THE GENERAL ASSEMBLY OF PENNSYLVANIA

HOUSE BILL

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

AMENDMENTS TO SENATE AMENDMENTS, HOUSE OF REPRESENTATIVES,

SEPTEMBER 10, 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," amending the title of the act; in

8

preliminary provisions, further providing for definitions; in

9

preliminary provisions, providing for methodology; in

10

municipal pension plan actuarial reporting, further providing

11

for contents of actuarial valuation report and providing for

12

actuarial asset valuation and for revised actuarial valuation

13

report; in minimum funding standard for municipal pension

14

plans, further providing for minimum funding standard and

15

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

16

revisions applicable to municipal pension fund financing,

17

further providing for revision of financing from State

18

revenue sources and General Municipal Pension System State

19

Aid Program; in financially distressed municipal pension plan

20

determination procedure, further providing for initiation of

21

distress determination, for pension plans to be included in

22

determination and for determination procedure; in financially

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23

distressed municipal pension system recovery program, further

24

providing for application, for election determination

25

procedure, for recovery program level I, for recovery program

26

level II, for recovery program level III, for remedies

27

applicable to various recovery program levels, for

28

supplemental State assistance program and fund and for

29

municipal employee retirement program; in financially

30

distressed municipal pension system recovery program,

31

establishing programs for municipal pension recovery and

32

municipal employee retirement; in financially distressed

33

municipal pension system recovery program, further providing

1

for rules and regulations; providing for standards for

2

municipal pension systems for second class cities and for

3

level III administration in cities of the second class; in

4

alternative funding mechanism, providing special provisions

5

relating to certain cities and counties; in financially

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6

distressed municipal pension system recovery program, further

7

providing for application, for election determination

8

procedures, for recovery program level I, for recovery

9

program level II, for recovery program level III, for

10

remedies, for supplemental State Assistance Program and Fund

11

and for regulations; providing for standards for municipal

12

pension systems; in alternative funding mechanisms, making an

13

editorial change, further providing for alternative funding

14

mechanism and providing for cities of the first class and for

15

special taxing authority; providing for deferred retirement

16

option plans; and making a related repeal.

17

The General Assembly of the Commonwealth of Pennsylvania

18

hereby enacts as follows:

19

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

20

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

21

Standard and Recovery Act, is amended to read:

22

AN ACT

23

Mandating actuarial funding standards for all municipal pension

24

systems; establishing a recovery program for municipal

25

pension systems determined to be financially distressed;

26

providing for the distribution of the tax on the premiums of

27

foreign fire insurance companies; providing for the

28

establishment and administration of deferred retirement

29

option plans in local governments and for local tax; and

30

making repeals.

31

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

32

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

33

definitions to read:

34

Section 102.  Definitions.

35

Except as provided in Chapter 7, the following words and

36

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

37

them in this section unless the context clearly indicates

38

otherwise:

1

* * *

2

"Benefit plan study."  A study of an individual benefit plan

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3

conducted to identify the effectiveness of the plan that

4

includes an analysis of all of the following:

5

(1)  The cost of each benefit.

6

(2)  The administrative cost of the benefit plan per

7

employee.

8

(3)  The sufficiency of employee contributions.

9

(4)  A comparison of each benefit and proposed benefit

10

and its cost in other jurisdictions, including other

11

municipalities and states of comparable size to this

12

Commonwealth.

13

(5)  The benefit plan's asset valuation.

14

(6)  Assumed and realized investment earnings during the

15

preceding five years.

16

(7)  Annual cash flow and losses.

17

(8)  Full utilization of earned income tax and other tax

18

revenue sources.

19

(9)  Other existing assets and revenues available to meet

20

pension obligations.

21

(10)  the municipality's minimum municipal obligation

22

payment history.

23

* * *

24

"DROP."  A deferred retirement option plan created and

25

operated by a local government or the Pennsylvania Municipal

26

Retirement System under Chapter 11 or any deferred retirement

27

option plan or similar program established by a local government

28

that provides for the commencement and accumulation of

29

retirement benefit payments for active employees with

30

disbursement of the accumulated payments and interest earnings

1

as a lump sum upon termination of employment.

