SENATE AMENDED

 

PRIOR PRINTER'S NOS. 2384, 2521, 2606

PRINTER'S NO.  2609

  

THE GENERAL ASSEMBLY OF PENNSYLVANIA

  

HOUSE BILL

 

No.

1828

Session of

2009

  

  

INTRODUCED BY WILLIAMS AND D. EVANS, JULY 3, 2009

  

  

 AS AMENDED ON THIRD CONSIDERATION, IN SENATE, AUGUST 26, 2009   

  

  

  

AN ACT

  

1

Amending the act of December 18, 1984 (P.L.1005, No.205),

<--

2

entitled "An act mandating actuarial funding standards for

3

all municipal pension systems; establishing a recovery

4

program for municipal pension systems determined to be

5

financially distressed; providing for the distribution of the

6

tax on the premiums of foreign fire insurance companies; and

7

making repeals,"  adding special provisions for amortization

8

of unfunded actuarial accrued liability and minimum municipal

9

obligation in cities of the first class; and providing for

10

special taxing authority for cities of the first class.

11

Amending the act of December 18, 1984 (P.L.1005, No.205),

<--

12

entitled "An act mandating actuarial funding standards for

13

all municipal pension systems; establishing a recovery

14

program for municipal pension systems determined to be

15

financially distressed; providing for the distribution of the

16

tax on the premiums of foreign fire insurance companies; and

17

making repeals," amending the title of the act; in

18

preliminary provisions, further providing for definitions; in

19

preliminary provisions, providing for methodology; in

20

municipal pension plan actuarial reporting, further providing

21

for contents of actuarial valuation report and providing for

22

actuarial asset valuation and for revised actuarial valuation

23

report; in minimum funding standard for municipal pension

24

plans, further providing for minimum funding standard and

25

defined benefit plans self-insured in whole or in part; in

26

revisions applicable to municipal pension fund financing,

27

further providing for revision of financing from State

28

revenue sources and General Municipal Pension System State

29

Aid Program; in financially distressed municipal pension plan

30

determination procedure, further providing for initiation of

31

distress determination, for pension plans to be included in

32

determination and for determination procedure; in financially

33

distressed municipal pension system recovery program, further

34

providing for application, for election determination

 


1

procedure, for recovery program level I, for recovery program

2

level II, for recovery program level III, for remedies

3

applicable to various recovery program levels, for

4

supplemental State assistance program and fund and for

5

municipal employee retirement program; in financially

6

distressed municipal pension system recovery program,

7

establishing programs for municipal pension recovery and

8

municipal employee retirement; in financially distressed

9

municipal pension system recovery program, further providing

10

for rules and regulations; providing for standards for

11

municipal pension systems for second class cities and for

<--

12

level III administration in cities of the second class; in

13

alternative funding mechanism, providing special provisions

14

relating to certain cities and counties; further providing

15

for alternative funding mechanism; providing for cities of

16

the first and second classes, for special taxing authority,

17

for cities of the second class and for municipal excess

18

payments; authorizing certain deferred retirement option

19

plans; and making a related repeal.

20

The General Assembly of the Commonwealth of Pennsylvania

21

hereby enacts as follows:

22

Section 1.  Chapter 10 heading of the act of December 18,

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23

1984 (P.L.1005, No.205), known as the Municipal Pension Plan

24

Funding Standard and Recovery Act, added June 18, 1998 (P.L.626,

25

No.82), is amended to read:

26

CHAPTER 10

27

[ALTERNATIVE FUNDING MECHANISM]

28

PROVISIONS RELATING TO CITIES OF THE FIRST CLASS

29

Section  2.  Section 1001(b) of the act, added June 18, 1998

30

(P.L.626, No.82), is amended and the section is amended by

31

adding a subsection to read:

32

Section 1001.  Alternative funding mechanism.

33

* * *

34

(b)  Period of payment requirements prior to July 1, 2009.--

35

The period of the city's payment requirements under an

36

alternative funding mechanism implemented prior to December 31,

37

2002, shall be the greater of:

38

(1)  the remaining period not exceeding 30 years during

39

which the city would have amortized the unfunded actuarial

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1

accrued liability reported in its last actuarial valuation

2

report filed under Chapter 2 using the total amortization

3

payment and interest assumption, reported in that actuarial

4

valuation report; or

5

(2)  30 years.

6

If an alternative funding mechanism is implemented after

7

December 31, 2002, but before July 1, 2009, the period described

8

in paragraph (1) shall be the period of the city's payment

9

requirements.

10

(b.1)  Period of payment requirements beginning July 1,

11

2009.--The period of the city's payment requirements under an

12

alternative funding mechanism implemented or refinanced in whole

13

or in part on or after July 1, 2009, and prior to the beginning

14

of the plan year that commences in 2019, shall be the greater

15

of:

16

(1)  the remaining period not exceeding 30 years during

17

which the city would have amortized the unfunded actuarial

18

accrued liability reported in its last actuarial valuation

19

report filed under Chapter 2 using the total amortization

20

payment and interest assumption, reported in that actuarial

21

valuation report; or

22

(2)  30 years.

23

If an alternative funding mechanism is implemented after July 1,

24

2019, the period described in paragraph (1) shall be the period

25

of the city's payment requirements.

26

* * *

27

Section 3.  The act is amended by adding sections to read:

28

Section 1002.  Special provisions for amortization of unfunded

29

actuarial accrued liability and minimum municipal

30

obligation.

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1

(a)  Amortization of unfunded actuarial accrued liability.--

2

(1)  Notwithstanding any other provision of this act or

3

other law, a city of the first class, in its sole discretion,

4

may amortize its entire unfunded actuarial accrued liability,

5

as measured on a valuation date selected by the city of the

6

first class and occurring in the plan year commencing after

7

January 1, 2009, and ending before December 31, 2010, as a

8

level dollar amount with the amortization target date being

9

the end of the plan year occurring 30 years after the plan

10

year commencing on July 1, 2009, with payments to commence in

11

the next plan year.

12

(2)  In order for a city of the first class to extend the

13

applicable amortization period pursuant to this subsection,

14

the city of the first class must file a revised actuarial

15

valuation report reflecting the amortization period extension

16

provided for under this section and the actuarial assumed

17

rate in effect on the valuation date with the commission no

18

later than March 31, 2010.

19

(3)  Any such revised actuarial valuation report may not

20

be filed in lieu of the actuarial valuation report prepared

21

in compliance with section 202(b)(4)(v)(A) and required to be

22

filed on or before March 31, 2009, and may be used only for

23

the purposes of recalculating the minimum municipal

24

obligation of the city of the first class for the plan year

25

commencing on July 1, 2009, and calculating the minimum

26

municipal obligation of the city of the first class for the

27

plan year commencing on July 1, 2010, to reflect the

28

amortization period extension. The revised report shall

29

supersede the original report to the extent of the revisions.

30

(4)  Any such revised actuarial valuation report shall

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1

not affect distributions under the General Municipal Pension

2

System State Aid Program under Chapter 4.

3

(b)  Revised minimum municipal obligation for certain plan

4

years.--

5

(1)  Notwithstanding any other provision of this act or

6

other law, a city of the first class is authorized to defer a

7

portion of the minimum municipal obligation provided for

8

section 302:

9

(i)  for the plan year ending June 30, 2010, in an

10

amount not to exceed $155,000,000; and

11

(ii)  for the plan year ending June 30, 2011, in an

12

amount not to exceed $80,000,000.

13

(2)  The amounts deferred shall bear interest at the rate

14

of 8.25%, which shall be calculated from the beginning of the

15

plan year in which the deferral was made. Accrued interest on

16

any amounts deferred shall be paid yearly on or before June

17

30, 2010, June 30, 2011, and June 30, 2012. 

18

(3)  On or before June 30, 2013, the city of the first

19

class shall repay:

20

(i)  at least $90,000,000 of any amounts deferred,

21

plus interest accrued on all amounts deferred; or

22

(ii)  if the total amount deferred is less than

23

$90,000,000, the total amount deferred, plus interest

24

accrued on that amount.

25

(4)  The balance of all amounts deferred, including

26

interest accrued and unpaid on amounts deferred, shall be

27

repaid by June 30, 2014.

28

(5)  Any of the amounts deferred, including interest

29

accrued on deferred amounts, which remain unpaid at the end

30

of the plan year ending June 30, 2014, shall be added to the

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1

minimum municipal obligation of the city of the first class

2

for the following plan year, with interest calculated and due

3

until the date that the amounts due are paid.

4

(6)  The calculation of the unfunded actuarial accrued

5

liability made by and certified by an approved actuary under

6

section 202 shall not include any amounts deferred pursuant

7

to this subsection, so long as the city of the first class is

8

paying interest accrued on such deferred amounts and repaying

9

such deferred amounts in accordance with the terms of this

10

subsection.

11

(7)  The repayment of any amounts deferred, including

12

interest accrued on deferred amounts, as and when required in

13

this subsection, shall constitute a commitment and

14

obligation, binding and absolute, on the city of the first

15

class; and the city of the first class shall include all

16

amounts due to be paid under this subsection in the budget of

17

the city, and all amounts due to be paid shall be

18

appropriated and paid in order to make timely repayment of

19

any amounts deferred, including interest accrued on deferred

20

amounts, with such payment being unconditional and without

21

setoff.

22

(8)  (i)  Any person who is beneficially interested in

23

the city of the first class paying its minimum municipal

24

obligation under this subsection shall have standing to

25

institute a legal proceeding for mandamus to enforce the

26

obligation of the city of the first class to make

27

payments under this subsection in the same manner as

28

payment requirements of an alternative funding mechanism

29

may be enforced under section 1001.

30

(ii)  For purposes of this paragraph, a person is

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1

beneficially interested under this subsection if the

2

person is a beneficially interested person under section

3

1001(f).

4

(9)  The city of the first class shall be required to pay

5

the balance of its minimum municipal obligation in full when

6

due in each plan year.

7

Section 1003.  Special taxing authority.

8

(a)  Imposition of special tax.–-

9

(1)  Solely for the purposes set forth in subsection (b),

10

a city of the first class is authorized to impose a tax on

11

the sale at retail of tangible personal property or services

12

or use of tangible personal property or services purchased at

13

retail, as those terms are defined in Article II of the act

14

of March 4, 1971 (P.L.6, No.2), known as the Tax Reform Code

15

of 1971, which tax shall be in addition to the tax authorized

16

under the provisions of section 503(a) and (b) of the act of

17

June 5, 1991 (P.L.9, No.6), known as the Pennsylvania

18

Intergovernmental Cooperation Authority Act for Cities of the

19

First Class. The tax authorized by this subsection shall not

20

be levied, assessed and collected upon the occupancy of a

21

room or rooms in a hotel in the city.

22

(2)  The tax authorized under this subsection shall be

23

imposed and collected at the rate of 1%, and shall be

24

computed as set forth at section 503(e)(2) of the

25

Pennsylvania Intergovernmental Cooperation Authority Act for

26

Cities of the First Class.

27

(3)  The tax authorized under this subsection shall be

28

administered, collected, deposited and disbursed in the same

29

manner as the tax imposed under Chapter 5 of the Pennsylvania

30

Intergovernmental Cooperation Authority Act for Cities of the

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1

First Class and the situs of the tax authorized under this

2

subsection shall be determined in accordance with that act

3

and Article II-A of the Tax Reform Code of 1971. The

4

department shall use the money received by the department to

5

cover its costs of administration of the tax authorized by

6

the provisions of Chapter 5 of the Pennsylvania

7

Intergovernmental Cooperation Authority Act for Cities of the

8

First Class to cover the costs of administration of the tax

9

authorized by this section; and the department shall not

10

retain any additional amounts for the costs of collection of

11

the tax authorized by this section. No additional fee shall

12

be charged for either a license or any renewal in addition to

13

a license or renewal fee otherwise authorized and imposed

14

pursuant to Article II of the Tax Reform Code of 1971.

15

(b)  Municipal action.--

16

(1)  If a city of the first class determines to impose

17

the tax authorized by subsection (a), the governing body of

18

the city shall adopt or shall previously have adopted an

19

ordinance which shall state the tax rate.

20

(2)  The city ordinance, including an ordinance adopted

21

prior to the effective date of this article, may take effect

22

no earlier than 20 days after the adoption of the ordinance

23

or 20 days after the effective date of this section,

24

whichever is later.

25

(3)  A certified copy of a city ordinance imposing the

26

tax authorized by subsection (a) shall be delivered to the

27

department within ten days prior to or after the effective

28

date of that ordinance.

29

(4)  A certified copy of a repeal ordinance shall be

30

delivered to the department at least 30 days prior to the

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1

effective date of the repeal.

2

(c)  Use of tax receipts.--Any moneys received by the city

3

from the levy, assessment and collection of the tax authorized

4

under subsection (a) may only be used to:

5

(1)  pay as and when due in any plan year any amounts of

6

the city's minimum municipal obligation provided for in

7

section 302, including, but not limited to, amounts deferred

8

pursuant to section 1002(b) and interest accrued on deferred

9

amounts; and

10

(2)  reimburse the city for payments made by the city,

11

from sources other than the tax authorized in subsection (a),

12

of the city's minimum municipal obligation for that year,

13

including, but not limited to, amounts deferred pursuant to

14

section 1002(b) and interest accrued on deferred amounts.

15

(d)  Expiration.--

16

(1)  This section shall expire July 1, 2014.

17

(2)  Notwithstanding the expiration of this section, any

18

tax imposed pursuant to subsection (a) on sales or uses

19

occurring before July 1, 2014, shall be paid to and received

20

by the department and, along with interest and penalties,

21

less any refunds and credits paid, shall be credited to the

22

Local Sales and Use Tax Fund created pursuant to the

23

Pennsylvania Intergovernmental Cooperation Authority Act for

24

Cities of the First Class as if this section had not expired.

25

Such moneys shall be disbursed to the city imposing the tax

26

in the manner provided by section 509 of the Pennsylvania

27

Intergovernmental Cooperation Authority Act for Cities of the

28

First Class.

29

(e)  Effect of imposition, expiration or repeal of tax.--The

30

imposition, termination or repeal of the tax authorized under

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1

subsection (a) shall not affect in any way the amount of

2

supplemental State assistance allocable to the city imposing the

3

tax.

4

Section 1004.  Additional assistance.

5

Notwithstanding any other provision of this act or other law,

6

a city of the first class shall continue to receive State

7

supplemental assistance and any other assistance available under

8

this act.

9

Section 4.  This act shall take effect immediately.

10

Section 1.  The title of the act of December 18, 1984

<--

11

(P.L.1005, No.205), known as the Municipal Pension Plan Funding

12

Standard and Recovery Act, is amended to read:

13

AN ACT

14

Mandating actuarial funding standards for all municipal pension

15

systems; establishing a recovery program for municipal

16

pension systems determined to be financially distressed;

17

providing for the distribution of the tax on the premiums of

18

foreign fire insurance companies; providing for the

19

establishment and administration of deferred retirement

20

option plans in local governments and for local tax; and

21

making repeals.

22

Section 2.  The definition of "municipal employee" in section

23

102 of the act is amended and the section is amended by adding

24

definitions to read:

25

Section 102.  Definitions.

26

Except as provided in Chapter 7, the following words and

27

phrases when used in this act shall have the meanings given to

28

them in this section unless the context clearly indicates

29

otherwise:

30

* * *

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1

"DROP."  A deferred retirement option plan created and

2

operated by a local government or the Pennsylvania Municipal

3

Retirement System under Chapter 11 or any deferred retirement

4

option plan or similar program established by a local government

5

that provides for the commencement and accumulation of

6

retirement benefit payments for active employees with

7

disbursement of the accumulated payments and interest earnings

8

as a lump sum upon termination of employment.

9

"DROP participant."  A retired member of a local government-

10

defined benefit pension plan who is eligible to participate in a

11

DROP under section 1112, who has elected to participate in a

12

DROP under section 1113 and who is not an elected official.

13

"DROP participant account."  A pension trust fund ledger

14

account established under section 1121(a).

15

* * *

16

"Local government."  A municipality or any county.

17

* * *

18

"Municipal employee."  Any person [other than an independent

19

contractor] who provides regular services for a municipality in

20

return for compensation from the municipality. The term does not

21

include an independent contractor or a DROP participant.

22

* * *

23

Section 2.1.  The act is amended by adding a section to read:

24

Section 103.  Methodology.

25

In performing an actuarial study under this act or the act of

26

December 6, 1972 (P.L.1383, No.293), entitled "An act requiring

27

municipal pension systems to have an actuarial investigation of

28

the fund made by an actuary who shall report his findings to the

29

Department of Community Affairs," municipalities and counties

30

may utilize any reasonable actuarial assumptions or

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1

methodologies provided for in this act.

