Current through Register Vol. 46, No. 39, September 25, 2024
(a) Once a
continuing care retirement community has commenced operations and funds held in
escrow are released pursuant to Public Health Law section 4610, the continuing
care retirement community shall maintain a debt reserve fund as described in
paragraph (1) of this subdivision and an operating reserve fund as described in
paragraph (2) of this subdivision.
(1) A
continuing care retirement community shall maintain liquid assets in an amount
greater than or equal to the aggregate of all interest and principal payments
becoming due within the next 12 months under a mortgage loan, bond indenture or
other long term financing of the community. Assets used to meet this
requirement, which can include assets held in a debt service reserve fund
established by or pursuant to a mortgage loan, bond indenture or other long
term financing agreement, must be available to pay long term debt interest and
principal payments should the operating revenues be insufficient for these
purposes and must meet the eligibility requirements in paragraph (3) of this
subdivision. Assets used to meet this requirement shall exclude assets used to
meet the requirement in paragraph (2) of this subdivision.
(2)
(i) A
continuing care retirement community shall maintain liquid assets in an amount
greater than or equal to 35 percent of the sum of the following amounts:
(a) the projected operating expenses of the
community during the next 12 months, which shall include such comparable
expenses related to providing services to nonresidents of the community during
the next 12 months;
(b) the
projected aggregate of all taxes and insurance expenses that are related to the
capital assets of the community and the responsibility of the community and due
within the next 12 months;
(c) the
projected debt interest payments of the community becoming due within the next
12 months, excluding debt interest payments included in paragraph (1) of this
subdivision;
(d) the projected or
actual refund expenses of the community becoming due within the next 12 months,
except where the refund is dependent on the resale of the unit; and
(e) effective December 31, 2018, the
projected or actual refund expenses of the community becoming due within the
next 12 months where the refund is dependent on the resale of the
unit.
(ii) Assets used
to meet the requirement in subparagraph (i) of this paragraph:
(a) shall exclude assets used to meet the
requirement in paragraph (1) of this subdivision;
(b) can include assets, other than a debt
service reserve fund, established by or pursuant to a mortgage loan, bond
indenture or other long term financing agreement;
(c) must be available to pay operating
expenses, refund expenses, and taxes and insurance expenses related to the
capital assets of the community should the operating revenue be insufficient
for these purposes; and
(d) shall
meet the eligibility requirements in paragraph (3) of this
subdivision.
(3) Subject to the requirements of
subdivision (b) of this section and the limitations and restrictions of
subdivision (d) of this section, only the following shall be considered
eligible liquid assets:
(i) cash in United
States dollars;
(ii) demand
accounts in United States dollars at any solvent national or state chartered
bank or savings and loan association that are valued at the outstanding
balance;
(iii) publicly traded
commercial paper valued at market value that at all times meet the requirements
of paragraph (c)(4) of this section;
(iv) certificates of deposit and similar
instruments that at the time of investment met the criteria of paragraph (c)(5)
of this section, provided that the bank or savings and loan is currently
solvent and the contract has either a remaining maturity of one year or less or
the contract is redeemable at any time prior to the scheduled maturity date,
and is valued at the principal deposit amount;
(v) publicly traded obligations meeting the
requirements of paragraph (c)(6) of this section that are valued at market
value;
(vi) publicly traded
obligations meeting the requirements of paragraph (c)(7) of this section that
are valued at market value;
(vii)
publicly traded obligations valued at market value that meet the requirements
of subparagraph (c)(8)(i) of this section, exclusive of any such securities
issued by the continuing care retirement community or a parent corporation,
subsidiary or affiliate of the continuing care retirement community;
and
(viii) securities meeting the
criteria of paragraph (c)(9) of this section that are valued at market
value.