2

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

3

defined benefit pension plan who is eligible to participate in a

4

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

5

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

6

"DROP participant account."  A pension trust fund ledger

7

account established under section 1121(a).

8

* * *

9

"Local government."  A municipality or any county.

10

* * *

11

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

12

contractor] who provides regular services for a municipality in

13

return for compensation from the municipality. The term does not

14

include an independent contractor or a DROP participant.

15

* * *

16

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

17

Section 103.  Methodology.

18

In Notwithstanding any provisions of the act of August 31,

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19

1971 (P.L.398, No.96), known as the County Pension Law, to the

20

contrary, in performing an actuarial study under this act or the

21

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

22

requiring municipal pension systems to have an actuarial

23

investigation of the fund made by an actuary who shall report

24

his findings to the Department of Community Affairs,"

25

municipalities and counties may utilize any reasonable actuarial

26

assumptions or methodologies provided for in this act.

27

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

28

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

29

to read:

30

Section 202.  Contents of actuarial valuation report.

1

* * *

2

(b)  Contents of actuarial exhibits; defined benefit plans

3

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

4

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

5

part, all applicable actuarial exhibits shall be prepared in

6

accordance with the entry age normal actuarial cost method with

7

entry age established as the actual entry age for all plan

8

members unless the municipality applies for and is granted

9

authorization by the commission to use an alternative actuarial

10

cost method. Authorization shall be granted if the municipality

11

demonstrates on an individual pension plan basis that there are

12

compelling reasons of an actuarial nature for the use of an

13

alternative actuarial cost method. The commission shall issue

14

rules and regulations specifying the criteria which the

15

commission will use to determine the question of the existence

16

of compelling reasons for the use of an alternative actuarial

17

cost method, the documentation which a municipality seeking the

18

authorization will be required to supply and the acceptable

19

alternative actuarial cost methods which the commission may

20

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

21

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

22

the municipality applies for and is granted authorization by the

23

commission to use approximation techniques other than the

24

actuarial cost method for aspects of the benefit plan or plans

25

of the pension plan other than the retirement benefit.

26

Authorization shall be granted if the municipality demonstrates

27

on an individual pension plan basis that there are compelling

28

reasons of an actuarial nature for the use of these

29

approximation techniques. The commission shall issue rules and

30

regulations specifying the criteria which the commission will

1

use to determine the question of the existence of compelling

2

reasons for the use of approximation techniques, the

3

documentation which a municipality seeking the authorization

4

will be required to supply and the acceptable approximation

5

technique which the commission may authorize. The actuarial

6

exhibits shall use actuarial assumptions which are, in the

7

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

8

best available estimate of future occurrences in the case of

9

each assumption. With respect to economic actuarial assumptions,

10

the assumptions shall either be within the range specified in

11

rules and regulations issued by the commission or documentation

12

explaining and justifying the choice of assumptions outside the

13

range shall accompany the report. The actuarial exhibits shall

14

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

15

plan in accordance with modifications in the benefit plan or

16

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

17

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

18

ensuing plan year. In preparing the actuarial exhibits or any

19

actuarial valuation report, the municipality shall exclude the

20

compensation of all DROP participants from the active member

21

payroll and all DROP participants from active member data. The

22

actuarial valuation report shall contain the following actuarial

23

exhibits:

24

* * *

25

(4)  An exhibit of any additional funding costs

26

associated with the amortization of any unfunded actuarial

27

accrued liability of the pension plan, indicating for each

28

increment of unfunded actuarial accrued liability specified

29

in paragraph (3), the level annual dollar contribution

30

required to pay an amount equal to the actuarial assumption

1

as to investment earnings applied to the principal amount of

2

the remaining balance of the increment of unfunded actuarial

3

accrued liability and to retire by the applicable

4

amortization target date specified in this paragraph the

5

principal amount of the remaining balance of the increment of

6

unfunded actuarial accrued liability. The amortization target

7

date applicable for each type of increment of unfunded

8

actuarial accrued liability shall be as follows:

9

(i)  The following apply:

10

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

11

or prior to January 1, 1985 for the unfunded

12

actuarial accrued liability in existence as of the

13

beginning of the plan year occurring in calendar year

14

1985, at the end of the plan year occurring in

15

calendar year 2015; or

16

(B)  In the case of a pension plan established

17

after January 1, 1985, for the unfunded actuarial

18

accrued liability then or subsequently determined to

19

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

20

establishment of the plan, at the end of the plan

21

year occurring 30 years after the calendar year in

22

which the pension plan was established.