2

Section 3.  Section 202(b)(4)(i), (ii), (iii), (iv) and (v)

3

of the act, amended July 15, 2004 (P.L.715, No.81), are amended

4

to read:

5

Section 202.  Contents of actuarial valuation report.

6

* * *

7

(b)  Contents of actuarial exhibits; defined benefit plans

8

self-insured in whole or in part.--For any pension plan which is

9

a defined benefit plan and which is self-insured in whole or in

10

part, all applicable actuarial exhibits shall be prepared in

11

accordance with the entry age normal actuarial cost method with

12

entry age established as the actual entry age for all plan

13

members unless the municipality applies for and is granted

14

authorization by the commission to use an alternative actuarial

15

cost method. Authorization shall be granted if the municipality

16

demonstrates on an individual pension plan basis that there are

17

compelling reasons of an actuarial nature for the use of an

18

alternative actuarial cost method. The commission shall issue

19

rules and regulations specifying the criteria which the

20

commission will use to determine the question of the existence

21

of compelling reasons for the use of an alternative actuarial

22

cost method, the documentation which a municipality seeking the

23

authorization will be required to supply and the acceptable

24

alternative actuarial cost methods which the commission may

25

authorize. The actuarial cost method shall be used to value all

26

aspects of the benefit plan or plans of the pension plan unless

27

the municipality applies for and is granted authorization by the

28

commission to use approximation techniques other than the

29

actuarial cost method for aspects of the benefit plan or plans

30

of the pension plan other than the retirement benefit.

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1

Authorization shall be granted if the municipality demonstrates

2

on an individual pension plan basis that there are compelling

3

reasons of an actuarial nature for the use of these

4

approximation techniques. The commission shall issue rules and

5

regulations specifying the criteria which the commission will

6

use to determine the question of the existence of compelling

7

reasons for the use of approximation techniques, the

8

documentation which a municipality seeking the authorization

9

will be required to supply and the acceptable approximation

10

technique which the commission may authorize. The actuarial

11

exhibits shall use actuarial assumptions which are, in the

12

judgment of the actuary and the governing body of the plan, the

13

best available estimate of future occurrences in the case of

14

each assumption. With respect to economic actuarial assumptions,

15

the assumptions shall either be within the range specified in

16

rules and regulations issued by the commission or documentation

17

explaining and justifying the choice of assumptions outside the

18

range shall accompany the report. The actuarial exhibits shall

19

measure all aspects of the benefit plan or plans of the pension

20

plan in accordance with modifications in the benefit plan or

21

plans, if any, and salaries which as of the valuation date are

22

known or can reasonably be expected to be in force during the

23

ensuing plan year. In preparing the actuarial exhibits or any

24

actuarial valuation report, the municipality shall exclude the

25

compensation of all DROP participants from the active member

26

payroll and all DROP participants from active member data. The

27

actuarial valuation report shall contain the following actuarial

28

exhibits:

29

* * *

30

(4)  An exhibit of any additional funding costs

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1

associated with the amortization of any unfunded actuarial

2

accrued liability of the pension plan, indicating for each

3

increment of unfunded actuarial accrued liability specified

4

in paragraph (3), the level annual dollar contribution

5

required to pay an amount equal to the actuarial assumption

6

as to investment earnings applied to the principal amount of

7

the remaining balance of the increment of unfunded actuarial

8

accrued liability and to retire by the applicable

9

amortization target date specified in this paragraph the

10

principal amount of the remaining balance of the increment of

11

unfunded actuarial accrued liability. The amortization target

12

date applicable for each type of increment of unfunded

13

actuarial accrued liability shall be as follows:

14

(i)  The following apply:

15

(A)  In the case of a pension plan established on

16

or prior to January 1, 1985 for the unfunded

17

actuarial accrued liability in existence as of the

18

beginning of the plan year occurring in calendar year

19

1985, at the end of the plan year occurring in

20

calendar year 2015; or

21

(B)  In the case of a pension plan established

22

after January 1, 1985, for the unfunded actuarial

23

accrued liability then or subsequently determined to

24

be or to have been in existence as of the date of the

25

establishment of the plan, at the end of the plan

26

year occurring 30 years after the calendar year in

27

which the pension plan was established.

28

(ii)  The following apply:

29

(A)  Increment or decrement of net unfunded

30

actuarial accrued liability attributable to a change

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1

in actuarial assumptions, at the end of the plan year

2

occurring 20 years after the calendar year in which

3

actuarial assumption modification was effective.

4

(B)  Increment or decrement of net unfunded

5

actuarial accrued liability attributable to a change

6

in actuarial assumptions made on or after the

7

effective date of this clause, at the end of the plan

8

year occurring 15 years after the calendar year in

9

which the actuarial assumption modification was

10

effective.

11

(iii)  The following apply:

12

(A)  Increment of net unfunded actuarial accrued

13

liability attributable to a modification in the

14

benefit plan applicable to active members, at the end

15

of the plan year occurring 20 years after the

16

calendar year in which the benefit plan modification

17

was effective.

18

(B)  From and after the effective date of this

19

clause, the increment of net unfunded actuarial

20

accrued liability attributable to a modification in

21

the benefit plan mandated by new legislation, at the

22

end of the plan year occurring 20 years after the

23

calendar year in which the benefit plan modification

24

was effective.

25

(iv)  The following apply:

26

(A)  Increment of unfunded actuarial accrued

27

liability attributable to a modification in the

28

benefit plan applicable to retired members and other

29

benefit recipients, at the end of the plan year

30

occurring 10 years after the calendar year in which

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1

the benefit plan modification was effective.

2

(B)  Increment Except as provided under clause

<--

3

(C), increment of unfunded actuarial accrued

4

liability attributable to a modification in the

5

benefit plan for active members adopted on or after

<--

6

the effective date of this clause and not mandated by

7

new legislation, at the end of the plan year

8

occurring ten years after the calendar year in which

9

the benefit plan modification was effective.

10

(C)  An increment of unfunded actuarial accrued

<--

11

liability attributable to a modification in the

12

benefit plan applicable to retired members and other

13

benefit recipients not mandated by new legislation,

14

at the end of the plan year following the year in

15

which the modification was effective.

16

(v)  The following apply:

17

(A)  Increment or decrement of net unfunded

18

actuarial accrued liability attributable to an

19

actuarial experience loss or gain, at the end of plan

20

year occurring [15] 20 years after the calendar year

21

in which the actuarial experience loss or gain was

22

recognized.

23

(B)  Notwithstanding any other provision of this

24

act or other law, as of the beginning of the plan

25

year occurring in calendar year 2003, the outstanding

26

balance of the increment of unfunded actuarial

27

accrued liability attributable to the net actuarial

28

investment losses incurred in calendar years 2001 and

29

2002 may, at the sole discretion of the municipality,

30

be amortized with the amortization target date being

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1

the end of the plan year occurring 30 years after

2

January 1, 2003. In order for a municipality to

3

extend the applicable amortization period pursuant to

4

this clause, the municipality must file a revised

5

actuarial valuation report reflecting the

6

amortization period extension provided for under this

7

clause with the executive director of the commission

8

no later than September 30, 2004. Any such revised

9

actuarial valuation report may not be filed in lieu

10

of the actuarial valuation report prepared in

11

compliance with clause (A) and required to be filed

12

on or before March 31, 2004, and may be used only for

13

the purposes of recalculating the 2004 minimum

14

municipal obligation of the municipality and

15

calculating the 2005 minimum municipal obligation of

16

the municipality to reflect the amortization period

17

extension. Any such revised actuarial valuation

18

report shall not affect distributions under the

19

General Municipal Pension System State Aid Program

20

under Chapter 4.

21

* * *

22

Section 4.  The act is amended by adding sections to read:

23

Section 210.  Actuarial asset valuation.

24

(a)  General rule.--A municipality may value the assets in

25

each of its pension plans to equal the greater of :

26

(1)  the actuarial value of assets from the most recent

27

biennial actuarial valuation report accepted by the

28

commission:

29

(i)  increased by contributions and other deposits

30

except investment income;

- 17 -

 


1

(ii)  decreased by benefit payments and

2

administrative expenses or other payments; and

3

(iii)  credited with interest at 1% less than the

4

plan's assumed rate, to the date of the actuarial

5

valuation; or

6

(2)  the market value of assets on the valuation date.

7

(b)  Methodology.--

8

(1)  The actuarial value of pension plan assets is the

9

value of cash, investment securities and other property

10

belonging to the municipal pension plan according to a method

11

for valuing assets adopted by the governing body of the

12

municipal pension plan upon the recommendation of the

13

actuary.

14

(2)  The method for valuing assets shall be adequately

15

disclosed in the accompanying documentation or exhibits and,

16

except as set forth in subsection (c) or Chapter 6, may not

17

produce a result that in total is:

18

(i)  greater than 120% of the fair market value of

19

the assets of the municipal pension plan; or

20

(ii)  less than 80% of the fair market value of the

21

assets of the municipal pension plan.

22

(c)  Temporary valuation.--

23

(1)  For the two-year actuarial valuation reporting

24

period beginning in 2009, a municipality may utilize a method

25

for valuing assets which does not produce a result that in

26

total is:

27

(i)  greater than 130% of the fair market value of

28

the assets of the municipal pension plan; or

29

(ii)  less than 70% of the fair market value of the

30

assets of the municipal pension plan.

- 18 -

 


1

(2)  Upon the expiration of that two-year actuarial

2

valuation reporting period, subsection (b) applies.

3

Section 211.  Revised actuarial valuation report.

4

Upon enactment of legislation which would alter the actuarial

5

valuation of a pension plan, a revised actuarial valuation

6

report shall be filed with the commission as the commission

7

directs.

8

Section 5.  Section 302(b)(2) of the act, amended December

9

18, 1990 (P.L.753, No.189), is amended and the section is

<--

10

amended by adding a subsection to read:

11

Section 302.  Minimum funding standard; defined benefit plans

12

self-insured in whole or in part.

13

* * *

14

(b)  Financial requirements of the pension plan.--

15

* * *

16

(2)  The normal cost and administrative expense

17

requirements for the following plan year shall be expressed

18

as a dollar amount and shall be determined by applying the

19

normal cost of the benefit plan and the administrative

20

expense payable from the assets attributable to the benefit

21

plan, as reported in the actuarial valuation report of the

22

pension plan and expressed as a percentage of payroll, to the

23

payroll of the active membership of the pension plan as of

24

the date the financial requirements of the pension plan are

25

determined. In expressing the normal cost and administrative

26

expense requirements as a dollar amount, the municipality

27

shall exclude the compensation of all DROP participants from

28

the payroll of the active membership of the pension plan.

29

* * *

30

(f)  Cost-of-living adjustments.--A cost-of-living adjustment

<--

- 19 -

 


1

for an inactive member shall be fully amortized within one year

2

of the date of the implementation of the adjustment.

3

Section 6.  Sections 402(e)(2), 501 and 502 of the act are

4

amended to read:

5

Section 402.  Revision of financing from State revenue sources;

6

General Municipal Pension System State Aid Program.

7

* * *

8

(e)  Allocation of general municipal pension system State

9

aid.--

10

* * *

11

(2)  The applicable number of units shall be attributable

12

to each active employee who was employed on a full-time basis

13

for a minimum of six consecutive months prior to December 31

14

preceding the date of certification and who was participating

15

in a pension plan maintained by that municipality, provided

16

that the municipality maintains a generally applicable

17

pension plan for that type of employee which was either

18

established on or prior to December 31, 1984, or, if

19

established after December 31, 1984, has been maintained by

20

that municipality for at least three plan years. For the

21

purpose of computing and reporting the applicable number of

22

units, a DROP participant shall not be reported to the

23

Auditor General as an active employee. The applicable number

24

of units per employee attributable to each eligible recipient

25

county of the second class shall be two units for each police

26

officer. The applicable number of units attributable to each

27

eligible recipient city, borough, incorporated town and

28

township shall be as follows:

29

(i)  Police officer - two units.

30

(ii)  Firefighter - two units.

- 20 -

 


1

(iii)  Employee other than police officer or

2

firefighter - one unit.

3

* * *

4

Section 501.  Initiation of distress determination.

5

[Each municipality which wishes to avail itself of any of the

6

provisions of sections 604, 605 and 606 shall apply to the

7

commission for a determination of its status pursuant to this

8

chapter. The application shall be in the form and shall contain

9

the required information as prescribed in rules and regulations

10

issued by the commission. Determinations pursuant to this

11

chapter shall be made annually.] The commission shall review the

12

biennial actuarial valuation reports filed on behalf of each

13

municipal pension plan to determine the municipality's

14

eligibility to avail itself of sections 604, 605 and 606.

15

Section 502.  Pension plans for inclusion in determination.

16

The determination provided for in this chapter shall be made

17

for a municipality taking into account all pension plans which

18

the municipality has established and maintains[.], except those

19

created after the last biennial actuarial valuation date. The

20

initial actuarial valuation report for any plan shall not be

21

recognized in the determination of a municipality's distress

22

level. If the municipality filed an actuarial valuation report

23

for any pension plan in the prior reporting period, that

24

valuation report shall control the determination of distress

25

without regard to the funding status of any newly established

26

plan. If no other plan was previously maintained by a

27

municipality, the newly established plan shall be assigned a

28

distress score of 0.

29

Section 7.  Sections 503 and 602 of the act, amended December

30

10, 1996 (P.L.934, No.150), are amended to read:

- 21 -

 


1

Section 503.  Determination procedure.

2

(a)  Generally.--The determination provided for in this

3

chapter shall be made by the commission using the actuarial

4

[indicators] indicator specified in subsection (b) [and the

5

municipal finance indicators specified in subsection (c), and

6

the scoring system associated with each].

7

(b)  Actuarial [indicators] indicator.--The actuarial

8

[indicators] indicator shall be based on the most current

9

actuarial valuation report or reports filed by the applicable

10

municipality with the commission pursuant to law and shall be

11

made in aggregate for all pension plans maintained by the

12

applicable municipality. [The actuarial indicators and the

13

associated scoring system for each shall be as follows:

14

(1)  The aggregate amount of current pension plan

15

benefits payable shall be computed as a percentage of the

16

current market value of aggregate plan assets:

17

18

19

Benefits Payable

as Percentage

of Assets

  

  

Scoring

20

0  -  5%

 0

21

6  - 10%

10

22

11 - 15%

20

23

16 - 20%

30

24

21 - 30%

40

25

31 - 40%

50

26

41 - 50%

60

27

51 - 60%

70

28

61 - 70%

80

29

71 - 80%

90

30

      81% or greater

100 

- 22 -

 


1

(2)  The aggregate actuarial value of plan assets shall

2

be computed as a percentage of the aggregate accrued

3

actuarial liability:

4

5

6

Assets as Percentage

of Accrued Actuarial

Liability

  

  

Scoring

7

50.0% or greater

0

8

40.0  - 49.0%

10

9

30.0  - 39.0%

20

10

25.0  - 29.0%

30

11

20.0  - 24.0%

40

12

15.0  - 19.0%

50

13

10.0  - 14.0%

60

14

7.5   -  9.0%

70

15

5.0   -  7.4%

80

16

2.5   -  4.9%

90

17

0     -  2.4%

100

18

(3)  The aggregate amount of normal cost expressed as a

19

percentage of covered payroll reduced by the aggregate amount

20

of any member contributions expressed as a percentage of

21

covered payroll is added to the aggregate amount of any

22

employer contributions to the Federal old age, survivors,

23

disability and health insurance program expressed as a

24

percentage of covered payroll:

25

26

Total Employer

Retirement Cost

  

Scoring

27

0 -  9.99%

0

28

10.00 - 11.99%

10

29

12.00 - 12.99%

20

30

13.00 - 13.99%

30

- 23 -

 


1

14.00 - 14.99%

40

2

15.00 - 15.99%

50

3

16.00 - 16.99%

60

4

17.00 - 17.99%

70

5

18.00 - 18.99%

80

6

19.00 - 19.99%

90

7

20.00% or greater

100

8

(4)  The aggregate requirement to amortize the unfunded

9

accrued actuarial liability on a level annual dollar basis

10

according to the applicable amortization schedules specified

11

in section 202(b)(4) is divided by the aggregate normal cost

12

requirement:

13

14

15

Amortization Requirement

Divided by Normal 

Cost Result

  