(4) A continuing
care retirement community shall, within 30 days of the end of each fiscal
quarter, test whether it meets the requirements of paragraphs (1) and (2) of
this subdivision. Documentation of the testing and results shall be maintained
with the community's business records. The continuing care retirement community
shall immediately notify the superintendent if the requirements of paragraphs
(1) and (2) of this subdivision are not met. Within 30 days following such
notification, the continuing care retirement community shall submit to the
superintendent a report setting forth in detail, the reasons for not meeting
the requirements and the specific action steps to be adopted to achieve the
requirements of paragraphs (1) and (2) of this subdivision.
(5) If a continuing care retirement community
fails to meet the requirements of paragraph (1) of this subdivision because of
a debt balloon payment maturing during the next 12 months, the calculation for
paragraph (1) of this subdivision may be done excluding the debt balloon
payment provided that a plan for refinancing the debt and/or repaying the debt
with existing assets is submitted to the superintendent and is satisfactory to
the superintendent.
(b)
The amount and composition of assets held under paragraph (a)(3) and
subdivision (c) of this section shall be such that the scheduled maturities and
interest and dividend payments are not less than the amount that, together with
the future revenues from entrance, monthly and other fees from current and
future residents and fees from nonresidents as estimated under the open group
method, is needed to meet the cash flow for operating expenses for both
residents and nonresidents, refund expenses and debt payments, and capital cash
expenditures, as tested as part of the actuarial review required by Public
Health Law section 4607(2)(d), for the next 10 years or such longer period as
required by the superintendent. If there is a scheduled major debt retirement
consisting of at least the sum of regular payments of principal and interest
for three years, then the superintendent may require the cash flow projection
for a period of at least five years beyond the scheduled major debt
retirement.
(c) After satisfying
the requirements of subdivision (a) of this section, and subject to the
requirements of subdivision (b) of this section and the limitations and
restrictions of subdivision (d) of this section, a continuing care retirement
community may invest additional assets supporting reserve liabilities in:
(1) common stocks and American depository
receipts publicly traded on a recognized national stock exchange in the United
States and not restricted as to transferability that are valued at market
value;
(2) preferred stocks
publicly traded on a recognized national stock exchange in the United States
and not restricted as to transferability that are valued at market
value;
(3) demand accounts in
United States dollars at any national or state chartered bank or savings and
loan association that are valued at the outstanding balance, provided that at
the time the account was opened the bank or savings and loan association is
solvent;
(4) publicly traded United
States dollars denominated commercial paper with an original maturity of 270
days or less that at the time of investment is rated and monitored by at least
one NRSRO and valued at market value. If the security is rated and monitored by
one NRSRO, it must be rated at the time of investment the equivalent of A 1+ or
A-1 by Standard and Poor's or P-1 by Moody's Investors Service. If the security
is rated and monitored by more than one NRSRO, it must be rated by at least two
NRSROs at the time of investment the equivalent of A-1+ or A-1 by Standard and
Poor's or P-1 by Moody's Investors Service;
(5) certificates of deposit and similar
instruments denominated in United States dollars issued by any national or
state charted bank or savings and loan association where the financial
institution guarantees to return the principal amount deposited on a specified
date along with a specified rate of return, provided that the minimum rate of
return is at least zero percent and at the time of investment the bank or
savings and loan association is solvent and the contract has a maturity of 10
years or less, with an early redemption penalty of no more than six months
interest, and the foregoing instrument(s) is valued at the principal deposit
amount;
(6) United States
government-issued obligations, or obligations of any United States agency
thereof, provided that the obligations are:
(i) guaranteed as to principal and interest
by the United States government;
(ii) publicly traded and not restricted as to
transferability; and
(iii) valued
at market value;
(7)
publicly traded obligations directly issued by the Federal Home Loan Mortgage
Corporation or the Federal National Mortgage Association that are not
