N.Y. Comp. Codes R. & Regs. tit. 11 § 350.4

Current through Register Vol. 46, No. 42, October 16, 2024

Section 350.4 - General rules regarding reserve liability calculation

(a) The minimum reserve for replacement for class 1 capital assets shall be the excess of any realized and unrealized capital gains on the land including any gains realized on sale of all or any portion of the land over any realized and unrealized capital losses and less the cost of any additional or replacement land. In the event of realized capital gains from the sale of land, which is not to be replaced, the operator may request approval of the superintendent for the exclusion of such capital gains from the reserve for replacement.

(b) The minimum reserve for replacement of class 2 capital assets shall be determined as follows:

(1) During the original assumed useful lifetime of the buildings (the useful lifetime of the assets used for purposes of calculating depreciation or amortization), the minimum reserve shall equal any excess of the realized and unrealized capital gains on the capital (fixed) asset (including that due to replacement or repair) over the realized and unrealized capital losses relative to that asset less the cost of any replacement or repairs.

(2) At any other time the minimum reserve shall be equal to the greatest of:

(i) the value of the reserve of the class 2 capital asset at the end of the original assumed useful lifetime;

(ii) the highest previous value of the reserve for a class 2 capital asset which was outlived its original assumed useful lifetime, as determined in accordance with this paragraph; and

(iii) any excess of the realized and unrealized capital gains on the capital (fixed) asset over the realized and unrealized capital losses relative to that asset, less the cost of any replacement or repairs made since the end of the original assumed useful lifetime.

(3) In addition, an operator may use a plan for the systematic funding of a reserve for replacement over and above the requirements of paragraphs (1) and (2) of this subdivision, subject to the approval of the superintendent.

(4) Notwithstanding the requirements of paragraphs (1) and (2) of this subdivision, the reserves held under those paragraphs along with any reserves held under paragraph (3) of this subdivision need not at any time exceed the current replacement cost.

(5) At the time of replacement of a capital (fixed) asset, the reserve for replacement may be reduced by the replaced capital (fixed) asset's portion of the reserve for replacement.

(c) Any reserve for replacement for class 3 capital assets shall be based on a plan submitted by the operator and approved by the superintendent.

(d) For purposes of determining the depreciation or amortization on capital assets for use in the retrospective and prospective reserve calculations in section 350.3 of this Part, the following rules shall apply:

(1) Class 1 capital assets-no depreciation;

(2) Class 2 capital assets-depreciation over the useful lifetime, preferably 40 years at construction;

(3) Class 3 capital assets-depreciation over the useful lifetime of each asset or over the average useful lifetime of a grouping of assets;

(4) Class 4 capital assets-amortization over the lifetime of the associated class 2 assets. In the event of an accelerated reduction in the value of class 4 capital assets pursuant to section 350.5 of this Part, the annual amortization charge will remain unchanged, except for the final charge, and the period of time over which these assets will be amortized will be shortened in a manner consistent with the method of amortization used for class 4 assets; and

(5) Depreciation or amortization may be calculated using either the straight line method or the constant yield method or some intermediate method or any other method approved by the superintendent. The depreciation or amortization under the constant yield method is calculated as the change in value of an amortization schedule. Such schedule is calculated using an interest rate and a pattern of charges, approved by the superintendent. The amortization schedule at any time equals the present value of the remaining charges.

(e) In determining the future expenses and future scheduled fee payments, inflation and increases in social security benefits shall be considered, where appropriate.

(f) The assumption as to scheduled monthly fee increases shall not exceed the assumption for increases for operating expenses on a percentage basis, unless otherwise approved by the superintendent.

(g) The assumption as to average monthly fees per resident for the initial year of a prospective reserve liability calculation shall not exceed the average of the actual fees currently on file for that year unless otherwise approved by the superintendent upon demonstration that the proposed fees for the initial projection year are not excessive, inadequate, or unfairly discriminatory.

(h) In calculating the prospective reserve liability, the mortality, morbidity, and utilization of health care services shall be based on assumptions selected by the operator's actuary and approved by the superintendent based on the age, sex, and health characteristics of the entrants and of the residents. These characteristics should be considered in reserve calculations even if they are not distinguished in the fee structure for the continuing care retirement community.

(i) The prospective reserve liability calculations shall be done on an aggregate basis which assumes:

(1) the residents at the date of valuation form a closed group; and

(2) unit costs for operating expenses and capital expenses are based on an ongoing concern maintaining a reasonable occupancy rate. When performing the reserve calculation on a closed group basis, the projection should be done until all current residents reach the last age of the assumed mortality table.

(j) The calculation of the prospective reserve shall periodically include a review of the assumptions relating to future rates of mortality and morbidity and future expenses. The review shall take into account the analysis of the actual to expected experience as set forth in the actuarial review contained in the facility's annual report required pursuant to section 4607 of the Public Health Law.

(k) Reserve liabilities, at the option of the operator, may be subdivided and shown separately for various categories such as reserve for debt service, reserve for replacement, reserve for repair, reserve for operating expenses, reserve for refunds, and reserve for health care, even though such categories may not be so identified in the reserve calculations in section 350.3 of this Part.

N.Y. Comp. Codes R. & Regs. Tit. 11 § 350.4

Amended New York State Register November 27, 2019/Volume XLI, Issue 48, eff. 12/27/2019