PRIOR PRINTER'S NO. 2704
PRINTER'S NO. 2896
THE GENERAL ASSEMBLY OF PENNSYLVANIA
HOUSE BILL
No.
1962
Session of
2019
INTRODUCED BY KEEFER, TOBASH, EVERETT, B. MILLER, SCHMITT, RYAN,
OWLETT, GREINER, MILLARD, ZIMMERMAN, MOUL, BERNSTINE, GLEIM,
BROOKS, SCHEMEL, RADER, THOMAS, JONES, TOOHIL, FRITZ AND
GILLEN, OCTOBER 18, 2019
AS AMENDED ON SECOND CONSIDERATION, HOUSE OF REPRESENTATIVES,
NOVEMBER 18, 2019
AN ACT
Amending Titles 24 (Education) and 71 (State Government) of the
Pennsylvania Consolidated Statutes, in administration and
miscellaneous provisions relating to retirement for school
employees, providing for stress test of system; and, in
administration, funds, accounts and general provisions
relating to retirement for State employees and officers,
providing for stress test of system.
The General Assembly of the Commonwealth of Pennsylvania
hereby enacts as follows:
Section 1. Title 24 of the Pennsylvania Consolidated
Statutes is amended by adding a section to read:
§ 8510. Stress test of system.
(a) General rule.--The actuary shall conduct an annual
stress test of the system and the board shall submit the results
of the stress test to the Governor, the General Assembly and the
Independent Fiscal Office no later than January 1 of each year.
The stress test shall include a scenario analysis, simulation
analysis and sensitivity analysis.
(b) Report by Independent Fiscal Office.--No later than
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March 1 of each year, the Independent Fiscal Office shall
produce a report summarizing the results of the stress test,
including a calculation of the ratio of projected employer
pension contributions to projected State revenues under a
scenario analysis.
(c) Definitions.--As used in this section, the following
words and phrases shall have the meanings given to them in this
subsection unless the context clearly indicates otherwise:
"Scenario analysis." Projections of assets, liabilities,
unfunded actuarial accrued liabilities, the change in unfunded
actuarial accrued liabilities, employer contributions, benefit
payments, service costs, payroll and calculations of the ratios
of assets to liabilities, employer contributions to payroll and
operating cash flow to assets for each of the next:
(1) Twenty years, based upon then-current plan
assumptions and statutory funding methodology established
under sections 8326 (relating to contributions by the
Commonwealth), 8327 (relating to payments by employers) and
8328 (relating to actuarial cost method).
(2) Twenty years, assuming that investment returns are
two percentage points lower than the assumed rate of return
and that employer contributions:
(i) are based upon the then-current statutory
funding methodology established under sections 8326, 8327
and 8328; or
(ii) change each year at the projected rate of
annual State revenue growth as determined and provided by
the Independent Fiscal Office.
(3) Ten years, assuming that there is a one-time loss on
plan investments of 20% followed by a subsequent nine-year
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period of investment returns at the assumed rate of return
and that employer contributions:
(i) are based upon the then-current statutory
funding methodology established under sections 8326, 8327
and 8328; or
(ii) change each year at the projected rate of
annual State revenue growth as determined and provided by
the Independent Fiscal Office.
"Sensitivity analysis." The following:
(1) Estimates of the total normal cost and employer
normal cost for new employees, calculated using an investment
return assumption that is:
(i) equal to the annual assumed rate of return;
(ii) one percentage point above the annual assumed
rate of return;
(iii) one percentage point below the annual assumed
rate of return; and
(iv) two percentage points below the annual assumed
rate of return.
(2) Estimates of the unfunded actuarial accrued
liability and unfunded liability, calculated using an annual
assumed rate of return that is:
(i) equal to the annual assumed rate of return;
(ii) one percentage point above the annual assumed
rate of return;
(iii) one percentage point below the annual assumed
rate of return; and
(iv) equal to the 10-year average of the yield of
30-year treasury notes.
"Simulation analysis." Projections of the range of required
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employer contributions for each of the next 20 years, based on
analysis that simulates the volatility of annual investment
returns above and below the assumed rate of return, applying
methodology determined by the actuary.
Section 2. Title 71 is amended by adding a section to read:
§ 5909. Stress test of system.
(a) General rule.--The actuary shall conduct an annual
stress test of the system and the board shall submit the results
of the stress test to the Governor, the General Assembly and the
Independent Fiscal Office no later than July 1 of each year. The
stress test shall include a scenario analysis, simulation
analysis and sensitivity analysis.
(b) Report by Independent Fiscal Office.--No later than
September 1 of each year, the Independent Fiscal Office shall
produce a report summarizing the results of the stress test,
including a calculation of the ratio of projected employer
pension contributions to projected State revenues under a
scenario analysis.
(c) Definitions.--As used in this section, the following
words and phrases shall have the meanings given to them in this
subsection unless the context clearly indicates otherwise:
"Scenario analysis." Projections of assets, liabilities,
unfunded actuarial accrued liabilities, the change in unfunded
actuarial accrued liabilities, employer contributions, benefit
payments, service costs, payroll and calculations of the ratios
of assets to liabilities, employer contributions to payroll and
operating cash flow to assets for each of the next:
(1) Twenty years, based upon then-current plan
assumptions and statutory funding methodology established
under sections 5707 (relating to death benefits) and 5708
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(relating to supplemental annuities). 5507 (RELATING TO
CONTRIBUTIONS TO THE SYSTEM BY THE COMMONWEALTH AND OTHER
EMPLOYERS) AND 5508 (RELATING TO ACTUARIAL COST METHOD).
(2) Twenty years, assuming that investment returns are
two percentage points lower than the annual assumed rate of
return and that employer contributions:
(i) are based upon the then-current statutory
funding methodology established under sections 5707 and
5708 5507 AND 5508 ; or
(ii) change each year at the projected rate of
annual State revenue growth as determined and provided by
the Independent Fiscal Office.
(3) Ten years, assuming that there is a one-time loss on
plan investments of 20% followed by a subsequent nine-year
period of investment returns at the assumed rate of return
and that employer contributions:
(i) are based upon the then-current statutory
funding methodology established under sections 5707 and
5708 5507 AND 5508 ; or
(ii) change each year at the projected rate of
annual State revenue growth as determined and provided by
the Independent Fiscal Office.
"Sensitivity analysis." The following:
(1) Estimates of the total normal cost and employer
normal cost for new employees, calculated using an investment
return assumption that is:
(i) equal to the annual assumed rate of return;
(ii) one percentage point above the annual assumed
rate of return;
(iii) one percentage point below the annual assumed
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rate of return; and
(iv) two percentage points below the annual assumed
rate of return.
(2) Estimates of the unfunded actuarial accrued
liability and unfunded liability, calculated using an annual
assumed rate of return that is:
(i) equal to the annual assumed rate of return;
(ii) one percentage point above the annual assumed
rate of return;
(iii) one percentage point below the annual assumed
rate of return; and
(iv) equal to the 10-year average of the yield of
30-year treasury notes.
"Simulation analysis." Projections of the range of required
employer contributions for each of the next 20 years, based on
analysis that simulates the volatility of annual investment
returns above and below the assumed rate of return, applying
methodology determined by the actuary.
Section 3. This act shall apply as follows:
(1) The addition of 24 Pa.C.S. § 8510 shall apply to
fiscal years beginning after June 30, 2020.
(2) The addition of 71 Pa.C.S. § 5909 shall apply to
calendar years beginning after December 31, 2019.
Section 4. This act shall take effect in 60 days.
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