Sec. 350.6. Assets supporting reserve liabilities

(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.

(h) Nothing herein shall preclude an operator from reporting the full value of capital assets as assets, provided the operator also reports the values of outstanding loans against such assets 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.

(j) A continuing care retirement community shall not make any investment unless authorized or approved by its board of directors or a committee thereof responsible for supervising or making such investment. The committee’s minutes of such authorization or approval shall be recorded and a report of such investment activity submitted to the board of directors at its next meeting for ratification.

(k) Assets supporting reserve liabilities on the actuarial balance sheet included in the actuarial study shall consist of the assets specified in subdivisions (a), (c) and (e) of this section, except that the aggregate value of these assets need not exceed the minimum reserve liability determined pursuant to section 350.3 of this Part. Assets held pursuant to subdivisions (a) and (c) of this section that do not meet the limitations and restrictions of subdivision (d) of this section shall not be included in the assets supporting reserve liabilities on the actuarial balance sheet and the failure to meet the requirements of subdivision (d) of this section shall not cause these assets to be transferred to part 2 paid in surplus.

(l) A continuing care retirement community shall not convert an asset that is eligible to support reserve liabilities into an asset that at the time of investment is not eligible to support reserve liabilities except pursuant to section 350.7(d) of this Part.

(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.