assets for purposes of section 412 of 
the Internal Kevenue Code of 1954. 
26 USC 412. 
(b) STANDARDS.— 
(1) OVERALL STANDARD.—The overall standard used by the 
Secretary under this Act in determining whether or not to dis-
approve an agreement for the acquisition of city indebtedness 
under section 1 (c) shall be the extent to which the acquisition of 
city indebtedness under the agreement will, in the case of a city 
plan— 
(A) maintain the ability of the city— 
(i) to make future contributions to the plan or trust, 
and 
' 
(ii) to satisfy its future obligations to pay pension and 
retirement benefits to members and beneficiaries of such 
plan or trust, and 
(B) protect the sources of funds to provide retirement 
benefits for members and beneficiaries of the plan or trust. 
(2) FACTORS TO BE TAKEN INTO ACCOUNT.—In determining 
whether or not to disapprove such an agreement the Secretary 
shall take into account (among other factors) the terms of the 
obligations which are to be acquired under the agreement, 
(3) FISCAL PARTICIPATION BY PRIVATE SOURCES OR PUBLIC CREDIT 
MARKETS.—^The Secretary shall disapprove any such agreement 
unless he has received assurances to his satisfaction that there 
will be significant participation in the acquisition of city indebted-
ness by the State, an agency of the State, or private sources, or 
through public credit markets. 
(c) REQUIREMENTS WITH RESPECT TO FISCAL CONDITION or THE 
CITY.— 
(1) SUBSTANTIAL PROGRESS TOWARD A BALANCED BUDGET BY 19 S 2.— 
An acquisition of city indebtedness by a participating pension 
plan during any fiscal year beginning after June 30, 1979, does 
not meet the requirements of this section unless the Secretary has 
92 STAT. 1668 
PUBLIC LAW 95-497—OCT. 21, 1978 
determined for such fiscal year that the city is making substantial 
progress toward operating under expense budgets which do not 
show a deficit. 
(2) PRINCIPLES TO BE APPLIED UNDER PARAGRAPH (i).—The Sec-
retary shall make the determination required under paragraph (1) 
on the basis of— 
(A) whether or not the requirements of paragraph (5) of 
section 103 of the New York City Loan Guarantee Act of 
Ante, p. 461. 
1978 (as such Act is in effect on the date of enactment of this 
Act) are being met, and 
(B) the annual audited financial statements of the city pre-
pared in accordance with generally accepted 
accounting 
principles 
(including principles applicable to municipal 
governments which provide for a clear division between 
'- 
operating outlays and revenues on the one hand and capital 
' >•> 
expenditures and revenues on the other hand) and in accord-
ance with generally accepted auditing standards, 
(d) PLANS HAVING NEGATIVE CASH FLOW.— 
(1) I N GENERAL.—An acquisition of any city indebtedness by 
a city plan does not meet the requirements of this section if the 
-f' • • ^•'' 
plan would have a negative cash flow for the fiscal year of 
acquisition. 
(2) SPECIAL RULES.—For purposes of paragraph (1)— 
(A) cash flow shall be determined by the plan for each 
fiscal year, and also whenever the plan enters into an agree-
ment which must be submitted to the Secretary under section 
'if- n I 1(c) (including any amendment of, or waiver under, such 
an agreement), 
(B) cash flow shall be determined in the same manner as 
-«n •' ; provided in paragraph (3 ) of subsection (e), and 
(C) the effect of completed and proposed acquisitions dur-
ing the plan year on the cash flow shall be taken into account. 
(e) REPORTS.— 
(1) 
ANNUAL REPORT BY PLANS ON RECEIPTS, DISBURSEMENTS, 
; i;; HOLDINGS, AND CASH FLOW.— 
> 
(A) ANNUAL REPORT.—An acquisition of any city indebted-
ness by any participating city pension plan does not meet 
the requirements of this section unless, for each preceding 
plan year beginning after June 30, 1978, and ending more 
than 8 months and 15 days before the date of the acquisition, 
the plan has submitted an annual report which meets the 
requirements of paragraph (2) to the Secretary and to the 
appropriate committees of the Congress. 
(B) PROJECTED CASH FLOW.—An acquisition of city indebt-
edness by any participating city pension plan for any plan 
year does not meet the requirements of this section unless the 
; ;r T 
plan has submitted to the Secretary and to the appropriate 
committees of the Congress a statement showing the projected 
cash flow for the plan year. 
(2) ANNUAL REPORT BY INDEPENDENT PUBLIC ACCOUNTANT.—An 
annual report does not meet the requirements of this paragraph 
unless it— 
PUBLIC LAW 95-497—OCT. 21, 1978 
92 STAT. 1669 
5> 
(A) includes an analysis of compliance by the plan 
throughout the fiscal year with the requirements of subpara-
graphs (A) and (B) of subsection (a) (1), 
(B) is prepared in accordance with generally accepted 
accounting principles, and 
(C) meets the requirements of paragraph (3) of section 
103(a) of the Employee Retirement Income Security Act 
of 1974, as in effect on the date of enactment of this Act 29 USC 1023. 
'I'- 
(without regard to the last 4 sentences of subparagraph (A) 
of that paragraph). 