restricted as to transferability and are valued at market value;
(8) publicly traded United States dollar
denominated fixed income obligations issued by any American or foreign
institution, any foreign country or political subdivision or agency thereof, or
any political subdivision or agency of the United States, other than those
securities specified in paragraphs (4), (6) and (7) of this subdivision, that
are not restricted as to transferability and consisting of:
(i) a security rated and monitored by at
least one NRSRO and is valued at market value, provided that:
(a) if the security is rated and monitored by
one NRSRO, the security is rated the equivalent of one of the top three generic
rating categories by Standard and Poor's or by Moody's Investors Service;
or
(b) if the security is rated and
monitored by more than one NRSRO, the security is rated by at least two NRSROs
the equivalent of one of the top three generic rating categories by Standard
and Poor's or by Moody's Investors Service;
(ii) a security rated and monitored by at
least one NRSRO that does not meet the criteria of subparagraph (i) of this
paragraph and is valued at market value, provided that:
(a) if the security is rated and monitored by
one NRSRO, the security is rated the equivalent of one of the top four generic
rating categories by Standard and Poor's or by Moody's Investors Service;
or
(b) if the security is rated and
monitored by more than one NRSRO, the security is rated by at least two NRSROs
the equivalent of one of the top four generic rating categories by Standard and
Poor's or by Moody's Investors Service; or
(iii) any other publicly traded United States
dollar denominated obligation valued at 90 percent or more of par
value;
(9) shares of a
money market investment company registered pursuant to the Federal Investment
Company Act of 1940,
15 U.S.C. section
80a-1
et seq., provided that
the investment company:
(i) seeks to maintain
a constant net asset value of one dollar at all times; and
(ii) allows a maximum of seven day redemption
of proceeds;
(10) shares
of a non-money market investment company registered pursuant to the Federal
Investment Company Act of 1940, 15 U.S.C. section 80 -a
et
seq., provided that:
(i) the
investment company is an open-end investment company or an exchange traded
fund;
(ii) the shares are not
restricted as to transferability and are either publicly traded on a national
stock exchange in the United States or are redeemable at net asset value by the
investment company; and
(iii) the
shares are valued at market value.
(d)
Limitations and restrictions on
investments.
(1) A continuing care
retirement community shall not invest in:
(i)
obligations, shares, investment contracts or other securities of any entity
that is insolvent at the time of investment or where the security is in default
as to interest or principal at the time of investment;
(ii) obligations, shares, investment
contracts or other securities issued by a parent corporation, subsidiary or
affiliate, or that will be a parent corporation, subsidiary or affiliate after
direct or indirect acquisition of the continuing care retirement community in
excess of the percentage specified in section
350.1(f)(1) of
this Part, without the superintendent's prior approval of the
transaction;
(iii) any publicly
traded United States dollar denominated fixed income obligation that at the
time of investment is valued less than 90 percent of par value;
(iv) derivative instruments; or
(v) exchange traded notes.
(2) In determining whether an
investment company meets the criteria of paragraph (c)(10) of this section at
any point in time, a published list of holdings shall be used provided that the
list of holdings is not more than six months old. The rating of one NRSRO may
be used to test whether the underlying obligations held by the investment
company meet the criteria of subparagraph (a)(3)(iii), (a)(3)(v)-(vii), or
paragraph (c)(4) or (c)(8) of this section.
(3) A continuing care retirement community
shall not make an investment pursuant to paragraphs (c)(1)-(2), subparagraph
(c)(8)(ii) or paragraph (c)(10) of this section unless the continuing care
retirement community has been in operation at least 60 months and the occupancy
rate of the independent living units in the continuing care retirement
community has exceeded 90 percent for 6 consecutive months at the time of the
investment.
(4) A continuing care
retirement community that is not in compliance with subdivision (i) of this
section shall not invest in the following:
(i) an investment pursuant to subparagraphs
(a)(3)(v)-(vii) or paragraphs (c)(6)-(8) of this section that has more than
five years remaining to maturity at the time of the investment; or
(ii) an investment pursuant to paragraphs
(c)(1)-(2), subparagraphs (c)(8)(ii)-(iii), or paragraph (c)(10) of this
section.