23

(ii)  The following apply:

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(A)  Increment or decrement of net unfunded

25

actuarial accrued liability attributable to a change

26

in actuarial assumptions, at the end of the plan year

27

occurring 20 years after the calendar year in which

28

actuarial assumption modification was effective.

29

(B)  Increment or decrement of net unfunded

30

actuarial accrued liability attributable to a change

1

in actuarial assumptions made on or after the

2

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

3

year occurring 15 years after the calendar year in

4

which the actuarial assumption modification was

5

effective.

6

(iii)  The following apply:

7

(A)  Increment of net unfunded actuarial accrued

8

liability attributable to a modification in the

9

benefit plan applicable to active members, at the end

10

of the plan year occurring 20 years after the

11

calendar year in which the benefit plan modification

12

was effective.

13

(B)  From and after the effective date of this

14

clause, the increment of net unfunded actuarial

15

accrued liability attributable to a modification in

16

the benefit plan mandated by new legislation, at the

17

end of the plan year occurring 20 years after the

18

calendar year in which the benefit plan modification

19

was effective.

20

(iv)  The following apply:

21

(A)  Increment of unfunded actuarial accrued

22

liability attributable to a modification in the

23

benefit plan applicable to retired members and other

24

benefit recipients, at the end of the plan year

25

occurring 10 years after the calendar year in which

26

the benefit plan modification was effective.

27

(B)  Except as provided under clause (C),

28

increment of unfunded actuarial accrued liability

29

attributable to a modification in the benefit plan

30

for active members adopted on or after the effective

1

date of this clause and not mandated by new

2

legislation, at the end of the plan year occurring

3

ten years after the calendar year in which the

4

benefit plan modification was effective.

5

(C)  An increment of unfunded actuarial accrued

6

liability attributable to a modification in the

7

benefit plan applicable to retired members and other

8

benefit recipients not mandated by new legislation,

9

at the end of the plan year following the year in

10

which the modification was effective.

11

(v)  The following apply:

12

(A)  Increment or decrement of net unfunded

13

actuarial accrued liability attributable to an

14

actuarial experience loss or gain, at the end of plan

15

year occurring [15] 20 years after the calendar year

16

in which the actuarial experience loss or gain was

17

recognized.

18

(B)  Notwithstanding any other provision of this

19

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

20

year occurring in calendar year 2003, the outstanding

21

balance of the increment of unfunded actuarial

22

accrued liability attributable to the net actuarial

23

investment losses incurred in calendar years 2001 and

24

2002 may, at the sole discretion of the municipality,

25

be amortized with the amortization target date being

26

the end of the plan year occurring 30 years after

27

January 1, 2003. In order for a municipality to

28

extend the applicable amortization period pursuant to

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this clause, the municipality must file a revised

30

actuarial valuation report reflecting the

1

amortization period extension provided for under this

2

clause with the executive director of the commission

3

no later than September 30, 2004. Any such revised

4

actuarial valuation report may not be filed in lieu

5

of the actuarial valuation report prepared in

6

compliance with clause (A) and required to be filed

7

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

8

the purposes of recalculating the 2004 minimum

9

municipal obligation of the municipality and

10

calculating the 2005 minimum municipal obligation of

11

the municipality to reflect the amortization period

12

extension. Any such revised actuarial valuation

13

report shall not affect distributions under the

14

General Municipal Pension System State Aid Program

15

under Chapter 4.

16

* * *

17

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

18

Section 210.  Actuarial asset valuation.