Scoring

16

   0 - 0.39

0

17

0.40 - 0.79

10

18

0.80 - 1.19

20

19

1.20 - 1.39

30

20

1.40 - 1.59

40

21

1.60 - 1.79

50

22

1.80 - 1.99

60

23

2.00 - 2.19

70

24

2.20 - 2.39

80

25

2.40 - 2.59

90

26

 2.60 or over

100

27

(5)  The difference between the aggregate amount of

28

normal cost plus the requirement to amortize the unfunded

29

accrued actuarial liability on a level annual dollar basis

30

according to the applicable amortization schedules specified

- 24 -

 


1

in section 202(b)(4), and the total aggregate amount of

2

member contributions, State allocations dedicated for pension

3

purposes and municipal contributions received for the

4

previous year is computed and expressed as a percentage of

5

covered payroll:

6

7

8

9

Difference Between

Full Actuarial

Requirement and

Current Contributions

  

  

  

Scoring

10

  0 -  2.4%

0

11

2.5 -  4.9%

10

12

  5 -  9.9%

20

13

10 - 14.9%

30

14

15 - 19.9%

40

15

20 - 24.9%

50

16

25 - 29.9%

60

17

30 - 34.9%

70

18

35 - 39.9%

80

19

40 - 44.9%

90

20

 45% or over

100

21

(6)  The compound annual percentage rate of increase in

22

the aggregate amount of the unfunded accrued actuarial

23

liability over the most recent four-year period is computed,

24

unless the amount of the unfunded accrued actuarial liability

25

equals less than 10% of the amount of assets in either the

26

first or fourth year:

27

28

29

30

Compound Rate

of Increase in

Unfunded Accrued

Actuarial Liability

  

  

  

Scoring

- 25 -

 


1

 0.0 -  9.9%

0

2

10.0 - 12.4%

10

3

12.5 - 14.9%

20

4

15.0 - 17.4%

30

5

17.5 - 19.9%

40

6

20.0 - 22.4%

50

7

22.5 - 24.9%

60

8

25% or over

70

9

(7)  The compound annual percentage rate of increase in

10

the aggregate amount of municipal contributions over the most

11

recent four-year period is computed:

12

13

14

Compound Rate

of Increase in

Municipal Contributions

  

  

Scoring

15

 20% or over

0

16

15 - 19.9%

10

17

10 - 14.9%

20

18

 0 -  9.9%

30]

19

The actuarial indicator shall be the ratio of the actuarial

20

value of assets to the actuarial accrued liability, expressed as

21

a percentage known as the funding ratio, and shall be applied in

22

accordance with the following actuarial distress scoring system:

23

Funding Ratio

Score

24

90% or over

0

25

70 - 89%

1

26

50 - 69%

2

27

Less than 50%

3

28

[(c)  Municipal finance indicators.--The municipal finance

29

indicators shall be based on the most recent financial report or

30

reports filed by the applicable municipality with the Department

- 26 -

 


1

of Community Affairs and certified by the secretary or by the

2

designee of the secretary. Before certification for a

3

municipality that has issued bonds or notes to fund an unfunded

4

actuarial accrued liability under the act of July 12, 1972

5

(P.L.781, No.185), known as the Local Government Unit Debt Act,

6

or under the laws applicable to the municipality, the municipal

7

finance data extracted from the most recent financial report or

8

reports shall be adjusted as directed by the commission to hold

9

harmless the municipality under section 404(c) by excluding the

10

municipal debt issued to fund an unfunded actuarial accrued

11

liability and the debt service on that debt. The municipal

12

finance indicators and the associated scoring system for each

13

shall be as follows:

14

(1)  The total amount of taxes collected by the

15

municipality for the current year are divided by the

16

population of the municipality as of the last Federal census,

17

and the percentage increase in the amount of municipal taxes

18

collected per capita in the most recent five-year period:

19

20

21

Taxes Collected

  

Per Capita

  

  

Scoring

Gross Percentage

Increase in Taxes

Per Capita

  

  

Scoring

22

$ 0.00 -  79.99

0

0.00 - 19.99%

0

23

 80.00 -  84.99

5

20.00 - 29.99%

3

24

 85.00 -  89.99

10

30.00 - 34.99%

6

25

 90.00 -  99.99

15

35.00 - 39.99%

9

26

100.00 - 109.99

20

40.00 - 44.99%

12

27

110.00 - 124.99

25

45.00 - 49.99%

15

28

125.00 - 139.99

30

50.00 - 54.99%

18

29

140.00 - 159.99

35

55.00 - 59.99%

21

30

160.00 - 179.99

40

60.00 - 64.99%

24

- 27 -

 


1

180.00 - 199.99

45

65.00 - 69.99%

27

2

  200.00 or greater

50

   70.00% or greater

30

3

(2)  The municipal tax rate on the market value of real

4

property (adjusted mill rate) in the municipality for the

5

most recent year and the percentage increase in the amount of

6

that adjusted mill rate in the most recent five-year period:

7

8

9

10

  

  

 Adjusted

 Mill Rate

  

  

  

Scoring

Gross Percentage

Increase in

Adjusted Mill

      Rate

  

  

  

Scoring

11

0.00 -  5.99

0

0.00 -  3.99%   

0

12

6.00 -  7.99

5

4.00 -  6.99%   

3

13

8.00 -  9.99

10

7.00 -  9.99%   

6

14

10.00 - 11.99

15

10.00 - 12.99%   

9

15

12.00 - 12.99

20

13.00 - 15.99%   

12

16

13.00 - 13.99

25

16.00 - 18.99%   

15

17

14.00 - 14.99

30

19.00 - 21.99%   

18

18

15.00 - 15.99

35

22.00 - 24.99%   

21

19

16.00 - 16.99

40

25.00 - 27.99%   

24

20

17.00 - 17.99

45

28.00 - 30.99%   

27

21

   18.00 or greater

50

31.00% or greater

30

22

(3)  For the most recent year, the result of the total

23

municipal bonded debt plus the total municipal floating debt

24

less the total municipal credits against municipal debt is

25

divided by the population of the municipality as of the last

26

Federal census:

27

28

Net Debt

Per Capita

Scoring

29

  $  0.00 -  9.99

0

30

10.00 - 19.99

8

- 28 -

 


1

20.00 - 29.99

16

2

30.00 - 39.99

24

3

40.00 - 49.99

32

4

50.00 - 59.99

40

5

60.00 - 69.99

48

6

70.00 - 79.99

56

7

80.00 - 89.99

64

8

90.00 - 99.99

72

9

100.00 or greater

80

10

(4)  For the most recent year, the result of the total

11

municipal bonded debt plus the total municipal floating debt

12

less the total municipal credits against municipal debt is

13

computed as a percentage of the assessed value of real

14

property in the municipality:

15

16

17

18

     Municipal Debt

      as Percentage

   of Municipal Property

        Tax Base

  

  

  

Scoring

19

0.00 - 0.49%

0

20

0.50 - 0.99%

6

21

1.00 - 1.99%

12

22

2.00 - 2.99%

18

23

3.00 - 4.49%

24

24

4.50 - 5.99%

30

25

6.00 - 6.99%

36

26

7.00 - 7.99%

42

27

8.00 - 8.99%

48

28

9.00 - 9.99%

54

29

   10.00% or greater

60

30

(5)  For the most recent year, the result of the total

- 29 -

 


1

municipal bonded debt plus the total municipal floating debt

2

less the total municipal credits against municipal debt is

3

computed as a percentage of the market value of real property

4

in the municipality:

5

6

7

8

     Municipal Debt as

       Percentage of

    Potential Municipal

     Property Tax Base

  

  

  

Scoring

9

0.00 - 0.24%

0

10

0.25 - 0.49%

6

11

0.50 - 0.99%

12

12

1.00 - 1.49%

18

13

1.50 - 1.99%

24

14

2.00 - 2.99%

30

15

3.00 - 3.49%

36

16

3.50 - 3.99%

42

17

4.00 - 4.49%

48

18

4.50 - 4.99%

54

19

    5.00% or greater

60

20

(6)  For the most recent year, the municipal bonded debt

21

retired during the preceding 12 months plus the interest paid

22

during the preceding 12 months on all municipal debt is

23

computed as a percentage of the total taxes collected by the

24

municipality for the same period:

25

26

27

28

   Debt Service as

     Percentage of

     Municipal Tax

       Revenue

  

  

  

Scoring

29

0.00 -  4.49%

0

30

4.50 -  5.49%

8

- 30 -

 


1

4.50 -  5.49%

16

2

6.50 -  7.49%

24

3

7.50 -  8.49%

32

4

8.50 -  9.49%

40

5

9.50 - 10.49%

48

6

10.50 - 11.49%

56

7

11.50 - 12.49%

64

8

12.50 - 13.49%

72

9

    13.50% or greater

80

10

(7)  The market value of real property in the

11

municipality for the current year is divided by the

12

population of the municipality as of the last Federal census,

13

and the percentage increase in the amount of market value per

14

capita in the most recent year over the amount of market

15

value per capita in the most recent five-year period:

16

17

18

19

  

  

Market Value

Per Capita

  

  

  

Scoring

Gross Percentage

Increase in

Market Value

Per Capita

  

  

  

Scoring

20

$8,000 or greater

0

41.00% or greater

0

21

7,500 - 7,999

5

39.00 - 40.99%   

3

22

7,000 - 7,499

10

35.00 - 38.99%   

6

23

6,500 - 6,999

15

31.00 - 34.99%   

9

24

6,000 - 6,499

20

27.00 - 30.99%   

12

25

5,500 - 5,999

25

23.00 - 26.99%   

15

26

5,000 - 5,499

30

19.00 - 22.99%   

18

27

4,500 - 4,999

35

15.00 - 18.99%   

21

28

4,000 - 4,499

40

11.00 - 14.99%   

24

29

3,500 - 3,999

45

7.00 - 10.99%   

27

30

    0 - 3,499

50

0.00 -  6.99%   

30

- 31 -

 


1

(8)  For the most recent year, adjusted total municipal

2

expenditures (total municipal expenditures less any municipal

3

urban renewal expenditures and less any municipal enterprise

4

expenditures) divided by the population of the municipality

5

as of the last Federal census and the percentage increase in

6

the amount of adjusted total municipal expenditures per

7

capita in the most recent year over the amount of adjusted

8

total municipal expenditures per capita in the most recent

9

five-year period:

10

11

12

13

14

  

  

Adjusted Total

Municipal Expenditure

Per Capita

  

  

  

Scoring

Gross Percentage

Increase in

Adjusted Total

Municipal Expenditures

Per Capita

  

  

  

Scoring

15

$  0.00 - 149.99

0

0.00 - 13.99%   

0

16

150.00 - 164.99

5

14.00 - 17.99%   

3

17

165.00 - 179.99

10

18.00 - 21.99%   

6

18

180.00 - 194.99

15

22.00 - 25.99%   

9

19

195.00 - 209.99

20

26.00 - 29.99%   

12

20

210.00 - 224.99

25

30.00 - 33.99%   

15

21

225.00 - 239.99

30

34.00 - 37.99%   

18

22

240.00 - 254.99

35

38.00 - 41.99%   

21

23

255.00 - 269.99

40

42.00 - 45.99%   

24

24

270.00 - 284.99

45

46.00 - 48.99%   

27

25

  285.00 or greater

50

49.00% or greater

30]

26

(d)  Levels of distress.--The three levels of municipal

27

pension system financial distress shall be as follows:

28

(1)  Minimal [financial] distress, which shall include

29

any municipality which has a distress determination scoring

30

[greater than zero but not greater than 299] equal to one.

- 32 -

 


1

(2)  Moderate [financial] distress, which shall include

2

any municipality which has a distress determination scoring

3

equal to [or greater than 300 but not greater than 499] two

4

or greater than two but with an unfunded actuarial accrued

5

liability of less than $50,000.

6

(3)  Severe [financial] distress, which shall include any

7

municipality which has a distress determination scoring equal

8

to [or greater than 500] three and an unfunded actuarial

9

accrued liability of not less than $50,000.

10

Section 602.  Application.

11

(a)  Generally.--The various remedies contained in this

12

recovery program shall be available to municipalities based on

13

the extent of financial distress of the municipal pension system

14

determined by the commission, as provided in this section.

15

(b)  Minimally distressed municipal pension systems.--The

16

remedies contained in level I of the recovery program as

17

specified in section 604 shall apply to any municipality which

18

[seeks to utilize them, whether the municipality] is minimally

19

distressed, as that status is defined based upon the actuarial

20

considerations [and municipal finance considerations] of the

21

determination procedure pursuant to section 503 [is not

22

determined to be distressed or is determined to be distressed

23

but elects not to participate in level II of section 605 or

24

level III of section 606 of the recovery program, whichever is

25

applicable].

26

(c)  Moderately distressed municipal pension systems.--The

27

remedies contained in level II of the recovery program as

28

specified in section 605 shall apply to any municipality which

29

is determined to be moderately distressed, as that status is

30

defined based on the actuarial considerations [and municipal

- 33 -

 


1

finance considerations] of the determination procedure in rules

2

and regulations issued by the commission pursuant to section

3

503[, which complies with any applicable preconditions for

4

participation in this level of the recovery program and which

5

elects to participate in this level of the recovery program].

6

(d)  Severely distressed municipal pension systems.--The

7

remedies contained in level III of the recovery program as

8

specified in section 606 shall apply to any municipality which

9

is determined to be severely distressed, as that status is

10

defined based on the actuarial considerations [and municipal

11

finance considerations] of the determination procedure in rules

12

and regulations issued by the commission pursuant to section

13

503[, which complies with any applicable preconditions for

14

participation in this level of the recovery program and which

15

elects to participate in this level of the recovery program].

16

(e)  Continuation of elected remedies.--[In the event that

17

the extent of financial distress of a municipal pension system

18

determined by the commission subsequent to the initial

19

determination is lower than the minimum prescribed in section

20

503(d) for a recovery program level previously elected by a

21

municipality, the] A municipality may continue to utilize any of

22

the remedies elected and implemented while it was eligible to

23

participate in [a higher recovery program level, provided that

24

the municipality continues to comply with the preconditions for

25

participation in the higher recovery program level and to

26

utilize the mandatory remedies applicable to the higher recovery

27

program level.] any recovery program authorized by this act at

28

the time of commencement and implementation. Any change or

29

amendment of recovery remedies in this act subsequent to

30

election and implementation shall be deemed to be cumulative and

- 34 -

 


1

not in lieu of previously adopted remedies.

2

Section 8.  Section 603 of the act is amended to read:

3

Section 603.  [Election] Determination procedure.

4

The [election to utilize the various remedies contained in

5

one of the levels of the recovery program shall be made by the

6

governing body of the municipality. The election] determination 

7

process shall be initiated by [an application filed with] the

8

commission for the determination of financial distress with

9

respect to the municipal pension system pursuant to section 501.

10

Upon notification of the determination of financial distress by

11

the commission, the municipality shall elect whether or not to

12

utilize the voluntary remedies of any level of the recovery

13

program which may be applicable to the municipality. [Any

14

election to utilize the remedies contained in a level of the

15

recovery program shall be made on forms prescribed by the

16

commission and shall include any information required by the

17

commission.]

18

Section 9.  Section 604 of the act, amended February 14, 1986

19

(P.L.23, No.9), is amended to read:

20

Section 604.  Recovery program level I.

21

(a)  Level I.--Any municipality to which level I of the

22

recovery program applies may utilize the following remedies:

23

(1)  The aggregation of trust funds pursuant to section

24

607(b).

25

(2)  The establishment of total member contribution

26

pursuant to section 607(c).

27

(3)  The deviation from municipal contribution

28

limitations pursuant to section 607(d).

29

(4)  The special municipal taxing authority pursuant to

<--

30

section 607(f).

- 35 -

 


1

[(b)  Implementation.--Any municipality which receives an

2

initial distress determination scoring in 1985 which is equal to

3

or greater than 200, but not greater than 299, and cannot meet

4

the minimum municipal obligation for the year 1986 because the

5

payment of the minimum municipal obligation would result in the

6

municipality exceeding the maximum contribution limitation for

7

that municipality as set forth in the pertinent laws for that

8

class of municipality, may delay the implementation of the full

9

funding of the minimum municipal obligation until 1987. Any

10

municipality electing to delay full implementation of the

11

minimum municipal obligation shall make a municipal contribution

12

for 1986 as set forth in section 607(g). In addition to the one-

13

year delay of the full actuarial funding standard, the

14

municipality may utilize the following additional remedies:

15

(1)  The deviation from municipal contribution

16

limitations pursuant to section 607(d).

17

(2)  The special municipal taxing authority pursuant to

18

section 607(f).]