(5) As of the
end of each fiscal year, or upon the acquisition of a new investment pursuant
to paragraph (c)(1) of this section, the aggregate market value of all
investments held pursuant to paragraph (c)(1) of this section issued by one
institution shall not exceed:
(i) two percent
of the invested assets of the continuing care retirement community;
or
(ii) five percent of the total
market value of all such securities issued by that institution.
(6) As of the end of each fiscal
quarter, or upon the acquisition of a new investment pursuant to paragraph
(c)(2) of this section, the aggregate market value of all investments held
pursuant to paragraph (c)(2) of this section issued by one institution shall
not exceed:
(i) two percent of the invested
assets of the continuing care retirement community; or
(ii) five percent of the total market value
of all such securities issued by that institution.
(7) As of the end of each fiscal quarter, or
upon the acquisition of a new investment pursuant to subparagraphs (a)(3)(iii),
(a)(3)(vi)-(viii), paragraphs (c)(1)-(2), (c)(4), or (c)(7)-(8) of this
section, the aggregate asset value of all assets held pursuant to subparagraphs
(a)(3)(iii), (a)(3)(vi)-(viii), paragraphs (c)(1)-(2), (c)(4), and (c)(7)-(8)
of this section issued by one issuer or institution shall not exceed 10 percent
of the invested assets of the continuing care retirement community.
(8) As of the end of each fiscal year, or
upon the acquisition of a new investment pursuant to subparagraphs (a)(3)(iii),
(a)(3)(vi)-(viii), paragraphs (c)(4) or (c)(7)-(8) of this section, the
aggregate asset value of all assets held pursuant to subparagraphs (a)(3)(iii),
(a)(3)(vi)-(viii), paragraphs (c)(4) and (c)(7)-(8) of this section issued by
one issuer or institution shall not exceed five percent of the total asset
value of all such securities issued by that issuer or institution.
(9) As of the end of each fiscal year, or
upon acquisition of a new investment pursuant to paragraphs (c)(9) and (c)(10)
of this section, the aggregate asset value held in one investment company
pursuant to paragraphs (c)(9) and (c)(10) of this section shall not exceed five
percent of the total net asset value of the investment company.
(10) As of the end of each fiscal year, or
upon the acquisition of a new investment pursuant to paragraphs (c)(9) and
(c)(10) of this section, the aggregate asset value of all assets held pursuant
to paragraphs (c)(9) and (c)(10) of this section issued by one institution or
by one investment company shall not exceed 10 percent of the invested assets of
the continuing care retirement community.
(11) As of the end of each fiscal year, or
upon the acquisition of a new investment pursuant to subparagraph (a)(3)(iii),
(a)(3)(vi)-(vii), or paragraph (c)(4) or (c)(7)-(8) of this section, the
aggregate asset value of all assets held in asset backed securities pursuant to
subparagraphs (a)(3)(iii), (a)(3)(vi)-(vii), or paragraphs (c)(4) and
(c)(7)-(8) of this section shall not exceed 10 percent of the invested assets
of the continuing care retirement community.
(12) A continuing care retirement community
shall not make a new investment in a foreign domiciled entity pursuant to:
(i) paragraph (c)(1) of this section if the
cost of the new investment when added to the aggregate asset value of
investments then held in foreign domiciled entities pursuant to paragraph
(c)(1) of this section exceeds two percent of the invested assets of the
continuing care retirement community;
(ii) paragraph (c)(2) of this section if the
cost of the new investment when added to the aggregate asset value of
investments then held in foreign domiciled entities pursuant to paragraph
(c)(2) of this section exceeds five percent of the invested assets of the
continuing care retirement community; and
(iii) subparagraph (a)(3)(iii), (a)(3)(vii),
or paragraph (c)(4) or (c)(8) of this section if the cost of the new investment
when added to the aggregate asset value of investments then held in foreign
domiciled entities pursuant to subparagraphs (a)(3)(iii), (a)(3)(vii), or
paragraphs (c)(4) and (c)(8) of this section exceeds five percent of the
invested assets of the continuing care retirement community.