19

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

20

each of its pension plans to equal the greater of:

21

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

22

biennial actuarial valuation report accepted by the

23

commission:

24

(i)  increased by contributions and other deposits

25

except investment income;

26

(ii)  decreased by benefit payments and

27

administrative expenses or other payments; and

28

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

29

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

30

valuation; or

1

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

2

(b)  Methodology.--

3

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

4

value of cash, investment securities and other property

5

belonging to the municipal pension plan according to a method

6

for valuing assets adopted by the governing body of the

7

municipal pension plan upon the recommendation of the

8

actuary.

9

(2)  The method for valuing assets shall be adequately

10

disclosed in the accompanying documentation or exhibits and,

11

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

12

produce a result that in total is:

13

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

14

the assets of the municipal pension plan; or

15

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

16

assets of the municipal pension plan.

17

(c)  Temporary valuation.--

18

(1)  For the two-year actuarial valuation reporting

19

period beginning in 2009, a municipality may utilize a method

20

for valuing assets which does not produce a result that in

21

total is:

22

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

23

the assets of the municipal pension plan; or

24

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

25

assets of the municipal pension plan.

26

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

27

valuation reporting period, subsection (b) applies.

28

Section 211.  Revised actuarial valuation report.

29

Upon enactment of legislation which would alter the actuarial

30

valuation of a pension plan, a revised actuarial valuation

1

report shall be filed with the commission as the commission

2

directs.

3

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

4

18, 1990 (P.L.753, No.189), is amended to read:

5

Section 302.  Minimum funding standard; defined benefit plans

6

self-insured in whole or in part.

7

* * *

8

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

9

* * *

10

(2)  The normal cost and administrative expense

11

requirements for the following plan year shall be expressed

12

as a dollar amount and shall be determined by applying the

13

normal cost of the benefit plan and the administrative

14

expense payable from the assets attributable to the benefit

15

plan, as reported in the actuarial valuation report of the

16

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

17

payroll of the active membership of the pension plan as of

18

the date the financial requirements of the pension plan are

19

determined. In expressing the normal cost and administrative

20

expense requirements as a dollar amount, the municipality

21

shall exclude the compensation of all DROP participants from

22

the payroll of the active membership of the pension plan.

23

* * *

24

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

25

amended to read:

26

Section 402.  Revision of financing from State revenue sources;

27

General Municipal Pension System State Aid Program.

28

* * *

29

(e)  Allocation of general municipal pension system State

30

aid.--

1

* * *

2

(2)  The applicable number of units shall be attributable

3

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

4

for a minimum of six consecutive months prior to December 31

5

preceding the date of certification and who was participating

6

in a pension plan maintained by that municipality, provided

7

that the municipality maintains a generally applicable

8

pension plan for that type of employee which was either

9

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

10

established after December 31, 1984, has been maintained by

11

that municipality for at least three plan years. For the

12

purpose of computing and reporting the applicable number of

13

units, a DROP participant shall not be reported to the

14

Auditor General as an active employee. The applicable number

15

of units per employee attributable to each eligible recipient

16

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

17

officer. The applicable number of units attributable to each

18

eligible recipient city, borough, incorporated town and

19

township shall be as follows:

20

(i)  Police officer - two units.

21

(ii)  Firefighter - two units.

22

(iii)  Employee other than police officer or

23

firefighter - one unit.

24

* * *

25

Section 501.  Initiation of distress determination.

26

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

27

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

28

commission for a determination of its status pursuant to this

29

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

30

the required information as prescribed in rules and regulations

1

issued by the commission. Determinations pursuant to this

2

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

3

biennial actuarial valuation reports filed on behalf of each

4

municipal pension plan to determine the municipality's

5

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

6

Section 502.  Pension plans for inclusion in determination.

7

The determination provided for in this chapter shall be made

8

for a municipality taking into account all pension plans which

9

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

10

created after the last biennial actuarial valuation date. The

11

initial actuarial valuation report for any plan shall not be

12

recognized in the determination of a municipality's distress

13

level. If the municipality filed an actuarial valuation report

14

for any pension plan in the prior reporting period, that

15

valuation report shall control the determination of distress

16

without regard to the funding status of any newly established

17

plan. If no other plan was previously maintained by a

18

municipality, the newly established plan shall be assigned a

19

distress score of 0.