19

(c)  Reduction for Level I municipalities.--

20

(1)  A level I municipality may elect to pay a reduced

21

minimum municipal obligation consisting of the normal cost

22

and administrative expenses of the pension plans plus:

23

(i)  75% of the amortization contribution

24

requirement, calculated according to section 202(b)(4);

25

minus

26

(ii)  anticipated member contributions.

27

(2)  This reduction of payments to amortize the actuarial

28

accrued liability shall be authorized for a period of one

29

biennial actuarial valuation reporting period (total of two

30

years) under section 607(h.1). At the end of this period,

- 36 -

 


1

section 302(c) shall apply to the minimum municipal

2

obligation calculation.

3

(d)  Asset valuation.--

4

(1)  Upon Following the expiration of the period

<--

5

applicable to asset valuation under section 210(c), for an

6

additional period of one biennial actuarial valuation

7

reporting period (allowing an additional two years for a

8

total of four years), a level I municipality may utilize a

9

method for valuing assets that may not produce a result that,

10

in total, is:

11

(i)  greater than 130% of the fair market value of

12

the assets of the municipal pension plan; or

13

(ii)  less than 70% of the fair market value of the

14

assets of the municipal pension plan.

15

(2)  At the end of the additional period under paragraph

16

(1), section 210 shall apply to the actuarial valuation of

17

assets.

18

Section 10.  Sections 605 and 606 of the act are amended to

19

read:

20

Section 605.  Recovery program level II.

21

(a)  Mandatory remedies.--Any municipality to which level II

22

of the recovery program applies shall utilize the following

23

remedies:

24

(1)  The aggregation of trust funds pursuant to section

25

607(b).

26

(2)  The submission of a plan for administrative

27

improvement pursuant to section 607(i).

28

(b)  Discretionary remedies.--Any municipality to which level

29

II of the recovery program applies may utilize the following

30

remedies:

- 37 -

 


1

(1)  [The aggregation of trust funds pursuant to section

2

607(b).

3

(2)]  The establishment of total member contributions

4

pursuant to section 607(c).

5

[(3)] (2)  The deviation from municipal contribution

6

limitations pursuant to section 607(d).

7

[(4)] (3)  The establishment of a revised benefit plan

8

for newly hired municipal employees pursuant to section

9

607(e).

10

[(5)] (4)  The special municipal taxing authority

11

pursuant to section 607(f).

12

[(6)  The delayed implementation of funding standard over

13

ten years pursuant to section 607(g).

14

(7)  Supplemental State assistance pursuant to section

15

607(j).]

16

(8)  (i)  A level II municipality may elect to pay a

17

reduced minimum municipal obligation consisting of the

18

normal cost and administrative expenses of the pension 

19

plan plus:

20

(A)  75% of the amortization contribution

21

requirement, calculated according to section 202(b)

22

(4); minus

23

(B)  anticipated member contributions.

24

(ii)  This reduction of payments to amortize the

25

actuarial accrued liability shall be authorized for a

26

period of two consecutive actuarial valuation reporting

27

periods (total of four years) under section 607(h.1). At

28

the end of this period, section 302(c) shall apply to the

29

minimum municipal obligation calculation.

30

(9)  (i)  Upon Following the expiration of the period

<--

- 38 -

 


1

applicable to the asset valuation provisions of section

2

210(c), for an additional period of two biennial

3

actuarial valuation reporting periods (allowing an

4

additional four years for a total of six years), a level

5

II municipality may utilize a method for valuing assets

6

that may not produce a result that in total is:

7

(A)  greater than 130% of a period of two

8

consecutive actuarial valuation reporting periods

9

(total of four years); or

10

(B)  less than 70% of the fair market value of

11

the assets of the municipal pension plan.

12

(ii)  At the end of the additional period under

13

subparagraph (i), section 210 shall apply to the

14

actuarial valuation of assets.

15

(c)  Benefit modification.--No benefit plan modification

16

shall be adopted unless the actuarial value of the assets of the

17

pension plan are:

18

(1)  at least equal to 100% 90% of the actuarial value of

<--

19

liabilities prior to adoption; and

20

(2)  at least 90% 80% of the actuarial value of

<--

21

liabilities after adoption.

22

Section 606.  Recovery program level III.

23

(a)  Optional [remedies] remedy.--Any municipality to which

24

level III of the recovery program applies may utilize the

25

[following remedies:

26

(1)  The establishment of total member contributions

27

pursuant to section 607(c).

28

(2)  The deviation from municipal contribution

29

limitations pursuant to section 607(d).

30

(3)  The] special municipal taxing authority pursuant to

- 39 -

 


1

section 607(f).

2

[(4)  The delayed implementation of funding standard over

3

ten years pursuant to section 607(g) or the delayed

4

implementation of funding standard over 15 years with 40-year

5

amortization pursuant to section 607(h).

6

(5)  Supplemental State assistance pursuant to section

7

607(j).]

8

(b)  Mandatory remedies.--Any municipality to which level III

9

of the recovery program applies shall utilize the following

10

remedies:

11

[(1)  The aggregation of trust funds pursuant to section

12

607(b).

13

(2)  The establishment of a revised benefit plan for

14

newly hired municipal employees pursuant to section 607(e).

15

The revised benefit plan shall have a normal cost which is

16

less than the normal cost of the benefit plan applicable to

17

current municipal employees as reported in the most recent

18

prior actuarial valuation report for the pension plan. In

19

making this determination, the normal cost for the revised

20

benefit plan shall be calculated by applying the revised

21

benefit plan to the current active membership demographics.

22

(3)  The preparation, submission and implementation of a

23

plan for improvement of the administration of the pension

24

plan or plans pursuant to section 607(i).]

25

(1)  Participation in the Municipal Pension Recovery

26

Program for active, vested and retired municipal employees

27

under section 608.1.

28

(i)  The amortization target date for the unfunded

29

actuarial accrued liability in existence as of the first

30

day of the valuation year in which a municipality is

- 40 -

 


1

determined to be severely distressed shall be 30 years. 

2

The annual amortization contribution shall be calculated

3

on the basis of a level annual dollar amortization

4

contribution specified in section 202.

5

(ii)  The biennial actuarial valuation report filed

6

on behalf of each level III municipality shall utilize an

7

actuarial assumption as to investment earnings that is

8

equal to the regular interest rate fixed by the

9

Pennsylvania Municipal Retirement Board, from time to

10

time, plus 1.5%.

11

(iii)  Each level III municipality shall pay a

12

reduced minimum municipal obligation consisting of an

13

amount equal to:

14

(A)  the normal cost and administrative expenses

15

of the pension plan; minus

16

(B)  anticipated member contributions; plus

17

(C)  a percentage of the amortization

18

contribution requirement calculated according to

19

section 202(b)(4).

20

(iv)  Payment under subparagraph (iii) shall be

21

pursuant to the following schedule, beginning with the

22

year in which the municipality is first determined to be

23

severely distressed and subject to level III:

24

25

First year

  

12.5% of amortization contribution

26

Second year

25% of amortization contribution

27

28

Third year

  

37.5% of amortization contribution

29

Fourth year

50% of amortization contribution

30

Fifth year

62.5% of amortization

- 41 -

 


1

  

contribution

2

Sixth year

75% of amortization contribution

3

4

Seventh year

  

87.5% of amortization contribution

5

Eighth year and thereafter

100% of amortization contribution

6

(v)  Upon Following the expiration of the period

<--

7

applicable to the asset valuation provisions of section

8

210(c), a level III municipality may utilize a method for

9

valuing assets that may not produce a result that in

10

total is greater than 130% or less than 70% of the fair

11

market value of the assets of the municipal pension plan,

12

for an additional period of two biennial actuarial

13

valuation reporting periods (allowing an additional four

14

years for a total of six years), at the end of which

15

period the actuarial valuation of assets shall revert to

16

the method provided by section 210.

17

(2)  Participation in the Cooperative Municipal Pension

18

Program for newly hired municipal employees under section

19

608.2.

20

Section 11.  Section 607(b), (e), (f), (g), (h), (j) and (k)

21

of the act, amended February 14, 1986 (P.L.23, No.9), December

22

10, 1996 (P.L.934, No.150) and June 18, 1998 (P.L.626, No.82),

23

are amended and the section is amended by adding subsections to

24

read:

25

Section 607.  Remedies applicable to various recovery program

26

levels.

27

* * *

28

(b)  Aggregation of trust funds.--If the municipality has

29

established and maintained more than one pension plan for its

30

employees and there are pension funds associated with those

- 42 -

 


1

pension plans, the municipality may aggregate the assets to the

2

credit of the various pension funds into a single pension trust

3

fund. Subsequent to the aggregation, the pension trust fund

4

shall be the funding mechanism for all pension plans connected

5

with the aggregation.

6

(1)  Each pension plan subject to the aggregation shall

7

have an undivided participation in the assets of the combined

8

pension trust fund. For accounting purposes, the value of the

9

participation by each plan shall be calculated annually. The

10

value for the initial year following aggregation shall be

11

that portion of the total value of the pension trust fund

12

which bears the same relationship that the value of the

13

assets of the pension plan, as of the date of the aggregation

14

plus the contributions received by the pension trust fund

15

with respect to that pension plan since the date of

16

aggregation and reduced by the amount of retirement annuities

17

and benefits paid from the pension trust fund for annuitants

18

and benefit recipients of that pension plan since the date of

19

aggregation, bears to the total value of all assets

20

transferred to the pension trust fund as of the date of

21

aggregation plus the total contributions received by the

22

pension trust fund since the date of aggregation and reduced

23

by the total amount of retirement annuities and benefits paid

24

for all annuitants and benefit recipients since the date of

25

aggregation. The value of the participation for each year

26

subsequent to the initial year following aggregation shall be

27

that portion of the total value of the pension trust fund

28

which bears the same relationship that the value of the

29

participation of the pension plan, as of the close of the

30

preceding year plus the contributions received by the pension

- 43 -

 


1

trust fund with respect to that pension plan during the year

2

and reduced by the amount of retirement annuities and

3

benefits paid from the pension trust fund for annuitants and

4

benefit recipients of that pension plan during the year,

5

bears to the total value of all participation in the pension

6

trust fund as of the close of the preceding year plus the

7

total contributions received by the pension trust fund during

8

the year and reduced by the total amount of retirement

9

annuities and benefits paid for all annuitants and benefit

10

recipients during the year.

11

(2)  Legal title to assets in the aggregated pension

12

trust fund shall be in the municipality as trustee, or its

13

nominees as trustees, for any person having a beneficial

14

interest in a particular pension plan which is associated

15

with the pension trust fund.

16

(3)  The assets of the aggregated pension trust fund

17

shall be invested in investment securities which are

18

authorized investments pursuant to any applicable law for any

19

of the associated pension plans.

20

(4)  Investment earnings shall be allocated to each

21

associated pension plan in proportion to the most recently

22

determined participation value.

23

(5)  Valuation of assets shall be pursuant to the

24

provisions of section 202(e)(1) and any applicable rules and

25

regulations issued by the commission.

26

(6)  The aggregated pension trust fund shall be managed

27

by a board of trustees. The board of trustees shall include

28

at least one representative of the active membership of each

29

pension plan included in the aggregated pension trust fund,

30

who shall be elected by the active membership of the

- 44 -

 


1

applicable pension plan. The remaining members of the board

2

of trustees shall be drawn from the managing boards or

3

entities of the associated pension plans, in a number equal

4

to the members elected by the employees. If there is a

5

deadlock, the members of the managing boards or entities

6

shall mutually agree upon a member of the general public to

7

cast the deciding vote.

8

* * *

9

(e)  Establishment of a revised benefit plan for newly hired

10

municipal employees.--The municipality may establish a revised

11

benefit plan of the pension plan applicable to any employee

12

first hired on or after the effective date of the instrument

13

establishing the revised benefit plan. At the option of the

14

municipality, the revised benefit plan may be extended to

15

include an employee first hired prior to the effective date of

16

the instrument establishing the revised benefit who elects the

17

coverage. The revised benefit plan may provide for defined

18

benefits, defined contributions or a combination of both. Member

19

contributions with respect to [the] a revised defined benefit

20

plan of the pension plan shall at a minimum be equal to or

21

exceed 30% and at a maximum not to exceed 50%, of the normal

22

cost of the pension plan, expressed as a percentage of covered

23

payroll, as reported in the most recent actuarial valuation

24

report of the pension plan. A revised defined contribution plan

25

shall be centrally administered and invested and shall provide

26

for mandatory employee contributions of not less than 6% of

27

covered payroll and a matching employer contribution not to

28

exceed 6% of covered payroll. A revised benefit plan for newly

29

hired municipal employees shall be developed with consultation

30

with representatives of the collective bargaining unit

- 45 -

 


1

applicable to the affected type of municipal employee, if any,

2

and shall be within the scope of collective bargaining pursuant

3

to the applicable law subsequent to the establishment of the

4

revised benefit plan.

5

(f)  Special municipal taxing authority.--

6

(1)  If the tax rates set by the municipality on earned

7

income or on real property are at the maximum provided by

8

applicable law, the municipality may increase its tax on

9

either earned income or real property above those maximum

10

rates. The proceeds of this special municipal tax increase

11

shall be used solely to defray the additional costs required

12

to be paid pursuant to this act which are directly related to

13

the pension plans of the municipality. The municipality

14

utilizing this special municipal taxing authority shall not

15

reduce the level of municipal contributions to the pension

16

plans prior to the implementation of the special municipal

17

taxing authority.

18

(2)  The average level of municipal contributions to the

19

pension plans from all revenue sources for the three years

20

immediately prior to the implementation of the special

21

municipal taxing authority shall be expressed as a percentage

22

of the average covered payroll for that same three-year

23

period: Provided, however, That any supplemental

24

contributions made to the plans pursuant to any pension

25

recovery legislation enacted by the municipalities shall be

26

excluded for purposes of determining the level of municipal

27

contribution to the pension plans prior to the implementation

28

of the special municipal taxing authority. In each year

29

subsequent to the implementation of the special municipal

30

taxing authority, the municipal contributions to the pension

- 46 -

 


1

plan from all revenue sources existing prior to the

2

implementation of the special existing municipal taxing

3

authority, reduced by any supplemental pension recovery

4

contributions, shall equal or exceed this average percentage

5

of the current covered payroll. A municipality utilizing the

6

provisions of section 404 may levy or continue to levy the

7

special municipal tax increase under this subsection provided

8

that the municipality does not reduce the level of municipal

9

contributions to the pension plans prior to the

10

implementation of the special municipal taxing authority. In

11

executing the procedure prescribed in this subsection to

12

determine the level of municipal contributions, the debt

13

service payments for bonds or notes issued under section 404

14

shall be considered municipal contributions.

15

(f.1)  Limitation on special municipal taxing authority.--

16

Beginning January 1, 2010, and continuing for each year

17

thereafter, no special municipal tax increase may the special

<--

18

municipal tax authorized in subsection (f) may no longer be

19

assessed or used for any purpose other than to defray the

20

additional costs required to be paid pursuant to this act and

21

which are directly related to the pension plans of the

22

municipality and which are included in the calculation of the

23

financial requirements of the pension plan and the minimum

24

municipal obligation. If the municipality assesses or utilizes

25

the special municipal tax increase to fund other post-employment

26

benefits, the cost of those benefits shall be subject to the

27

actuarial funding and reporting standards of this act.

28

[(g)  Delayed implementation of funding standard over ten

29

years.--The municipality may delay full implementation of the

30

actuarial funding standard specified in section 302 or 303,

- 47 -

 


1

whichever is applicable, over a period not to exceed ten years

2

in duration, and may calculate that actuarial funding standard

3

on the basis of a 30-year amortization period for the increment

4

of unfunded actuarial accrued liability in existence as of the

5

beginning of the plan year occurring in calendar year 1985.

6

During the delayed implementation period, the municipality shall

7

make a municipal contribution to each municipal pension plan of

8

an amount equal to not less than the municipal contribution to

9

the municipal pension plan made in the immediate prior year and

10

the following percentage of the difference between that amount

11

and the full minimum municipal obligation with respect to the

12

pension plan pursuant to section 302 or 303, whichever is

13

applicable:

14

Year

Percentage of Difference

15

1985

10%

16

1986

20%

17

1987

30%

18

1988

40%

19

1989

50%

20

1990

60%

21

1991

70%

22

1992

80%

23

1993

90%

24

1994 and thereafter

100% 

25

The municipality may calculate the annual amortization

26

contribution on the basis of a level percentage of future

27

increasing covered payroll amortization contribution rather than

28

on the basis of the level annual dollar amortization

29

contribution specified in section 202.