(13) A continuing care retirement
community shall not make a new investment pursuant to paragraph (c)(1) of this
section in a security that has not paid a dividend during the prior 12 months
or a new investment pursuant to paragraph (c)(10) of this section in an
investment company that has not made a dividend distribution during the prior
12 months if the cost of the new investment when added to the aggregate asset
value of investments then held pursuant to paragraphs (c)(1) and (c)(10) of
this section that have not paid a dividend during the prior 12 months exceeds
five percent of the invested assets of the continuing care retirement
community.
(14) A continuing care
retirement community shall not make a new investment pursuant to paragraphs
(c)(6)-(8) of this section in a non-interest bearing obligation or a new
investment pursuant to paragraph (c)(9) of this section in an investment
company that has not made a dividend distribution during the prior 12 months if
the cost of the new investment, when added to the aggregate asset value of
investments then held pursuant to paragraphs (c)(6)-(8) of this section that
are non-interest bearing and paragraph (c)(9) of this section that have not
paid a dividend during the prior 12 months, exceeds 5 percent of the invested
assets of the continuing care retirement community.
(15) A continuing care retirement community
shall not make a new investment pursuant to paragraph (c)(1) or (c)(10) of this
section if the cost of the new investment when added to the aggregate asset
value of investments then held pursuant to paragraphs (c)(1) and (c)(10) of
this section exceeds 30 percent of the invested assets of the continuing care
retirement community. Investments pursuant to paragraph (c)(10) satisfying the
following criteria shall be excluded from the 30 percent aggregate asset value
limitation on investments held pursuant to paragraphs (c)(1) and (c)(10):
(i) the investment company holds only United
States dollar denominated cash or unlevered United States dollar denominated
fixed income securities;
(ii) the
investment company employs no leverage;
(iii) the investment company solely employs
an indexing investment approach, designed to track the performance of a broad,
highly diversified, market-weighted investment grade bond index; and
(iv) the investment company expense ratio
does not exceed a maximum of 0.25 percent annually.
(16) A continuing care retirement community
shall not make a new investment pursuant to paragraph (c)(2) of this section
unless at the time of investment the security:
(i) paid a dividend during the prior 12
months; and
(ii) is rated and
monitored by at least one NRSRO. If the security is rated and monitored by only
one NRSRO, it must be rated the equivalent of one of the top three generic
rating categories by Standard and Poor's or by Moody's Investors Service. If
the security is rated and monitored by more than one NRSRO, it must be rated by
at least two NRSROs the equivalent of one of the top three generic rating
categories by Standard and Poor's or by Moody's Investors Service.
(17) A continuing care retirement
community shall not make a new investment pursuant to paragraph (c)(2) of this
section if the cost of the new investment when added to the aggregate asset
value of investments then held pursuant to paragraph (c)(2) of this section
exceeds 10 percent of the invested assets of the continuing care retirement
community.
(18) A continuing care
retirement community shall not make a new investment pursuant to subparagraph
(c)(8)(ii) of this section if the cost of the new investment, when added to the
aggregate asset value of investments then held pursuant to subparagraphs
(c)(8)(ii)-(iii) of this section, exceeds 10 percent of the invested assets of
the continuing care retirement community.
(19) Notwithstanding any other provision of
this subdivision, a continuing care retirement community may:
(i) exercise an option to convert an
obligation or preferred stock into common stock;
(ii) reinvest a dividend or capital gain
distribution by an investment company in that same investment
company;
(iii) invest in
interest-bearing obligations that meet the requirements of paragraph (c)(6) of
this section;
(iv) purchase its own
previously issued bonds on the open market outside of the normal redemption
process provided that:
(a) the purchased bonds
shall be presented to the bond trustee for cancellation;
(b) the continuing care retirement community
shall meet all covenants, if any, included in any bond issue, short term
financing agreement, or long term financing agreement immediately after such
purchase;
(c) the continuing care
retirement community shall meet the requirements of subdivision (a) of this
section immediately after such purchase; and
(d) the amount of bonds so purchased in any
one fiscal year shall not exceed 10 percent of the continuing care retirement
community's invested assets as of the beginning of such fiscal year without the
prior approval of the superintendent; and
(v) with the prior approval of the
superintendent, convert part of its fixed rate debt to variable rate debt or
convert part of its variable rate debt to fixed rate debt. To request the
superintendent's review and approval, the continuing care retirement community
shall submit a proposal to the superintendent that demonstrates that the
proposal will not cause financial harm to the continuing care retirement
community.