20

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

21

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

22

Section 503.  Determination procedure.

23

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

24

chapter shall be made by the commission using the actuarial

25

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

26

municipal finance indicators specified in subsection (c), and

27

the scoring system associated with each].

28

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

29

[indicators] indicator shall be based on the most current

30

actuarial valuation report or reports filed by the applicable

1

municipality with the commission pursuant to law and shall be

2

made in aggregate for all pension plans maintained by the

3

applicable municipality. [The actuarial indicators and the

4

associated scoring system for each shall be as follows:

5

(1)  The aggregate amount of current pension plan

6

benefits payable shall be computed as a percentage of the

7

current market value of aggregate plan assets:

22

(2)  The aggregate actuarial value of plan assets shall

23

be computed as a percentage of the aggregate accrued

24

actuarial liability:

9

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

10

percentage of covered payroll reduced by the aggregate amount

11

of any member contributions expressed as a percentage of

12

covered payroll is added to the aggregate amount of any

13

employer contributions to the Federal old age, survivors,

14

disability and health insurance program expressed as a

15

percentage of covered payroll:

29

(4)  The aggregate requirement to amortize the unfunded

30

accrued actuarial liability on a level annual dollar basis

1

according to the applicable amortization schedules specified

2

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

3

requirement:

18

(5)  The difference between the aggregate amount of

19

normal cost plus the requirement to amortize the unfunded

20

accrued actuarial liability on a level annual dollar basis

21

according to the applicable amortization schedules specified

22

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

23

member contributions, State allocations dedicated for pension

24

purposes and municipal contributions received for the

25

previous year is computed and expressed as a percentage of

26

covered payroll:

12

(6)  The compound annual percentage rate of increase in

13

the aggregate amount of the unfunded accrued actuarial

14

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

15

unless the amount of the unfunded accrued actuarial liability

16

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

17

first or fourth year:

30

(7)  The compound annual percentage rate of increase in

1

the aggregate amount of municipal contributions over the most

2

recent four-year period is computed:

10

The actuarial indicator shall be the ratio of the actuarial

11

value of assets to the actuarial accrued liability, expressed as

12

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

13

accordance with the following actuarial distress scoring system:

19

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

20

indicators shall be based on the most recent financial report or

21

reports filed by the applicable municipality with the Department

22

of Community Affairs and certified by the secretary or by the

23

designee of the secretary. Before certification for a

24

municipality that has issued bonds or notes to fund an unfunded

25

actuarial accrued liability under the act of July 12, 1972

26

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

27

or under the laws applicable to the municipality, the municipal

28

finance data extracted from the most recent financial report or

29

reports shall be adjusted as directed by the commission to hold

30

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

1

municipal debt issued to fund an unfunded actuarial accrued

2

liability and the debt service on that debt. The municipal

3

finance indicators and the associated scoring system for each

4

shall be as follows:

5

(1)  The total amount of taxes collected by the

6

municipality for the current year are divided by the

7

population of the municipality as of the last Federal census,

8

and the percentage increase in the amount of municipal taxes

9

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

24

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

25

property (adjusted mill rate) in the municipality for the

26

most recent year and the percentage increase in the amount of

27

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

13

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

14

municipal bonded debt plus the total municipal floating debt

15

less the total municipal credits against municipal debt is

16

divided by the population of the municipality as of the last

17

Federal census:

1

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

2

municipal bonded debt plus the total municipal floating debt

3

less the total municipal credits against municipal debt is

4

computed as a percentage of the assessed value of real

5

property in the municipality:

21

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

22

municipal bonded debt plus the total municipal floating debt

23

less the total municipal credits against municipal debt is

24

computed as a percentage of the market value of real property

25

in the municipality:

11

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

12

retired during the preceding 12 months plus the interest paid

13

during the preceding 12 months on all municipal debt is

14

computed as a percentage of the total taxes collected by the

15

municipality for the same period:

1

(7)  The market value of real property in the

2

municipality for the current year is divided by the

3

population of the municipality as of the last Federal census,

4

and the percentage increase in the amount of market value per

5

capita in the most recent year over the amount of market

6

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

22

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

23

expenditures (total municipal expenditures less any municipal

24

urban renewal expenditures and less any municipal enterprise

25

expenditures) divided by the population of the municipality

26

as of the last Federal census and the percentage increase in

27

the amount of adjusted total municipal expenditures per

28

capita in the most recent year over the amount of adjusted

29

total municipal expenditures per capita in the most recent

30

five-year period:

17

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

18

pension system financial distress shall be as follows:

19

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

20

any municipality which has a distress determination scoring

21

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

22

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

23

any municipality which has a distress determination scoring

24

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

25

or greater than two but with an unfunded actuarial accrued

<--

26

liability of less than $50,000.

27

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

28

municipality which has a distress determination scoring equal

29

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

<--

30

accrued liability of not less than $50,000.

1

Section 602.  Application.

2

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

3

recovery program shall be available to municipalities based on

4

the extent of financial distress of the municipal pension system

5

determined by the commission, as provided in this section.

6

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

7

remedies contained in level I of the recovery program as

8

specified in section 604 shall apply to any municipality which

9

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

10

distressed, as that status is defined based upon the actuarial

11

considerations [and municipal finance considerations] of the

12

determination procedure pursuant to section 503 [is not

13

determined to be distressed or is determined to be distressed

14

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

15

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

16

applicable].

17

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

18

remedies contained in level II of the recovery program as

19

specified in section 605 shall apply to any municipality which

20

is determined to be moderately distressed, as that status is

21

defined based on the actuarial considerations [and municipal

22

finance considerations] of the determination procedure in rules

23

and regulations issued by the commission pursuant to section

24

503[, which complies with any applicable preconditions for

25

participation in this level of the recovery program and which

26

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

27

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

28

remedies contained in level III of the recovery program as

29

specified in section 606 shall apply to any municipality which

30

is determined to be severely distressed, as that status is

1

defined based on the actuarial considerations [and municipal

2

finance considerations] of the determination procedure in rules

3

and regulations issued by the commission pursuant to section

4

503[, which complies with any applicable preconditions for

5

participation in this level of the recovery program and which

6

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

7

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

8

the extent of financial distress of a municipal pension system

9

determined by the commission subsequent to the initial

10

determination is lower than the minimum prescribed in section

11

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

12

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

13

the remedies elected and implemented while it was eligible to

14

participate in [a higher recovery program level, provided that

15

the municipality continues to comply with the preconditions for

16

participation in the higher recovery program level and to

17

utilize the mandatory remedies applicable to the higher recovery

18

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

19

the time of commencement and of implementation. Any change or

<--

20

amendment of recovery remedies in this act subsequent to

21

election and implementation shall be deemed to be cumulative and

22

not in lieu of previously adopted remedies.

23

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

24

Section 603.  [Election] Determination procedure.

25

The [election to utilize the various remedies contained in

26

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

27

governing body of the municipality. The election] determination 

28

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

29

commission for the determination of financial distress with

30

respect to the municipal pension system pursuant to section 501.

1

Upon notification of the determination of financial distress by

2

the commission, the municipality shall elect whether or not to

3

utilize the voluntary remedies of any level of the recovery

4

program which may be applicable to the municipality. [Any

5

election to utilize the remedies contained in a level of the

6

recovery program shall be made on forms prescribed by the

7

commission and shall include any information required by the

8

commission.]

9

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

10

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

11

Section 604.  Recovery program level I.

12

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

13

recovery program applies may utilize the following remedies:

14

(1)  The aggregation of trust funds pursuant to section

15

607(b).

16

(2)  The establishment of total member contribution

17

pursuant to section 607(c).

18

(3)  The deviation from municipal contribution

19

limitations pursuant to section 607(d).