30

(h)  Delayed implementation of funding standard over 15

- 48 -

 


1

years; 40-year amortization period.--The municipality may delay

2

full implementation of the actuarial funding standard specified

3

in section 302 or 303, whichever is applicable, over a period

4

not to exceed 15 years in duration and may calculate that

5

actuarial funding standard on the basis of a 40-year

6

amortization period for the increment of unfunded actuarial

7

accrued liability in existence as of the beginning of the plan

8

year occurring in calendar year 1985. During the delayed

9

implementation period, the municipality shall make a municipal

10

contribution to each municipal pension plan of an amount equal

11

to not less than the municipal contribution to the municipal

12

pension plan made in the immediate prior year and the following

13

percentage of the difference between that amount and the full

14

minimum municipal obligation with respect to the pension plan

15

pursuant to section 302 or 303, whichever is applicable,

16

calculated using the applicable 40-year amortization period:

17

Year

Percentage of Difference

18

1985

 6.7%

19

1986

13.4%

20

1987

20.1%

21

1988

26.8%

22

1989

33.5%

23

1990

40.2%

24

1991

46.9%

25

1992

53.6%

26

1993

60.3%

27

1994

67.0% 

28

1995

73.7%

29

1996

80.4%

30

1997

87.1%

- 49 -

 


1

1998

93.8%

2

1999

100.0% 

3

The municipality may calculate the annual amortization

4

contribution on the basis of a level percentage of future

5

increasing covered payroll amortization contribution rather than

6

on the basis of the level annual dollar amortization

7

contribution specified in section 202.]

8

(h.1)  Reduced minimum municipal obligation.--

9

(1)  The time period for use of the reduced minimum

10

municipal obligation and reduced amortization payment shall

11

be limited to the period applicable to the municipality's

12

level of distress as last determined by the commission.

13

(2)  If a municipality's distress level becomes worse as

14

of a future filing period, the special amortization and

15

minimum municipal contribution remedy shall be extended by

16

the difference between:

17

(i)  the period allowed for the previous distress

18

level; and

19

(ii)  the period applicable to the new level of

20

distress.

21

(3)  If a municipality's distress level improves, the

22

reduced minimum municipal obligation and special amortization

23

period shall continue for the duration of the period

24

applicable to the previous distress level determination.

25

* * *

26

[(j)  Supplemental State assistance.--If every pension plan

27

of the municipality which is a defined benefit plan and which is

28

self-insured in whole or in part has filed an actuarial

29

valuation report utilizing the standardized actuarial cost

30

method and economic actuarial assumptions within the range of

- 50 -

 


1

actuarial assumptions specified in section 202(b) and if the

2

municipality has implemented the aggregation of trust funds

3

pursuant to subsection (b), the municipality may receive

4

supplemental State assistance from the Supplemental State

5

Assistance Fund established pursuant to section 608. The amount

6

of the supplemental State assistance to which the municipality

7

is entitled shall be determined annually based on the

8

determination scoring which the municipality received from the

9

commission pursuant to section 503, as follows:

10

(1)  The determination score of the municipality shall be

11

reduced by an amount equal to 25% of the maximum possible

12

determination score.

13

(2)  The result calculated pursuant to paragraph (1)

14

shall be expressed as a percentage of the maximum possible

15

determination score.

16

(2.1)  For the supplemental State assistance distributed

17

in December of 1997, the percentage calculated pursuant to

18

paragraph (2) shall be applied to the dollar amount of

19

difference between the greater of the amount of the municipal

20

contribution or the amount of the actual municipal deposit to

21

all municipal pension plans in aggregate and the full minimum

22

municipal obligation with respect to the pension plans

23

pursuant to section 302 or 303, whichever is applicable, to

24

determine the amount of supplemental State assistance for the

25

municipality.

26

(3)  For the supplemental State assistance distributed in

27

December of 1998 and thereafter, the percentage calculated

28

pursuant to paragraph (2) shall be applied to the dollar

29

amount of difference between the amount of the municipal

30

contribution to all municipal pension plans in aggregate and

- 51 -

 


1

the full minimum municipal obligation with respect to the

2

pension plan pursuant to section 302 or 303, whichever is

3

applicable, to determine the amount of supplemental State

4

assistance for the municipality. For the purposes of this

5

paragraph, the municipal contribution of a municipality that

6

has issued bonds or notes to fund an unfunded actuarial

7

accrued liability under the act of July 12, 1972 (P.L.781,

8

No.185), known as the Local Government Unit Debt Act, or

9

under other laws applicable to the municipality, shall

10

include debt service on the bonds or notes, or both, issued

11

to fund an unfunded actuarial accrued liability.

12

In the event that the total amount of supplemental State

13

assistance determined as payable to all municipalities entitled

14

to receive supplemental State assistance exceeds the maximum

15

appropriation provided for in section 608(b), the amount of

16

supplemental State assistance which shall be payable to each

17

municipality shall be proportionately reduced. The supplemental

18

State assistance shall be distributed annually on the first

19

business day occurring in December. For the purposes of this

20

subsection, the term "municipal contribution" shall mean the sum

21

of the current year's minimum municipal obligation, the annual

22

interest payable on any current or prior period funding

23

deficiencies and the total amount of any discretionary deposits

24

to the pension fund in the current year.

25

(k)  Emergency loan procedures.--The municipality may receive

26

a loan from the Supplemental State Assistance Fund in any year

27

during the existence of the fund in an amount certified by the

28

commission. The loan amount shall be sufficient to eliminate the

29

possibility of imminent default during the next 12 consecutive

30

calendar months in the payment of retirement and other benefits

- 52 -

 


1

by one or more of the pension plans maintained by the

2

municipality. Terms for the repayment of any loan shall be

3

established by agreement between the municipality and the

4

commission prior to the loan.]

5

Section 12.  Section 608 of the act is amended to read:

6

[Section 608.  Supplemental State Assistance Program and Fund.

7

(a)  Establishment.--There is hereby established a

8

Supplemental State Assistance Program and Fund. The Supplemental

9

State Assistance Fund shall be comprised of a Supplemental State

10

Assistance Account. The Supplemental State Assistance Program

11

and Fund shall be administered by the Auditor General.

12

(b)  Supplemental State Assistance Account.--Supplemental

13

State assistance payable pursuant to section 607(j) shall be

14

paid from the Supplemental State Assistance Account. The

15

Supplemental State Assistance Account shall be funded from an

16

appropriation by the Commonwealth from the General Fund of the

17

Commonwealth. Annually the commission shall calculate the amount

18

of supplemental State assistance payable to all eligible

19

municipalities and shall certify the required amount to the

20

General Assembly. The amount of any annual certification of an

21

appropriation by the commission shall not exceed $35,000,000.

22

The General Assembly shall make an appropriation to the

23

Supplemental State Assistance Account sufficient to provide for

24

the amount certified by the commission. The appropriation shall

25

be deposited on the last business day in November annually.

26

(c)  Preconditions.--As a precondition for the receipt of any

27

supplemental State assistance, the municipality shall

28

demonstrate prior good faith compliance with any applicable

29

municipal pension plan actuarial funding standard in effect. .

30

The municipality shall also implement any mandatory aspects of

- 53 -

 


1

the applicable recovery program level.

2

(d)  Warrants.--Any supplemental State assistance shall be

3

payable on warrants drawn by the Auditor General based on

4

certifications of the commission.

5

(e)  Expiration.--The Supplemental State Assistance Program

6

and Fund shall terminate in 2003 or in the first year in which

7

there are no municipalities entitled to receive supplemental

8

State assistance, whichever occurs earlier.]

9

Section 13.  The act is amended by adding sections to read:

10

Section 608.1.  Municipal Pension Recovery Program.

11

(a)  Establishment.--The Municipal Pension Recovery Program

12

is established. The program shall be administered by the

13

Pennsylvania Municipal Retirement Board.

14

(b)  Membership.--Once a municipality is determined to

15

qualify for the level III recovery program under section 606,

16

any and all pension plans and assets then maintained by the

17

municipality shall be transferred to the Pennsylvania Municipal

18

Retirement System for administration under the program; and all

19

pension rights, privileges and benefits, except hospital,

20

medical and other health insurance coverage, shall be governed

21

solely and exclusively by the program. No other statute,

22

ordinance, contract, arbitration award or practice shall permit

23

or authorize any deviation from or alteration of the terms of

24

the legislative enactments specifically governing the terms of

25

the program.

26

(c)  Exclusions.--For purposes of this section, multiemployer

27

jointly trusteed Taft-Hartley collectively bargained pension

28

plans shall not be considered as pension plans and assets then

29

maintained by the municipality, and employees subject to

30

multiemployer collectively bargained pension plans shall not be

- 54 -

 


1

included in the program.

2

(d)  Liability.--

3

(1)  The liability to continue payment of pension

4

benefits shall remain the exclusive responsibility of the

5

employing municipality.

6

(2)  Except as set forth in paragraph (3), the minimum

7

municipal obligation of each municipality qualified for the

8

level III recovery program shall be determined on the basis

9

of actuarial valuation reports utilizing the actuarial

10

assumptions adopted by the Pennsylvania Municipal Retirement

11

Board.

12

(3)  The investment earnings assumption shall be 1.5%

13

higher than the assumption applicable to municipalities

14

participating under Article II, III or IV of act of February

15

1, 1974 (P.L.34, No.15), known as the Pennsylvania Municipal

16

Retirement Law.

17

Section 608.2.  Cooperative Municipal Pension Program.

18

(a)  Establishment.--The Cooperative Municipal Pension

19

Program is established. The program shall be administered by the

20

Pennsylvania Municipal Retirement Board.

21

(b)  Membership.--Once a municipality is determined to

22

qualify for the level III recovery program under section 606,

23

all employees subsequently hired or returning to employment

24

after separation from service and all employees to whom pension

25

coverage is newly extended by the municipality shall be enrolled

26

in the program; and all pension rights, privileges and benefits,

27

except hospital, medical and other health insurance coverage,

28

shall be governed solely and exclusively thereby. No other

29

statute, ordinance, contract, arbitration award or practice

30

shall permit or authorize any deviation from or alteration of

- 55 -

 


1

the terms of the legislative enactments specifically governing

2

the terms of the program.

3

(c)  Benefits.--Superannuation retirement benefits shall be

4

calculated as follows:

5

(1)  In all cities subject to this section, public safety

6

employees in the police, fire or emergency services

7

departments shall be entitled to superannuation retirement

8

upon attainment of age 50 and completion of not less than 20

9

years of service, calculated at the rate of 2.25% of final

10

average salary earned during the three highest consecutive

11

years of service.

12

(2)  In all cities subject to this section, general

13

municipal employees shall be entitled to superannuation

14

retirement upon attainment of age 65 60 and completion of not

<--

15

less than 30 years of service, calculated at the rate of 2%

16

of final average salary earned during the three highest

17

consecutive years of service.

18

(3)  In all municipalities other than cities subject to

19

this section, public safety employees in the police, fire or

20

emergency services departments shall be entitled to

21

superannuation retirement upon attainment of age 55 and

22

completion of not less than 25 years of service, calculated

23

at the rate of 2% of final average salary earned during the

24

three highest consecutive years of service.

25

(4)  In all municipalities other than cities subject to

26

these provisions, general municipal employees shall be

27

entitled to superannuation retirement upon attainment of age

28

65 60 and completion of not less than 30 years of service,

<--

29

calculated at the rate of 1.5% of final average salary earned

30

during the three highest consecutive years of service.

- 56 -

 


1

(5)  If positions covered by this section are included in

2

an agreement under the Social Security Act (49 Stat. 620, 42

3

U.S.C. § 301 et seq.), the benefit set forth in paragraph

4

(1), (2), (3) or (4) shall, upon the member's attainment of

5

eligibility to receive full Social Security old-age benefits,

6

be offset by the amount of the member's full 50% of the

<--

7

member's Social Security old-age insurance benefit calculated

8

in accordance with the provisions of the Social Security Act

9

in effect on the date of termination of employment. Only

10

compensation for services actually rendered by the member and

11

covered by the pension system created by this section shall

12

be included in calculating the offset under this paragraph.

13

(6)  As used in this subsection, the term "salary" means

<--

14

the fixed amount of compensation paid at regular, periodic

15

intervals by a municipality to the member and from which

16

pension contributions have been deducted. The term does not

17

include overtime.

18

(d)  Contributions.--

19

(1)  Except as set forth in paragraph (2), all members of

20

the cooperative municipal pension and security program shall

21

contribute to their pension, by payroll deduction, an amount

22

equal to three times the accrual rate appropriate to their

23

class of service.

24

(2)  Members subject to the Social Security offset of

25

subsection (c)(5) shall contribute to their pension, by

26

payroll deduction, an amount equal to 1.5% times the accrual 

<--

27

rate appropriate to their class of service.

28

(e)  Retirement options.--At the time of retirement, a member

29

may elect to receive benefits in a retirement allowance payable

30

throughout the member's life. This election is known as a single

- 57 -

 


1

life annuity. Instead of receiving a single life annuity, the

2

member may elect to receive the equivalent actuarial value at

3

the time of retirement in a lesser allowance, payable throughout

4

life with provisions that, upon the member's death:

5

(1)  the member's retirement allowance shall be continued

6

throughout the life of and paid to the member's survivor

7

annuitant, if then living; or

8

(2)  one-half of the member's retirement allowance shall

9

be continued throughout the life of and paid to the member's

10

survivor annuitant, if then living.

11

(f)  Disability retirement.--

12

(1)  This subsection applies to all of the following

13

members:

14

(i)  An active municipal employee who has accumulated

15

at least five years of total credited service.

16

(ii)  An active municipal police officer or municipal

17

firefighter regardless of credited years of service.

18

(2)  A member subject to this subsection under paragraph

19

(1) may, upon application, be retired by the board of

20

pensions and retirement on a disability allowance if

21

determined to be mentally or physically permanently incapable

22

of continuing to perform the duties for which the member is

23

employed. The disability annuity shall be determined under

24

the following paragraphs.

25

(3)  Multiply:

26

(i)  the benefit accrual rate applicable to the

27

member's retirement plan; by

28

(ii)  the member's total number of years of credited

29

service.

30

(4)  If the product under paragraph (3) is more than

- 58 -

 


1

16.667, the disability annuity is the product of:

2

(i)  a standard single life annuity; and

3

(ii)  the benefit accrual rate applicable to the

4

member's retirement plan.

5

(5)  If the product under paragraph (3) is not more than

6

16.667, the disability annuity is determined as follows:

7

(i)  Multiply:

8

(A)  the accrual rate applicable to the member on

9

the effective date of the disability; by

10

(B)  either:

11

(I)  the total years and partial years of

12

credited service the member would have earned if

13

the member were to continue as an employee until

14

attaining eligibility for a superannuation

15

retirement allowance; or

16

(II)  if the member has attained eligibility

17

for a superannuation retirement allowance at the

18

time of the disability, the number of years of

19

credited service.

20

(ii)  Divide:

21

(A)  the product under subparagraph (i); by

22

(B)  the number of years and partial years of

23

credited service earned by the member as of the

24

effective date of the disability.

25

(iii)  Divide:

26

(A)  16.667; by

27

(B)  the number of years and partial years of

28

credited service earned by the member as of the

29

effective date of the disability.

30

(iv)  Multiply the standard single life annuity by

- 59 -

 


1

the lesser of:

2

(A)  the quotient under subparagraph (ii); or

3

(B)  the quotient under subparagraph (iii).

4

(g)  Service connected disability.--

5

(1)  This subsection applies if:

6

(i)  a member has been found to be eligible for a

7

disability annuity; and

8

(ii)  the disability has been found to be a service

9

connected disability.

10

(2)  A member subject to this subsection under paragraph

11

(1) shall receive a supplement equal to:

12

(i)  70% of the member's final average salary; minus

13

(ii)  the sum of:

14

(A)  the annuity as determined under subsection

15

(f); and

16

(B)  payments paid or payable on account of the

17

disability under:

18

(I)  the act of June 2, 1915 (P.L.736,

19

No.338), known as the Workers' Compensation Act;

20

(II)  the act of June 21, 1939 (P.L.566,

21

No.284), known as The Pennsylvania Occupational

22

Disease Act; and

23

(III)  the Social Security Act (49 Stat. 620,

24

42 U.S.C. § 301 et seq.).

25

(h)  Vesting.--A member who ceases to be an active member for

26

any reason after having completed at least ten years of credited

27

service but before meeting the superannuation retirement service

28

requirement shall be entitled to vest retirement benefits until

29

the member attains superannuation retirement age.

30

(i)  Alternative retirement program.--

- 60 -

 


1

(1)  A municipal employee may, within 30 days of

2

initiating employment covered by this section, make an

3

irrevocable election to participate in an alternative

4

independent defined contribution retirement program approved

5

by the board.