(3) RULES FOR DETERMINING CASH FLOW.—For purposes of para-
graph (1) (B), the cash flow— 
(A) shall take into account contributions and other income 
(such as dividends and interest) on the one hand and the 
payment of benefits and expenses on the other hand, and 
(B) shall not take into account items properly chargeable 
to capital account (such as the proceeds from the sale or 
redemption of assets), other than— 
(i) payment of principal during the period a debt is 
outstanding, 
(ii) payment of principal at maturity or redemption, 
and 
(iii) proceeds from the sale of obligations having a 
maturity of one year or less at the time of sale, 
(f) CITY MUST COMPLY W I T H REQUIREMENTS OF SECTION 103(7) 
OF N E W YORK CITY LOAN GUARANTEE ACT OF 1978.—An acquisition 
Ante, p. 461. 
of city indebtedness by a city pension plan for any plan year does 
not meet the requirements of this section unless, at the time of the 
acquisition, the Secretary has determined that the requirements of 
paragraph (7) of section 103 of the New York City Loan Guarantee 
Act of 1978, as in effect on the date of enactment of this Act, have 
been met. 
SEC. 3. NOTIFICATION OF PLANS AND CITY OF ACQUISITIONS WHICH 
FAIL TO MEET REQUIREMENTS OF THE ACT; REGULATIONS. 
(a) NOTIFICATION OF PLANS AND CITY.— 
(1) NOTICE OF FAILURE TO MEET REQUIREMENTS.—^Whenever the 
Secretary determines that an acquisition of city indebtedness has 
not met one of the requirements of section 2, he shall notify the 
participating plan or plans involved. 
(2) NOTICE OF POSSIBLE PROSPECTIVE FAILURE.—The Secretary 
shall notify each participating pension plan and the city whenever 
he finds, based on information available to the Secretary, that a 
future acquisition of city indebtedness will fail to meet the require-
ments of section 2 because of the requirement of subsection (a) 
( l ) ( A ) o r ( c ) o f that section, and he shall notify the participating 
pension plan concerned and the city whenever it appears that a 
future acquisition of city indebtedness by that plan will fail to 
meet the requirements of section 2 for any other reason. 
(b) REGULATIONS.—The Secretary of the Treasury or his delegate is Regulations, 
authorized to prescribe such regulations as may be necessary to carry 
out the provisions of this Act. 
SEC. 4. DEFINITIONS AND SPECIAL RULES. 
For purposes of this Act— 
(1) PARTICIPATING PENSION PLAN.—The term "participating 
pension plan" means any city plan or State plan^ 
92 STAT. 1670 
PUBLIC LAW 95-497—OCT. 21, 1978 
(2) CITY PLAN.—The term "city plan" means any of the 
following: 
(A) the New York City employees' retirement system, 
'•'"- 
(B) the teachers' retirement system for the city of New 
York, 
(C) the New York City Police Pension Fund, article 2, 
(D) the New York City Fire Department Pension Fund, 
- ' 
^ ~
> S 
/ 
article 1-B, and 
(E) the board of education retirement system for the city 
of New York. 
(3) STATE PLAN.—The term "State plan" means any of the 
following: 
(A) the New York State employees' retirement system, 
' 
• 
(B) the New York State policemen's and firemen's retire-
ment system, and 
(C) the New York State teachers'retirement system. 
(4) 
APPROPRIATE COMMITTEES or THE CONGRESS.—The term 
"appropriate committees of the Congress" means the Committee 
on Ways and Means of the House of Representatives and the 
Finance Committee of the Senate. 
(5) REFERENCES TO PLAN INCLUDE REFERENCES TO TRUST.—A ref-
erence to a plan includes a reference to any trust forming a part 
thereof. 
(6) CITY INDEBTEDNESS.—The term "city indebtedness" means 
any city obligation or any State financing agency obligation. 
(7) CITY OBLIGATION.—^The term "city obligation" means any 
indebtedness for money borrowed by the city. 
(8) STATE FINANCING AGENCY OBLIGATION.—The term "State 
financing 
agency obligation" means any indebtedness for money 
borrowed by the State financing agency. 
(9) STATE FINANCING AGENCY.—The term "State 
financing 
agency" means any agency or instrumentality of the State of New 
York duly authorized by such State to act on behalf of or in the 
interest of the city, and no other subdivision of the State, with 
respect to the city's financial affairs. 
(10) CITY.—The term "city" means the city of New York. 
(11) FISCAL YEAR.—The term "fiscal year" means a 1-year 
period beginning on July 1 or, where the Secretary determines 
it to be appropriate, the plan year of a participating pension plan. 
(12) SECRETARY.—The term "Secretary" means the Secretary of 
the Treasury. Except as provided in section 3, no function, power, 
or duty of the Secretary under section 1, section 2, or this section 
may be delegated. 
(13) ACQUISITION.—The term "acquisition" includes— 
(A) a purchase or an exchange (whether pursuant to a 
rollover or otherwise), and 
(B) to the extent provided in regulations prescribed by 
the Secretary, any modification in the terms of an obligation 
or in the rights of the holder of an obligation. 
PUBLIC LAW 95-497—OCT. 21, 1978 
92 STAT. 1671 
SEC. 5. RELATIONSHIP OF THIS ACT TO PUBUC LAW 94-236. 
Effective on the date of the enactment of this Act, the waiver of Effective date, 
the requirements of sections 401(a) and 503(b) of the Internal 
Revenue Code of 1954 contained in subsection (a) of the first section 26 USC 401. 
of Public Law 94-236 shall not apply to acquisitions of city indebted- 26 USC 503. 
ness on or after such date. 
^ Stat. 238. 
Approved October 21, 1978. 
LEGISLATIVE HISTORY: 
HOUSE REPORT No. 95-1605 (Coram, on Ways and Means). 
CONGRESSIONAL RECORD, Vol 124 (1978): 
Oct. 3, considered and passed House. 
Oct. 7, considered and passed Senate.