(e) A continuing care retirement community
may also use the following to support the reserve liabilities:
(1) capital (fixed) assets, where the total
capital asset value is reduced for any debt outstanding as follows:
(i) class 1 assets-up to the market value
thereof as determined pursuant to subdivision (f) of this section;
(ii) class 2 assets-up to the market value
thereof as determined pursuant to subdivision (f) of this section;
(iii) class 3 assets-up to the original cost
less depreciation charge;
(iv)
class 4 assets-up to the unamortized or depreciated cost less any amount
included in any other class;
(2) the unearned portion of any prepaid
operating expenses covering periods not in excess of three years from the date
of valuation; or
(3) accounts
receivable provided that they are expected to be paid and not more than:
(i) 90 days overdue when the payor is not a
government agency; and
(ii) 12
months overdue when the payor is a government agency.
(f) The operator, at least once
every three years, shall submit a letter to the superintendent on the
continuing care retirement community's stationery that is signed by an
appropriate officer of the continuing care retirement community specifying the
current market value of class 1 and class 2 assets allowed pursuant to
paragraph (e)(1) of this section. The value shall be fixed by the operator
based on an independent real estate appraisal of the continuing care retirement
community or based on the assessed value of the continuing care retirement
community for property taxes or an equivalent tax or assessment. Alternatively,
the value may be fixed based on the values assigned by the actuarial consultant
in the most recently submitted and accepted actuarial study provided that the
actuarial consultant develops these values pursuant to the depreciated asset
methodology of section
350.4(d) of this
Part. If the value is based on an independent real estate appraisal, a copy of
the appraiser's report shall be submitted to the superintendent. If the value
is based on the assessed value for property taxes or an equivalent tax or
assessment, appropriate documentation shall be submitted to the superintendent.
If the superintendent requests an independent real estate appraisal of the
market value of the continuing care retirement community, the operator shall
provide the appraisal within 90 days of the request.
(g) Nothing herein shall preclude an
operator, subject to the approval of the superintendent, from reporting the
present value of future fees as an asset, provided the operator reports the
present value of future operating, refund, and capital expenses and the excess,
if any, of the retrospective reserve liability over the prospective reserve
liability as liabilities.
(i) Unless a continuing care retirement
community develops formal investment guidelines and policies approved by its
board of directors, the investments of the continuing care retirement community
shall be restricted pursuant to paragraph (d)(4) of this section. Investment
guidelines and policies shall include broad statements about cash management,
fixed income investment approaches detailing duration and credit quality,
equity investment approaches, and details as to how the community's investments
are managed, including a statement as to whether the community's investment
function is managed by an outside firm. The investment guideline and policy
statement shall clearly specify prohibited investments. Notwithstanding any
delegation, the responsibility for oversight of the investment program shall be
retained by the community's board of directors. All investment policies and
guidelines and any subsequent changes shall be submitted to the superintendent
within 30 days of the board of directors adopting such policies and guidelines;
provided, however, that a continuing care retirement community that has
previously submitted an investment policy and guideline statement shall submit
to the superintendent an updated investment policy and guideline statement
approved by its board of directors no later than December 31, 2018.
(m) Notwithstanding any other
provision of this section, a continuing care retirement community may retain,
and need not divest itself of, an investment that was permissible under this
Part as of December 31, 2017 and the asset shall be eligible to support the
reserve liabilities on the actuarial balance sheet of the actuarial
study.