6

(2)  To be approved, the alternative defined contribution

7

program must:

8

(i)  centralize management and investment;

9

(ii)  offer a variety of investment asset

10

allocations; and

<--

11

(iii)  mandate both the employee and employer to

12

contribute 6% of the member's covered payroll; and

<--

13

(iv)  Annuitize benefits of retirement.

14

(3)  An election by an employee to participate shall be

15

final, binding and irrevocable and shall apply to all future

16

employment with any municipality subject to these provisions.

17

(j)  Definition.--As used in this section, the term "salary"

<--

18

means the fixed amount of compensation paid at regular, periodic

19

intervals by a municipality to the member and from which pension

20

contributions have been deducted.

21

Section 14.  Section 609 of the act is amended to read:

22

Section 609.  Rules and regulations.

23

The commission may issue any rules [and], regulations,

24

policies and procedures necessary for the effective

25

administration and operation of the provisions of this act.

26

Section 15.  The act is amended by adding a chapter to read:

27

CHAPTER 7-A

28

STANDARDS FOR MUNICIPAL PENSION SYSTEMS

29

Section 701-A.  Definitions.

30

The following words and phrases when used in this chapter

- 61 -

 


1

shall have the meanings given to them in this section unless the

2

context clearly indicates otherwise:

3

"Affiliated entity."  Any of the following:

4

(1)  A subsidiary or holding company of a lobbying firm

5

or other business entity owned in whole or in part by a

6

lobbying firm.

7

(2)  An organization recognized by the Internal Revenue

8

Service as a tax-exempt organization under section 501(c) of

9

the Internal Revenue Code of 1986 (Public Law 99-514, 26

10

U.S.C. § 501(c)) established by a lobbyist or lobbying firm

11

or an affiliated entity.

12

"Contributions."  As defined in section 1621 of the act of

13

June 3, 1937 (P.L.1333, No.320), known as the Pennsylvania

14

Election Code.

15

"Executive level employee."  An employee of a person or the

16

person's affiliated entity who:

17

(1)  can affect or influence the outcome of the person's

18

or affiliated entity's actions, policies or decisions; or

19

(2)  is involved in the implementation or development of

20

policies relating to investments, contracts or procurement.

21

"Municipal pension system."  Includes the Pennsylvania

22

Municipal Retirement System.

23

"Political committee."  As defined in section 1621 of the act

24

of June 3, 1937 (P.L.1333, No.320), known as the Pennsylvania

25

Election Code.

26

"Professional services contract."  A contract to which the

27

municipal pension system is a party that is:

28

(1)  for the purchase or provision of professional

29

services, including investment services, legal services, real

30

estate services and other consulting services; and

- 62 -

 


1

(2)  not subject to a requirement that the lowest bid be

2

accepted.

3

Section 702-A.  Procurement for professional services contracts.

4

(a)  Procedures.--Each municipal pension system, including

5

the Pennsylvania Municipal Retirement System, shall develop

6

procedures to select the most qualified person to enter into a

7

professional services contract. The procedures shall ensure that

8

the availability of a professional services contract is

9

advertised to potential participants in a timely and efficient

10

manner. Procedures shall include applications and disclosure

11

forms to be used to submit a proposal for review and to receive

12

the award of a professional services contract.

13

(b)  Advertisement.-–An advertisement of the availability of

14

a proposal for a professional services contract shall set forth:

15

(1)  The services that are the subject of the proposed

16

contract.

17

(2)  Specifications relating to the services.

18

(3)  Procedures to compete for the contracts.

19

(4)  Required disclosures.

20

(c)  Review.--Procedures to select the most qualified person

21

shall include a review of the person's qualifications,

22

experience and expertise and the compensation to be charged.

23

(d)  Personnel.--

24

(1)  Prior to entering into a professional services

25

contract with a municipal pension system, the contractor

26

shall disclose the names and titles of each individual who

27

will be providing professional services to the municipal

28

pension system, including advisors or subcontractors of the

29

contractor.

30

(2)  Disclosure under this subsection shall include all

- 63 -

 


1

of the following:

2

(i)  Whether the individual is a current or former

3

official or employee of the municipality entering into

4

the contract.

5

(ii)  Whether the individual has been a registered

6

Federal or State lobbyist.

7

(iii)  A description of the responsibilities of each

8

individual with regard to the contract.

9

(3)  The resume of an individual included in the

10

disclosure shall be provided to the municipality upon

11

request.

12

(4)  The information under this subsection shall be

13

updated as changes occur.

14

(e)  Conflict of interest.-–The municipal pension system

15

shall adopt policies relating to potential conflicts of interest

16

in the review of a proposal or the negotiation of a contract.

17

The policies shall include a minimum one-year restriction on:

18

(1)  Participation by a former employee of a contractor

19

or potential contractor in the review of a proposal or

20

negotiation of a contract with that contractor.

21

(2)  Participation by a former employee of the municipal

22

pension system in the submission of a proposal or the

23

performance of a contract.

24

(f)  Public information.-–Following the award of a

25

professional services contract, all applications and disclosure

26

forms shall be public except for proprietary information or

27

other information protected by law.

28

(g)  Increase.–-A professional services contract shall not be

29

amended to increase the cost of the contract by more than 10% or

30

$10,000, whichever is greater, unless the increase and a written

- 64 -

 


1

justification for the increase are public and posted on the

2

municipal pension system's Internet website, if an Internet

3

website is maintained, at least seven days prior to the

4

effective date of the amendment.

5

(h)  Notice and summary.–-The relevant factors that resulted

6

in the award of the professional services contract must be

7

summarized in a written statement to be included in or attached

8

to the documents awarding the contract. Within ten days of the

9

award of the professional services contract, the original

10

application, a summary of the basis for the award and all

11

required disclosure forms must be transmitted to all

12

unsuccessful applicants and posted on the municipal pension

13

system's Internet website, if an Internet website is maintained,

14

at least seven days prior to the execution of the professional

15

services contract.

16

Section 703-A.  Agents; solicitation.

17

(a)  Prohibition.--A person or an affiliated entity that

18

intends to enter or that enters into a professional services

19

contract may not directly or indirectly hire, engage, utilize,

20

retain or compensate any third party intermediary, agent or

21

lobbyist to directly or indirectly communicate with a municipal

22

pension system official or employee or a municipal official or

23

employee in connection with any transaction or investment

24

involving the contractor and the municipal pension system. The

25

prohibition shall include the solicitation of an investment or

26

investment management services from a municipal pension system

27

or influencing or attempting to influence the outcome of an

28

investment or other financial decision by the system. The

29

prohibition shall not apply to an officer or employee of the

30

investment firm who is acting within the scope of the firm's

- 65 -

 


1

standard professional duties on behalf of the firm, including

2

the actual provision of legal, accounting, engineering, real

3

estate or other professional advice, services or assistance

4

pursuant to a professional services contract with the municipal

5

pension system.

6

(b)  Solicitation.--A person that enters into, or has applied

7

for, submitted an offer or bid for, responded to a request for

8

proposal on or otherwise solicited, a professional services

9

contract with a municipal pension system or an agent, officer,

10

director or employee of that person may not solicit a

11

contribution to any municipal official or candidate for

12

municipal office in the municipality where the municipal pension

13

system is organized or to the political party or political

14

action committee of that official or candidate.

15

(c)  Limitation on communication.--Upon the advertisement for

16

a professional services contract by the municipal pension

17

system, the contractor may not cause or agree to allow a third

18

party to communicate with officials or employees of the

19

municipal pension system except for requests for technical

20

clarification. Requests for technical clarification shall be

21

made by a designated employee of the municipal pension system.

22

Nothing in this subsection shall preclude a potential contractor

23

from responding to requests for clarification or additional

24

information from the municipal pension system.

25

Section 704-A.  Disqualification.

26

(a)  Contributors.--A person or an affiliated entity that,

27

within the past two years, has made a contribution to a

28

municipal official or candidate for municipal office in the

29

municipality which controls the municipal pension system may not

30

enter into a professional services contract with the municipal

- 66 -

 


1

pension system, except that the two-year restriction shall not

<--

2

apply to any contribution made prior to the effective date of

3

this subsection.

4

(b)  Relationships.--A person or an affiliated entity that

5

enters into a professional services contract with a municipal

6

pension system may not have a direct financial, commercial or

7

business relationship with any official of the municipal pension

8

system or the municipality which controls the municipal pension

9

system unless the municipal pension system consents in writing

10

to the relationship following full disclosure.

11

(c)  Gifts.--A person with a professional services contract

12

may not offer or confer a gift having more than a nominal value,

13

including money, services, loans, travel, lodging,

14

entertainment, discount or other thing of value, to any

15

official, employee or fiduciary of a municipal pension system.

16

Section 705-A.  Disclosure.

17

(a)  Contractors.–-

18

(1)  A person or an affiliated entity that has a

19

professional services contract with a municipal pension

20

system shall disclose all contributions to which all of the

21

following apply:

22

(i)  The contribution was made within the last five

23

years.

24

(ii)  The contribution was made by an officer,

25

director, executive-level employee or owner of at least

26

5% of the person or affiliated entity.

27

(iii)  The amount of the contribution was at least

28

$500 in the form of:

29

(A)  A single contribution by a person included

30

in subparagraph (ii).

- 67 -

 


1

(B)  The aggregate of all contributions by all

2

persons listed in subparagraph (ii).

3

(iv)  The contribution was made to:

4

(A)  A candidate for any public office in the

5

Commonwealth or to an individual who holds that

6

office.

7

(B)  A political committee of a candidate for

8

public office in the Commonwealth or of an individual

9

who holds that office.

10

(2)  The information provided under this subsection shall

11

be updated annually.

12

(b)  Additional disclosure.--A person or an affiliated entity

13

that has a professional services contract with a municipal

14

pension system shall disclose all of the following:

15

(1)  Information relating to individuals making

16

contributions. This paragraph includes:

17

(i)  The name and address of the contributor.

18

(ii)  The contributor's relationship to the

19

contractor.

20

(iii)  The name and office or position of each person

21

receiving a contribution.

22

(iv)  The amount of the contribution.

23

(v)  The date of the contribution.

24

(2)  Gifts to an official or employee of the municipal

25

pension system or the municipality which controls the

26

municipal pension system.

27

(3)  The employment or retention of any third-party

28

intermediary, agent or lobbyist and the duties of that

29

person.

30

(4)  The existence of any financial relationship under

- 68 -

 


1

section 704-A(b).

2

(c)  Applicability.–-The provisions of subsection (a) shall

3

apply to a person and an affiliated entity that has applied for,

4

submitted an offer or bid for, responded to a request for

5

proposal or otherwise solicited a professional services contract

6

with a municipal pension system.

7

(d)  Forms.–-Required disclosure shall be made on a form

8

prepared by the municipal pension system. The form shall be

9

attached to the contract and posted on the system's Internet

10

website, if an Internet website is maintained. During the term

11

of the contract, an updated form shall be filed annually in

12

accordance with procedures adopted by the plan.

13

(e)  Penalties.–-The following shall apply:

14

(1)  A municipal pension system shall void the

15

professional services contract of a person that knowingly

16

makes a material misstatement or omission in a disclosure

17

form under this chapter and shall prohibit the person from

18

entering into a contract for a period of up to three years.

19

(2)  If a contractor or person that has submitted a

20

proposal or bid in violation of paragraph (1) more than two

21

times in a 36-month period, all contracts between that

22

contractor and the municipal pension plan shall be void, and

23

the person shall be debarred for a period of at least three

24

years from the date of the last violation.

25

Section 706-A.  Duty to act.

26

If a person that enters into, or has applied for, submitted

27

an offer or bid for, responded to a request for proposal on or

28

otherwise solicited, a contract with a municipal pension system

29

or an officer, director or employee of a municipal pension

30

system is aware, or reasonably should be aware, of an apparent,

- 69 -

 


1

potential or actual conflict of interest, the person shall

2

disclose the conflict and promptly eliminate the conflict.

3

Section 707-A.  No preemption.

4

If a municipality establishes a code of ethics which is

5

stricter than this chapter, that code is not preempted by this

6

chapter.

7

Section 15.1.  The act is amended by adding sections to read:

<--

8

Section 902.  Second class cities.

9

(a)  Taxing authority.--In taxable years beginning after

10

December 31, 2008, the following apply to a city of the second

11

class which is a home rule municipality:

12

(1)  The city may impose on each parking transaction in

13

the city a tax at a rate not to exceed 37.5% of the cost of

14

the transaction.

15

(2)  If the Department of Community and Economic

16

Development determines that the city has leased or sold all

17

of its parking authority facilities and that net proceeds

18

from the lease or sale have been deposited into the

19

Pennsylvania Municipal Retirement System and credited to the

20

municipality's account and transmits notice of the

21

determination to the Legislative Reference Bureau for

22

publication in the Pennsylvania Bulletin, the city may impose

23

on each parking transaction in the city an additional tax at

24

a rate not to exceed 2.5% of the cost of the transaction.

25

(b)  Use of revenue.--Notwithstanding any other law to the

26

contrary, 6.75% of the revenue received under subsection (a)(1)

27

and 100% of the revenue received under subsection (a)(2) shall

28

be used to pay the city's minimum municipal obligation required

29

under section 302 and any interest accrued in any plan year.

30

Section 903.  Level III administration in cities of the second

- 70 -

 


1

class.

2

For a period not to exceed 12 months from the effective date

3

of this section, the employees of the respective pension boards

4

of a home rule municipality that is a city of the second class

5

shall continue to provide member benefit administration for

6

members from the home rule municipality on behalf of the

7

Pennsylvania Municipal Retirement System. During the 12-month

8

period, a pool comprised of the employees of the respective

9

pension boards shall be granted priority and preference in

10

hiring to fill positions with the system that the employee is

11

qualified to fill. No new employee may be hired by the system

12

until the position has been offered, in order of seniority, to

13

all properly certified members of the pool.

14

Section 16.  Chapter 10 heading of the act, added June 18,

15

1998 (P.L.626, No.82), is amended to read:

16

CHAPTER 10

17

[ALTERNATIVE FUNDING MECHANISM]

18

PROVISIONS RELATING TO CERTAIN CITIES AND COUNTIES

19

Section 17.  Section 1001(b) of the act, added June 18, 1998

20

(P.L.626, No.82), is amended and the section is amended by

21

adding a subsection to read:

22

Section 1001.  Alternative funding mechanism.

23

* * *

24

(b)  Period of payment requirements prior to July 1, 2009.--

25

The period of the city's payment requirements under an

26

alternative funding mechanism implemented prior to December 31,

27

2002, shall be the greater of:

28

(1)  the remaining period not exceeding 30 years during

29

which the city would have amortized the unfunded actuarial

30

accrued liability reported in its last actuarial valuation

- 71 -

 


1

report filed under Chapter 2 using the total amortization

2

payment and interest assumption, reported in that actuarial

3

valuation report; or

4

(2)  30 years.

5

If an alternative funding mechanism is implemented after

6

December 31, 2002, but before July 1, 2009, the period described

7

in paragraph (1) shall be the period of the city's payment

8

requirements.

9

(b.1)  Period of payment requirements beginning July 1,

10

2009.--The period of the city's payment requirements under an

11

alternative funding mechanism implemented or refinanced in whole

12

or in part on or after July 1, 2009, and prior to the beginning

13

of the plan year that commences July 1, 2019, shall be the

14

greater of:

15

(1)  the remaining period not exceeding 30 years during

16

which the city would have amortized the unfunded actuarial

17

accrued liability reported in its latest actuarial valuation

18

report filed under Chapter 2 using the total amortization

19

payment and interest assumption, reported in that actuarial

20

valuation report; or

21

(2)  30 years.

22

If an alternative funding mechanism is implemented after July 1,

23

2019, the period described in paragraph (1) shall be the period

24

of the city's payment requirements.

25

* * *

26

Section 18.  The act is amended by adding sections to read:

27

Section 1002.  Cities of the first class.

28

(a)  General rule.--A city of the first class may elect to

29

use the deferrals of required payments authorized under this

30

section in lieu of the mandatory provisions of the Financially

- 72 -

 


1

Distressed Municipal Pension System Recovery Program contained

2

in sections 606, 608.1 and 608.2.