20

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

21

initial distress determination scoring in 1985 which is equal to

22

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

23

the minimum municipal obligation for the year 1986 because the

24

payment of the minimum municipal obligation would result in the

25

municipality exceeding the maximum contribution limitation for

26

that municipality as set forth in the pertinent laws for that

27

class of municipality, may delay the implementation of the full

28

funding of the minimum municipal obligation until 1987. Any

29

municipality electing to delay full implementation of the

30

minimum municipal obligation shall make a municipal contribution

1

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

2

year delay of the full actuarial funding standard, the

3

municipality may utilize the following additional remedies:

4

(1)  The deviation from municipal contribution

5

limitations pursuant to section 607(d).

6

(2)  The special municipal taxing authority pursuant to

7

section 607(f).]

8

(c)  Reduction for Level I municipalities.--

9

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

10

minimum municipal obligation consisting of the normal cost

11

and administrative expenses of the pension plans plus:

12

(i)  75% of the amortization contribution

13

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

14

minus

15

(ii)  anticipated member contributions.

16

(2)  This reduction of payments to amortize the actuarial

17

accrued liability shall be authorized for a period of one

18

biennial actuarial valuation reporting period (total of two

19

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

20

section 302(c) shall apply to the minimum municipal

21

obligation calculation.

22

(d)  Asset valuation.--

23

(1)  Following the expiration of the period applicable to

24

asset valuation under section 210(c), for an additional

25

period of one biennial actuarial valuation reporting period

26

(allowing an additional two years for a total of four years),

27

a level I municipality may utilize a method for valuing

28

assets that may not produce a result that, in total, is:

29

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

30

the assets of the municipal pension plan; or

1

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

2

assets of the municipal pension plan.

3

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

4

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

5

assets.

6

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

7

read:

8

Section 605.  Recovery program level II.

9

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

10

of the recovery program applies shall utilize the following

11

remedies:

12

(1)  The aggregation of trust funds pursuant to section

13

607(b).

14

(2)  The submission of a plan for administrative

15

improvement pursuant to section 607(i).

16

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

17

II of the recovery program applies may utilize the following

18

remedies:

19

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

20

607(b).

21

(2)]  The establishment of total member contributions

22

pursuant to section 607(c).

23

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

24

limitations pursuant to section 607(d).

25

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

26

for newly hired municipal employees pursuant to section

27

607(e).

28

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

29

pursuant to section 607(f).

30

[(6)  The delayed implementation of funding standard over

1

ten years pursuant to section 607(g).

2

(7)  Supplemental State assistance pursuant to section

3

607(j).]

4

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

5

reduced minimum municipal obligation consisting of the

6

normal cost and administrative expenses of the pension 

7

plan plus:

8

(A)  75% of the amortization contribution

9

requirement, calculated according to section 202(b)

10

(4); minus

11

(B)  anticipated member contributions.

12

(ii)  This reduction of payments to amortize the

13

actuarial accrued liability shall be authorized for a

14

period of two consecutive actuarial valuation reporting

15

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

16

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

17

minimum municipal obligation calculation.

18

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

19

applicable to the asset valuation provisions of section

20

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

21

actuarial valuation reporting periods (allowing an

22

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

23

II municipality may utilize a method for valuing assets

24

that may not produce a result that in total is:

25

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

26

consecutive actuarial valuation reporting periods

27

(total of four years); or

28

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

29

the assets of the municipal pension plan.

30

(ii)  At the end of the additional period under

1

subparagraph (i), section 210 shall apply to the

2

actuarial valuation of assets.

3

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

<--

4

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

5

pension plan are:

6

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

7

liabilities prior to adoption; and

8

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

9

after adoption.

10

Section 606.  Recovery program level III.

11

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

<--

12

to which level III of the recovery program applies may utilize

13

the [following remedies:

<--

14

(1)  The establishment of total member contributions

15

pursuant to section 607(c).

16

(2)  The deviation from municipal contribution

17

limitations pursuant to section 607(d).

18

(3)  The] special municipal taxing authority pursuant to

<--

19

section 607(f).

20

[(4)  The delayed implementation of funding standard over

21