1. (1) All part 1 paid in surplus contributions to a continuing care retirement community shall be documented in a written agreement between the continuing care retirement community and the person making the part 1 paid in surplus contribution. The agreement shall state whether the paid in surplus is expected to earn an investment return, and, if so, the agreement shall state the terms of the annual investment return that is subject to the restrictions in subdivision (b) of this section. A copy of each such agreement shall be submitted to the superintendent for review at least 30 days in advance of it being finalized. A copy of each signed agreement shall be submitted to the superintendent within 10 business days of the agreement being signed.
2. (2) All part 2 paid in surplus contributions to a continuing care retirement community shall be documented in a written agreement between the continuing care retirement community and the person making the part 2 surplus contribution. Investment return on part 2 paid in surplus shall be made only as permitted pursuant to subdivision (e) of this section. A copy of each such agreement shall be submitted to the superintendent for review at least 30 days in advance of it being finalized. A copy of each signed agreement shall be submitted to the superintendent within 10 business days of the agreement being signed.

3. (3) A paid in surplus contribution may be implemented using a subordinated loan agreement provided that the terms of the agreement comply with the provisions of this subdivision and the subordinated loan agreement contains a provision stating that no portion of the loan and interest thereon may be repaid without the prior written approval of the superintendent. A copy of each such agreement shall be submitted to the superintendent for review at least 30 days in advance of it being finalized. A copy of each signed agreement shall be submitted to the superintendent within 10 business days of the agreement being signed.

   (b)

4. (1) Part 1 paid in surplus may be increased by credits based upon the application of a rate of return to the surplus, and shall be reduced by any payments or distributions of the surplus.

5. (2) The annualized rate of return applied to the part 1 paid in surplus in a given fiscal year pursuant to paragraph (1) of this subdivision shall not be greater than the greatest of:

   1. (i) the aggregate average mortgage interest rate or other long term financing rate applicable for the year;
   2. (ii) the average total rate of return over the current 12-month period on the invested assets of the continuing care retirement community based on the sum of investment income and capital gains or losses on the assets;
   3. (iii) the prime rate as published in the Wall Street Journal as of the first business day of each month increased by 100 basis points and compounded monthly. If the prime rate published in the Wall Street Journal is a range, the prime rate will be the average (i.e., arithmetic mean) of the highest and lowest prime rates in the range, otherwise, the prime rate will be the single prime rate published; and
   4. (iv) if the continuing care retirement community is a for profit corporation, an annualized rate of return of 10 percent.

6. (3) If during a fiscal year there has been any increases or decreases to the part 1 paid in surplus amount, then within 120 days of the end of the fiscal year the operator shall submit to the superintendent a part 1 paid in surplus accounting showing:

   1. (i) the amount of part 1 paid in surplus as of the beginning of the fiscal year just ended;
   2. (ii) the amount of additions to part 1 paid in surplus contributed during the fiscal year just ended;
   3. (iii) the amount of withdrawals from part 1 paid in surplus during the fiscal year just ended;
   4. (iv) the amount of investment earnings credited to part 1 paid in surplus for the fiscal year just ended and detailed documentation of how the investment earnings amount was determined; and

   5. (v) the amount of part 1 paid in surplus as of the end of the fiscal year just ended.

      (c)

7. (1) Once a continuing care retirement community has commenced operations and funds held in escrow are released pursuant to Public Health Law section 4610, a for profit operator may designate as profit up to five percent of all entrance fees and monthly and other fees received from, or on behalf of, residents and nonresidents during the fiscal year just ended, and all such amounts shall be retained and credited to part 1 paid in surplus and only distributed pursuant to subdivision (d) of this section.

8. (2) Any profit designated pursuant to paragraph (1) of this subdivision shall be documented by a written agreement between the continuing care retirement community and the operator or owner of the continuing care retirement community. The agreement shall state whether the paid in surplus is expected to earn an investment return, and, if so, the agreement shall state the terms of the annual investment return that is subject to the restrictions in subdivision (b) of this section. A draft copy of the agreement and a calculation of how the profit amount was determined shall be submitted to the superintendent for review and approval, and upon approval, a copy of the final signed agreement shall be submitted to the superintendent within 10 business days of the agreement being signed.

   (d) Distribution of part 1 paid in surplus or conversion of part 1 paid in surplus to part 2 paid in surplus.

9. (1) An operator may request the superintendent’s approval to repay all or part of part 1 paid in surplus, or to convert all or part of part 1 paid in surplus to part 2 paid in surplus, provided that:

   1. (i) as of the end of the fiscal year just ended the continuing care retirement community has been in operation for at least 36 months;
   2. (ii) the average independent living unit occupancy rate for the fiscal year just ended was at least 90 percent and the independent living unit occupancy rate for each of the most recent six months was at least 90 percent;
   3. (iii) all bond, loan, and letter of credit document covenants, if any, are currently being met;
   4. (iv) part 1 paid in surplus is positive;
   5. (v) the continuing care retirement community is in satisfactory actuarial balance; and

   6. (vi) the operator has submitted a demonstration, satisfactory to the superintendent, that:

      1. (a) is based on the assumption that increases in future scheduled entrance fees, resident monthly fees, and nonresident fees do not exceed the assumption for increases in future operating expenses on a percentage basis;
      2. (b) uses 105 percent of the components of the prospective reserve calculated pursuant to section 350.3(b)(4) of this Part each projection year; and

      3. (c) shows that after the requested distribution or conversion of part 1 paid in surplus has taken place:

         1. (1) the requirements of section 350.6(a) and (b) of this Part will be met for each of the next 10 projection years;
         2. (2) the requirements of section 350.6(d) of this Part will be met immediately after the requested distribution or conversion has taken place;
         3. (3) the net surplus of the continuing care retirement community will be greater than or equal to zero for each of the next 10 projection years; and
         4. (4) all bond, loan, and letter of credit document covenants, if any, will continue to be met.
10. (2) The operator shall indicate the amount of repayment or conversion that is applicable to each of the outstanding paid in capital agreements, as applicable.
11. (e) All assets allocated to part 2 paid in surplus shall be accounted for separately, with all investment income and realized and unrealized capital gains or losses of such assets assigned thereto. No investment income on assets not allocated to part 2 paid in surplus shall be assigned to part 2 paid in surplus. Such part 2 paid in surplus shall be disregarded in determining sufficiency of assets to support reserve liabilities. Distribution or payment of part 2 paid in surplus is not subject to the approval of the superintendent provided that the requirements of section 350.6(a) of this Part are currently satisfied and the continuing care retirement community has demonstrated to the superintendent's satisfaction during the prior 12 months that the community is in satisfactory actuarial balance.

(a)