3

(b)  Limitation.--The following shall apply:

4

(1)  In order to be eligible to use the deferrals of

5

required payments authorized under this section, the city may

6

not increase pension benefits for existing employees. In

7

addition, by June 30, 2010 September 10, 2009, the city shall

<--

8

adopt SUBMIT a revised benefit plan applicable to any

<--

9

employee first hired on or after the effective date of the

10

establishment of the revised benefit plan. The revised

11

benefit plan for newly hired employees:

12

(i)  shall have a normal cost of no more than 75% 80%

<--

13

of the normal cost of the preexisting plan;

14

(ii)  may provide for defined benefits, defined

15

contributions or a combination of both;

16

(iii)  shall be developed with consultation with

17

representatives of the collective bargaining unit

18

applicable to the affected type of municipal employee, if

19

any; and

20

(iv)  shall be within the scope of collective

21

bargaining subsequent to the establishment of the revised

22

benefit plan.

23

(2)  Member contributions under a revised defined benefit

24

plan shall be equal to three times the effective annual

<--

25

benefit accrual rate of 50% of the normal cost of the pension

26

plan, whichever is higher, expressed as a percentage of

<--

27

covered payroll, as reported in the most recent actuarial

28

valuation report of the pension plan. Any defined

29

contribution plan shall provide for matching employer

30

contributions and mandatory employee contributions not to

<--

- 73 -

 


1

exceed 4% of compensation per employee.

2

(b.1)  Modification prohibited.--No other statute, ordinance, 

<--

3

contract, arbitration award or practice shall permit or

4

authorize any deviation from or alteration of the terms of this

5

section governing the freeze of benefits for existing employees

6

and the terms of the revised benefit plan for newly hired

7

employees.

8

(c)  Verification.--In order to implement subsection (b), the

9

city shall submit evidence of the freeze on existing benefits

<--

10

and the reduced benefit plan collective bargaining proposals to

11

freeze existing benefits and to revise benefit plans for newly

12

hired employees and a schedule of payments to be deferred under

13

subsection (e) to the Pennsylvania Intergovernmental Cooperation

<--

14

Authority and to the Public Employee Retirement Commission 

15

COMMISSION by September 10, 2009. Within 14 days of the receipt

<--

16

of the information and plan collective bargaining proposals and

<--

17

payment schedule from the city under this subsection, the

18

authority COMMISSION shall issue a written determination that

<--

19

the information and plan collective bargaining proposals meet

<--

20

the requirements of subsection (b). A written determination that

<--

21

the freeze and proposal meet the requirements of subsection (b)

22

shall constitute compliance by the city with subsection (j)(1)

23

and (2).

24

(d)  Amortization.-–Notwithstanding any other law to the

25

contrary, the city may amortize its entire unfunded actuarial

26

accrued liability, as measured on a valuation date selected by

27

the city that occurs in the plan year commencing July 1, 2009,

28

as a level dollar amount with the amortization target date being

29

the end of the plan year occurring 30 years after the plan year

30

commencing July 1, 2009, with payments to commence in the next

- 74 -

 


1

plan year. In order to extend the amortization schedule provided

2

under this subsection, the city must comply with the following:

3

(1)  File a revised actuarial valuation report reflecting

4

the amortization period extension and the actuarial assumed

5

rate in effect on the valuation date with the commission no

6

later than March 31, 2010.

7

(2)  The revised actuarial valuation under paragraph (1)

8

may not be filed in lieu of the actuarial valuation reported

9

required under section 202(b)(4)(v)(A) required to be filed

10

May 3, 2010, and may be used only for the purposes of

11

recalculating the minimum municipal obligation of the city

12

for the plan year commencing July 1, 2009, and calculating

13

the minimum municipal obligation of the city for the plan

14

year commencing July 1, 2010, to reflect the amortization

15

period extension. The revisions in the revised report shall

16

supersede comparable information in the original report.

17

(3)  Except as provided in subsection (b), a revised

18

actuarial valuation report under this subsection shall not

19

affect distributions under the General Municipal Pension

20

System State Aid Program under Chapter 4.

21

(e)  Revised obligation.--Notwithstanding any other provision

22

of law to the contrary, the city is authorized to defer a

23

portion of the minimum municipal funding obligation required

24

under section 302 in accordance with the following:

25

(1)  For the plan year ending June 30, 2010, deferral may

26

be in an amount not to exceed $155,000,000.

27

(2)  For the plan year ending June 30, 2011, deferral may

28

be in an amount not to exceed $80,000,000.

29

(f)  Interest.--Amounts deferred under subsection (e) shall

30

bear interest at the rate of 8.25% which shall be calculated

- 75 -

 


1

from the beginning of the plan year in which the deferral was

2

made. Accrued interest on amounts deferred shall be paid

3

annually on or before June 30 of the years 2010, 2011 and 2012.

4

(g)  Repayment.--On or before June 30, 2013, the city shall

5

repay the following:

6

(1)  If the amount deferred is equal to or greater than

7

$90,000,000, at least $90,000,000 plus interest accrued on

8

all amounts deferred.

9

(2)  If the total amount deferred is less than

10

$90,000,000, the total amount deferred, plus interest accrued

11

on that amount.

12

(h)  Balance.-–The balance of all amounts deferred, including

13

interest accrued and unpaid on amounts deferred shall be repaid

14

by June 30, 2014.

15

(i)  Unpaid amounts.--Amounts deferred and interest under

16

subsections (e) and (f) which are not repaid under subsection

17

(h) shall be added to the minimum municipal obligation of the

18

city for the following plan year, with interest calculated and

19

due until the date the amounts due are paid.

20

(j)  Pension reforms rEQUIREMENTS.--In order to retain the

<--

21

authority to utilize the alternative funding mechanism dEFERRALS

<--

22

under this section, the city must comply with the following:

23

(1)  Freeze all pension benefits for any current employee

24

in accordance with subsection (b).

25

(2)  Adopt sUBMIT and collectively bargain for a revised

<--

26

benefit plan applicable to any newly hired employee in

27

accordance with subsection (b).

28

(3)  Exhaust the judicial appeal procedure APPELLATE

<--

29

PROCEDURES to challenge any arbitration, ADJUDICATion or

<--

30

other award which is inconsistent with the FREEZE OR revised

<--

- 76 -

 


1

benefit plan.

2

(4)  Repay the deferred amount required under subsection

3

(g) by June 30, 2013, and the deferred amount required under

4

subsection (h) by June 30, 2014.

5

(k)  Expiration of authority.--If the city fails to meet any

<--

6

of the requirements of subsection (j), the Public Employee

7

Retirement Commission and the authority shall certify the

8

failure to comply to the State Treasurer. Until the city is in

9

compliance with subsection (j) the State Treasurer shall

10

withhold any grant, loan, entitlement, payment or combination of

11

grants, loans, entitlements and payments to the city by the

12

Commonwealth, or any of its agencies, in an amount equal to the

13

amounts authorized to be deferred under subsection (e).

14

(k)  Withholding.--If the city fails to meet any of the

<--

15

requirements of subsection (j)(4), the following apply:

16

(1)  The commission shall notify the Secretary of the

17

Budget and the State Treasurer of the city's failure to

18

comply with subsection (j)(4) and send a copy of the notice

19

to the chair and minority chair of the Appropriations

20

Committee and the Finance Committee of the Senate and the

21

Appropriations Committee and the Finance Committee of the

22

House of Representatives.

23

(2)  The secretary shall assist the State Treasurer in

24

the identification of grants, loans, entitlements and

25

payments made to the city by the Commonwealth.

26

(3)  Except as set forth in paragraph (4) or (5), within

27

30 days of receipt of the notice, the State Treasurer shall

28

withhold any grant, loan, entitlement, payment or combination

29

of grants, loans, entitlements and payments to the city by

30

the Commonwealth, or any of its agencies, in an amount equal

- 77 -

 


1

to deferral amounts not repaid under subsections (g) and (h).

2

The amount withheld shall be deposited into the city's

3

pension fund.

4

(4)  Paragraph (3) shall not apply if the failure is due

5

to compliance following exhaustion of the judicial appellate

6

procedures to challenge any arbitration, adjudication or

7

other award, which is inconsistent with the requirements of

8

subsection (b) as determined by the commission under section

9

1003(g).

10

(5)  The State Treasurer shall not withhold the

11

following:

12

(i)  Funds for capital projects under contract.

13

(ii)  Funds granted from the Federal Government or

14

the Commonwealth relating to a declaration of disaster.

15

(iii)  Pension fund payments.

16

(iv)  Funds administered by the city's department of

17

human services or department of health.

18

(v)  Funds pledged to repay bonds or notes issued

19

under the act of October 18, 1972 (P.L.955, No.234),

20

known as The First Class City Revenue Bond Act.

21

(l)  Verification in order to comply with section 1003(e).--

22

The city shall submit evidence of the freeze of existing

23

benefits and of collective bargaining proposals to reduce the

24

benefit plan for newly hired employees to the commission by

25

September 10, 2009. Within 14 days of the receipt of the

26

information and proposals from the city, the commission shall

27

issue a written determination that the bargaining proposals meet

28

the requirements of subsection (b). A written determination from

29

the commission that current benefits are frozen and the

30

collective bargaining proposals meet the requirements of

- 78 -

 


1

subsection (b) shall constitute compliance with section 1003(e)

2

(1) and (2). The commission shall issue a written determination

3

regarding any arbitration award or judicial decision as to

4

consistency with the requirements of subsection (b). If the

5

commission determines that the award or decision is inconsistent

6

with the requirements of subsection (b), the city shall appeal

7

the decision in order to comply with section 1003(e)(3). The

8

city shall provide notice to the commission of all appeals.

9

(l) (M) Reports.--During a period in which deferrals of the

<--

10

minimum municipal obligation or interest on the obligation are

11

outstanding, the city shall file actuarial valuation reports

12

annually with the commission.

13

(m) (N) Calculation.-–The calculation of the unfunded

<--

14

actuarial accrued liability made and certified by an approved

15

actuary under section 202 shall not include any amounts deferred

16

under this subsection so long as the city is paying interest

17

accrued on the deferred amounts and repaying the deferred

18

amounts in accordance with the terms of this subsection.

19

(n) (O)  Binding obligation.-–The repayment of amounts

<--

20

deferred, including interest accrued on deferred amounts, as and

21

when required under this subsection shall constitute a binding

22

and absolute commitment on the city. The city shall include all

23

amounts due to be paid under this subsection in the budget of

24

the city and all amounts due to be paid shall be appropriated

25

and paid in order to make timely repayment of any amounts

26

deferred, including interest accrued on deferred amounts.

27

Payment shall be unconditional and without setoff.

28

(o) (P)  Standing.--A person who is beneficially interested

<--

29

in the city paying its minimum municipal obligation, including

30

amounts deferred, under this subsection shall have standing to

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1

institute a legal proceeding for mandamus to enforce the

2

obligation of the city to make required repayments in the same

3

manner as a proceeding to enforce payment requirements of an

4

alternative funding mechanism under section 1001. A beneficially

5

interested person is a person who meets the qualifications set

6

forth in section 1001(f).

7

(p) (Q)  Payment.--The city shall be required to pay the

<--

8

balance of its minimum municipal obligation in full when due in

9

each plan year.

10

Section 1003.  Special taxing authority.

11

(a)  Imposition of tax.--

12

(1)  Except as provided in subsection (e), a city of the

13

first class may elect to impose a tax on the "sale at retail"

14

of "tangible personal property" or services or "use" of

15

"tangible personal property" or services "purchased at

16

retail," as defined in section 201 of the act of March 4,

17

1971 (P.L.6, No.2), known as the Tax Reform Code of 1971.

18

(2)  The tax imposed under this section shall be in

19

addition to the tax authorized under section 503(a) and (b)

20

of the act of June 5, 1991 (P.L.9, No.6), known as the

21

Pennsylvania Intergovernmental Cooperation Authority Act for

22

Cities of the First Class.

23

(3)  The tax authorized under this subsection shall not

24

be levied, assessed and collected upon the occupancy of a

25

room in a hotel in the city of the first class.

26

(4)  This subsection shall expire July 1, 2014.

27

(5)  Notwithstanding paragraph (4), all tax imposed under

28

this subsection on sales or uses occurring before July 1,

29

2014, shall be paid to and received by the Department of

30

Revenue and, along with interest and penalties, less any

- 80 -

 


1

refunds and credits paid, shall be credited to the local

2

sales and use tax fund created under the Pennsylvania

3

Intergovernmental Cooperation Authority Act for Cities of the

4

First Class. Money in the fund shall be disbursed as provided

5

in section 509 of the Pennsylvania Intergovernmental

6

Cooperation Authority Act for Cities of the First Class.

7

(b)  Rate.--The tax authorized under subsection (a) shall be

8

imposed and collected at the rate of 1% and shall be computed as

9

set forth in section 503(e)(2) of the Pennsylvania

10

Intergovernmental Cooperation Authority Act for Cities of the

11

First Class.

12

(c)  Collection.--The tax authorized under subsection (a)

13

shall be administered, collected, deposited and disbursed in the

14

same manner as the tax imposed under Chapter 5 of the

15

Pennsylvania Intergovernmental Cooperation Authority Act for

16

Cities of the First Class and the situs of the tax shall be

17

determined in accordance with the Pennsylvania Intergovernmental

18

Cooperation Authority Act and Article II-A of act of March 4,

19

1971 (P.L.6, No.2), known as the Tax Reform Code of 1971. The

20

Department of Revenue shall use the money received by the

21

Department of Revenue from the tax authorized under Chapter 5 of

22

the Pennsylvania Intergovernmental Cooperation Authority Act for

23

Cities of the First Class to cover costs for the administration

24

of the tax authorized under subsection (a). The Department of

25

Revenue shall not retain any additional amounts for the cost of

26

collecting the tax authorized under subsection (a). No

27

additional fee shall be charged for a license or license renewal

28

other than the license or renewal fee authorized and imposed

29

under Article II of the Tax Reform Code of 1971.

30

(d)  Municipal action.--In order to impose the tax, the

- 81 -

 


1

governing body of the city shall adopt an ordinance stating the

2

tax rate. The ordinance may be adopted prior to the effective

3

date of this subsection. The ordinance shall be effective no

4

earlier than 20 days after the adoption of the ordinance or 20

5

days after the effective date of this section, whichever is

6

later. A certified copy of the city ordinance shall be delivered

7

to the Department of Revenue within ten days prior to or after

8

the effective date of the ordinance. A certified copy of an

9

ordinance to repeal the tax authorized under subsection (a)

10

shall be delivered to the Department of Revenue at least 30 days

11

prior to the effective date of repeal.

12

(e)  Retention of authority.--In order to retain the

13

authority to impose and collect the tax authorized under

14

subsection (a), the city must submit proof of the following to

<--

15

the Pennsylvania Intergovernmental Cooperation Authority SHALL

16

COMPLY WITH THE FOLLOWING:

17

(1)  A freeze fREEZE all pension benefits for any current

<--

18

employee in accordance with section 1002(b).

19

(2)  Adoption of sUBMIT AND BARGAIN FOR a revised benefit

<--

20

plan applicable to any newly hired employee in accordance

21

with section 1002(b).

22

(3)  Exhaust the judicial appellate procedures to

<--

23

challenge any arbitration, adjudication or other award which

24

is inconsistent with the freeze of the revised benefit plan.

25

(f)  Expiration of authority.--If the city fails to meet any

26

of the requirements of subsection (e), the authority to impose

27

and collect the tax authorized under subsection (a) shall

28

expire.

29

(g)  Verification.--The city shall, within 14 days of the

<--

30

expiration of the 12-month period under section 1002(d), submit

- 82 -

 


1

to the Public Employee Retirement Commission data, including

2

data showing any savings in the city's municipal pension system.

3

The Public Employee Retirement Commission shall perform an

4

analysis of the data within 14 days of its receipt. (G)  

5

(rESERVED).

6

(h)  Use of tax receipts.–-All money received by the city

7

from the levy, assessment and collection of the tax authorized

8

under subsection (a) may only be used for the following

9

purposes:

10

(1)  To pay any amounts of the city's minimum municipal

11

obligation required under section 302, including amounts

12

deferred under section 1002(e) and interest accrued on

13

deferred amounts when the amounts are due in any plan year.

14

(2)  To reimburse the city for payments of the minimum

15

municipal obligation for fiscal year 2009-2010 and any fiscal

16

year during which the tax is imposed made by the city from

17

sources other than the tax authorized under subsection (a).

18

No tax receipts shall be used to reimburse the city of the

19

first class for any contribution to the city minimum

20

municipal obligation made in any year other than the year in

21

which the tax was collected.

22

(i)  Beginning January 1, 2016, the mandatory provisions of

23

sections 608, 608.1 and 608.2 shall apply to the city.

24

Section 1004.  Second class cities.

<--

25

(a)  Taxing authority.--In taxable years beginning after

26

December 31, 2008, the following apply to a city of the second

27

class which is a home rule municipality :

28

(1)  The city may impose on each parking transaction in

29

the city a tax at a rate not to exceed 37.5% of the cost of

30

the transaction.

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1

(2)  If Department of Community and Economic Development

2

determines that the city has leased or sold any of its

3

parking facilities in the city and that at least $200,000,000

4

in net proceeds from the lease or sale has been deposited

5

into the Pennsylvania Municipal Retirement System and

6

credited to the municipality's account and transmits notice

7

of the determination to the Legislative Reference Bureau for

8

publication in the Pennsylvania Bulletin, the city may impose

9

on each parking transaction in the city an additional tax at

10

a rate not to exceed 2.5% of the cost of the transaction.

11

(b)  Use of revenue.--Notwithstanding any other law to the

12

contrary, 6.75% of the revenue received under subsection (a)(1)

13

and 100% of the revenue received under subsection (a)(2) shall

14

be used to pay the city's minimum municipal obligation required

15

under section 302 and any interest accrued in any plan year.

16

Section 19.  The act is amended by adding a chapter to read:

17

CHAPTER 11

18

DEFERRED RETIREMENT OPTION PLANS

19

SUBCHAPTER A

20

PRELIMINARY PROVISIONS

21

Section 1101.  Scope.

22

This chapter relates to deferred retirement option plans for

<--

23

newly hired employees.

24

(a)  Applicability.--This chapter shall apply to all of the

<--

25

following:

26

(1)  A local government which does not have a deferred

27

retirement option plan on the effective date of this section.

28

(2)  Newly hired employees admitted to a deferred

29

retirement option plan established by a local government

30

prior to the effective date of this section.

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1

(b)  Elected officials.--

2

(1)  A deferred retirement option plan established on or

3

after the effective date of this paragraph shall not be

4

available to an elected official.

5

(2)  A deferred retirement option plan established prior

6

to the effective date of this paragraph shall be available to

7

an official elected prior to the effective date of this

8

section who runs for reelection.

9

Section 1102.  Definitions.

10

The following words and phrases when used in this chapter

11

shall have the meanings given to them in this section unless the

12

context clearly indicates otherwise:

13

"Normal retirement benefit."  The retirement benefit payable

14

to a member of a defined benefit pension plan on or after the

15

date on which the member first satisfies the age and service

16

requirements for full, unreduced retirement benefits, including

17

supplemental amounts provided to the member after retirement as

18

cost-of-living increases.

19

"Subsidiary DROP participant account."  The separate,

20

interest-bearing, subsidiary DROP participant account

21

established for a DROP participant under section 1121.

22

Section 1104.  Employment status.

23

Participation in a DROP does not guarantee the DROP

24

participant's employment by the local government during the

25

specified period of the DROP.

26

SUBCHAPTER B

27

GENERAL PROVISIONS

28

Section 1111.  Establishment of DROP.

29

(a)  Local governments.--A local government that has

30

established or maintains a defined benefit pension plan for a

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1

group of its employees hired after the effective date of this

<--

2

section which is self-insured in whole or in part under section

3

202(b), except for a local government that has joined the

4

Pennsylvania Municipal Retirement System, may establish by

5

ordinance a DROP for those employees as part of the pension

6

plan. The DROP may not apply to elected municipal officials

<--

7

elected after the effective date of this subsection. The

8

ordinance establishing the DROP shall specify a uniform

9

participation period of not more than five years in duration.

10

(b)  Participants.--A local government that has established

11

or maintains a defined benefit plan for a group of its employees

12

which is self-insured in whole or in part under section 202(b)

13

and has joined the Pennsylvania Municipal Retirement System may

14

establish a DROP for those employees as a part of the pension

15

plan only through participation in the DROP established and

16

administered by the Pennsylvania Municipal Retirement System.

17

(c)  Standards.--The Pennsylvania Municipal Retirement Board

18

shall establish a DROP for local government-defined benefit

19

pension plans that have joined the Pennsylvania Municipal

20

Retirement System. The DROP shall be uniform, in compliance with

21

the provisions of this chapter, open to any local government and

22

applicable to any of the defined benefit pension plans

23

administered by the Pennsylvania Municipal Retirement System.

24

Section 1112.  Eligibility.

25

An active member of a local government retirement system that

26

has a DROP as a part of its defined benefit pension plan who is

27

eligible for a normal retirement benefit under the pension plan

28

or will be eligible for a normal retirement benefit under the

29

pension plan prior to participation in the DROP and who is not

30

an elected official is eligible to participate in the DROP by

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1

filing a written application with the retirement system at least

2

30 days before the member's effective date of retirement.

3

Section 1113.  Participation in DROP.

4

(a)  Election.--An eligible active member may elect to

5

participate in a DROP for the period specified in the ordinance

6

under section 1111(a).

7

(b)  DROP participation election.--Upon deciding to

8

participate in a DROP, a member shall submit on forms provided

9

and required by the retirement system:

10

(1)  A binding and irrevocable letter of resignation from

11

regular employment with the local government that discloses

12

the member's intent to retire and specifies the member's

13

retirement date.

14

(2)  An irrevocable written election to participate in

15

the DROP that:

16

(i)  Details a DROP participant's rights and

17

obligations under the DROP.

18

(ii)  Includes an agreement to forgo:

19

(A)  Active membership in the retirement system.

20

(B)  Any growth in the salary base used for

21

calculating the regular retirement benefit.

22

(C)  Any additional benefit accrual for

23

retirement purposes, including length-of-service

24

increments.

25

(iii)  Specifies the effective date of DROP

26

participation that shall be the day after the specified

27

retirement date.

28

(iv)  Specifies the DROP termination date that

29

satisfies the limitation in subsection (a).

30

(3)  Any other information required by the retirement

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1

system.

2

(c)  DROP termination.--

3

(1)  A DROP participant may change the DROP termination

4

date to an earlier date within the limitations of subsection

5

(a). No penalty shall be imposed for early termination of

6

DROP participation.

7

(2)  Upon either early or regular termination of DROP

8

participation:

9

(i)  The DROP participant shall be separated from

10

employment by the local government.

11

(ii)  The retirement system shall pay the balance in

12

the DROP participant's subsidiary DROP participant

13

account to the terminating DROP participant as provided

14

in section 1114(d).

15

(iii)  The DROP participant shall be ineligible to

16

reenroll in the DROP thereafter even if the former DROP

17

participant is reemployed by the local government with

18

renewed active membership in the retirement system.

19

Section 1114.  Benefits payable under DROP.

20

(a)  Fixing retirement benefit, retirement date, retirement

21

benefits and DROP dates.-- Effective with the date of

22

retirement, which shall be the day before the effective date of

23

DROP participation, the member's monthly, normal retirement

24

benefit under the pension plan, the member's effective date of

25

retirement and the member's effective dates of beginning and

26

terminating employment as a DROP participant shall be fixed.

27

(b)  Effective dates.--

28

(1)  A retired member's effective date of participation

29

in a DROP shall begin the day following the effective date of

30

the member's regular retirement.

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1

(2)  A retired member's participation in a DROP shall end

2

on the last day of the participation period specified in the

3

ordinance establishing the DROP that is in effect on the

4

effective date of the retired member's participation in the

5

DROP.

6

(c)  Benefit payments and accruals.--All of the retired

7

member's monthly, normal retirement benefit and interest thereon

8

at the assigned rate shall be credited to the DROP participant's

9

subsidiary DROP participant account in the pension trust fund

10

and a separate accounting of the DROP participant's accrued

11

benefit accumulation under the DROP shall be calculated annually

12

and provided to the DROP participant.

13

(d)  Payment.--On the effective date of a DROP participant's

14

termination of employment with the local government as a DROP

15

participant, participation in the DROP shall cease and the

16

retirement system shall calculate and pay to the participant the

17

participant's total accumulated DROP benefits in the DROP

18

participant's subsidiary DROP participant account subject to the

19

following provisions:

20

(1)  Except as provided in paragraph (2), the terminating

21

DROP participant or, if deceased, the participant's survivor

22

as provided by the enabling pension statute applicable to the

23

appropriate class of employees of the municipality or, in

24

lieu thereof, the participant's named beneficiary, shall

25

elect on a form provided by the retirement system to receive

26

payment of the DROP benefits in accordance with one of the

27

following options:

28

(i)  The balance in the DROP participant's subsidiary

29

DROP participant account less withholding taxes, if any,

30

remitted to the Internal Revenue Service shall be paid

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1

within 45 days by the retirement system from the account

2

to the DROP participant or surviving beneficiary.

3

(ii)  The balance in the DROP participant's

4

subsidiary DROP participant account shall be paid within

5

45 days by the retirement system from the account

6

directly to the custodian of an eligible retirement plan

7

as defined in section 402(c)(8)(b) of the Internal

8

Revenue Code of 1986 (Public Law 99-514, 26 U.S.C. §

9

402(c)(8)(b)), or, in the case of an eligible rollover

10

distribution to the surviving spouse of a deceased DROP

11

participant, an eligible retirement plan that is an

12

individual retirement account or an individual retirement

13

annuity as described in section 402(c)(9) of the Internal

14

Revenue Code of 1986 (26 U.S.C. § 402(c)(9)).

15

(2)  If the DROP participant or beneficiary fails to

16

elect a method of payment within 60 days after the

17

participant's termination date, the retirement system shall

18

pay the balance as a lump sum as provided in paragraph (1).

19

(3)  The form of payment selected by the DROP participant

20

or surviving beneficiary shall comply with the minimum

21

distribution requirements of the Internal Revenue Code.

22

(e)  Taxation, attachment and assignment.--

23

(1)  Except as provided in paragraphs (2), (3) and (4),

24

the right of a DROP participant to any benefit or right

25

accrued or accruing under the provisions of this chapter and

26

the moneys in the DROP participant's subsidiary DROP

27

participant account are exempt from any State or municipal

28

tax, levy and sale, garnishment, attachment, spouse's

29

election or any other process whatsoever.

30

(2)  Rights under this chapter shall be subject to

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1

forfeiture as provided by the act of July 8, 1978 (P.L.752,

2

No.140), known as the Public Employee Pension Forfeiture Act.

3

Forfeitures under this subsection or under any other

4

provision of law may not be applied to increase the benefits

5

that any DROP participant otherwise would receive under this

6

chapter.

7

(3)  Rights under this chapter shall be subject to

8

attachment in favor of an alternate payee as set forth in a

9

qualified domestic relations order.

10

(4)  (i)  Under subsection (d)(1)(ii), a distributee may

11

elect to have an eligible rollover distribution paid

12

directly to an eligible retirement plan by way of a

13

direct rollover.

14

(ii)  For purposes of this paragraph, a "distributee"

15

includes a DROP participant, a DROP participant's

16

survivor as provided by the enabling pension statute

17

applicable to the appropriate class of employees of the

18

municipality or, in lieu thereof, the participant's

19

designated beneficiary and a DROP participant's former

20

spouse who is an alternate payee under a qualified

21

domestic relations order.

22

(iii)  For purposes of this paragraph, "eligible

23

rollover distribution" has the meaning given the term by

24

section 402(f)(2)(A) of the Internal Revenue Code of 1986

25

(26 U.S.C. § 402(f)(2)(A)), except that a qualified trust

26

shall be considered an eligible retirement plan only if

27

it accepts the distributee's eligible rollover

28

distribution and, in the case of an eligible rollover

29

distribution to a surviving spouse, an eligible

30

retirement plan is an "individual retirement account" or

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1

an "individual retirement annuity" as those terms are

2

defined in section 408(a) and (b) of the Internal Revenue

3

Code of 1986 (26 U.S.C. § 408(a) and (b)).

4

(f)  Disability.--If a DROP participant becomes eligible for

5

a disability pension benefit and terminates employment, the

6

monthly normal retirement benefit of the DROP participant shall

7

terminate.

8

(g)  Eligibility.--Except for those benefits specified under

9

section 1113(b)(2)(ii) as forgone by the member, a DROP

10

participant shall be eligible for any employee benefits provided

11

to active employees before retirement as set forth in the

12

ordinance instituting the DROP.

13

(h)  Eligibility for other benefits.--A DROP participant

14

shall be eligible for all preretirement benefits for employees

15

otherwise provided by law, including, but not limited to,

16

benefits under:

17

(1)  the act of June 2, 1915 (P.L.736, No.338), known as

18

the Workers' Compensation Act;

19

(2)  the act of June 28, 1935 (P.L.477, No.193), referred

20

to as the Enforcement Officer Disability Benefits Law;

21

(3)  the act of December 5, 1936 (2nd Sp.Sess., 1937 P.L.

22

2897, No.1), known as the Unemployment Compensation Law;

23

(4)  the act of June 24, 1976 (P.L.424, No.101), referred

24

to as the Emergency and Law Enforcement Personnel Death

25

Benefits Act; and

26

(5)  the Public Safety Officers' Benefit Act of 1976

27

(Public Law 94-430, 42 U.S.C. § 90 Stat. 1347).

28

Section 1115.  Death benefits under DROP.

29

(a)  Named beneficiary.--If a DROP participant dies, the DROP

30

participant's named beneficiary shall be entitled to apply for

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1

and receive the benefits accrued in the DROP participant's

2

subsidiary DROP participant account as provided in section

3

1114(d).

4

(b)  Final benefit.--The monthly retirement system benefit

5

accrued in the DROP participant's subsidiary DROP participant

6

account during the month of a DROP participant's death shall be

7

the final monthly retirement system benefit credited for DROP

8

participation.

9

(c)  Termination of eligibility.--A DROP participant's

10

eligibility to participate in the DROP terminates upon the death

11

of the DROP participant. If a DROP participant dies on or after

12

the effective date of participation in the DROP but before the

13

monthly retirement system benefit of the participant accruable

14

for the month has accrued in the DROP participant's subsidiary

15

DROP participant account, the local government shall pay the

16

monthly retirement system benefits as though the participant had

17

not elected DROP participation and had died after the member's

18

effective date of retirement but before receipt of the retired

19

member's first regular retirement benefit.

20

(d)  Survivors ineligible for death benefit.--Except for

21

those benefits specifically payable as a result of death

22

incurred in the course of performing a hazardous public duty,

23

the survivors of a DROP participant who dies shall not be

24

eligible to receive retirement system death benefits payable in

25

the event of the death of an active member.

26

(e)  Survivors eligible for retired member's death benefit.--

27

The DROP participant's survivor shall be eligible to receive

28

retirement system death benefits normally payable in the event

29

of the death of a retired employee.

30

Section 1116.  Subsequent employment.

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1

After both the termination of a DROP participant's employment

2

as a DROP participant by the local government and the expiration

3

of the DROP participation period, a former DROP participant

4

shall be subject to such reemployment limitations as other

5

retired members and shall be eligible for renewed membership as

6

an active member in the local government employees' retirement

7

system.

8

SUBCHAPTER C

9

ADMINISTRATIVE PROVISIONS

10

Section 1121.  DROP participant account.

11

(a)  General rule.--If a local government creates a DROP, it

12

shall establish a DROP participant account as an interest-

13

bearing ledger account in its pension trust fund. The account

14

balance shall be accounted for separately but need not be

15

physically segregated from other pension trust fund assets.

16

(b)  Subsidiary DROP participant accounts.--A separate

17

interest-bearing subsidiary DROP participant account shall be

18

established for each DROP participant. While a retired member is

19

employed as a DROP participant, the member's monthly, normal

20

retirement benefit and interest thereon shall be credited to the

21

DROP participant's subsidiary DROP participant account under

22

section 1114(c). The interest shall be compounded and credited

23

monthly at an annual rate specified in the ordinance

24

establishing the DROP that shall be not less than 1% nor more

25

than 4 1/2%.

26

(c)  Termination of employment.--

27

(1)  When a DROP participant terminates employment with

28

the local government as a DROP participant, the DROP

29

participant's total accumulated benefits shall be calculated,

30

charged to the DROP participant account and paid out of the

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1

pension trust fund under section 1114(d)(2).

2

(2)  Under section 202(b), the balance in the DROP

3

participant account shall be excluded from actuarial

4

valuation reports of the retirement system prepared and filed

5

under this act.

6

(d)  Account held in trust.--A DROP participant account shall

7

be held in trust for the exclusive benefit of DROP retired

8

members who are or were DROP participants and for the

9

beneficiaries of the members.

10

Section 1122.  Audit.

11

The DROP established by the Pennsylvania Municipal Retirement

12

Board shall be subject to financial and compliance audits

13

conducted by the Auditor General with the initial audit

14

conducted within one year of establishment of the DROP.

15

Section 1123.  Existing DROPs.

16

A local government that established a DROP prior to or on the

17

effective date of this section that does not conform to the

18

provisions of this chapter shall amend its plan within 180 days