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

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

entitled "An act mandating actuarial funding standards for

all municipal pension systems; establishing a recovery

program for municipal pension systems determined to be

financially distressed; providing for the distribution of the

tax on the premiums of foreign fire insurance companies; and

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

preliminary provisions, further providing for definitions; in

preliminary provisions, providing for methodology; in

municipal pension plan actuarial reporting, further providing

for contents of actuarial valuation report and providing for

actuarial asset valuation and for revised actuarial valuation

report; in minimum funding standard for municipal pension

plans, further providing for minimum funding standard and

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

revisions applicable to municipal pension fund financing,

further providing for revision of financing from State

revenue sources and General Municipal Pension System State

Aid Program; in financially distressed municipal pension plan

determination procedure, further providing for initiation of

distress determination, for pension plans to be included in

determination and for determination procedure; in financially

<--

distressed municipal pension system recovery program, further

providing for application, for election determination

procedure, for recovery program level I, for recovery program

level II, for recovery program level III, for remedies

applicable to various recovery program levels, for

supplemental State assistance program and fund and for

municipal employee retirement program; in financially

distressed municipal pension system recovery program,

establishing programs for municipal pension recovery and

municipal employee retirement; in financially distressed

municipal pension system recovery program, further providing

for rules and regulations; providing for standards for

municipal pension systems for second class cities and for

level III administration in cities of the second class; in

alternative funding mechanism, providing special provisions

relating to certain cities and counties; in financially

<--

distressed municipal pension system recovery program, further

providing for application, for election determination

procedures, for recovery program level I, for recovery

program level II, for recovery program level III, for

remedies, for supplemental State Assistance Program and Fund

and for regulations; providing for standards for municipal

pension systems; in alternative funding mechanisms, making an

editorial change, further providing for alternative funding

mechanism and providing for cities of the first class and for

special taxing authority; providing for deferred retirement

option plans; and making a related repeal.

The General Assembly of the Commonwealth of Pennsylvania

hereby enacts as follows:

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

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

Standard and Recovery Act, is amended to read:

AN ACT

Mandating actuarial funding standards for all municipal pension

systems; establishing a recovery program for municipal

pension systems determined to be financially distressed;

providing for the distribution of the tax on the premiums of

foreign fire insurance companies; providing for the

establishment and administration of deferred retirement

option plans in local governments and for local tax; and

making repeals.

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

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

definitions to read:

Section 102.  Definitions.

Except as provided in Chapter 7, the following words and

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

them in this section unless the context clearly indicates

otherwise:

* * *

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

<--

conducted to identify the effectiveness of the plan that

includes an analysis of all of the following:

(1)  The cost of each benefit.

(2)  The administrative cost of the benefit plan per

employee.

(3)  The sufficiency of employee contributions.

(4)  A comparison of each benefit and proposed benefit

and its cost in other jurisdictions, including other

municipalities and states of comparable size to this

Commonwealth.

(5)  The benefit plan's asset valuation.

(6)  Assumed and realized investment earnings during the

preceding five years.

(7)  Annual cash flow and losses.

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

revenue sources.

(9)  Other existing assets and revenues available to meet

pension obligations.

(10)  the municipality's minimum municipal obligation

payment history.

* * *

"DROP."  A deferred retirement option plan created and

operated by a local government or the Pennsylvania Municipal

Retirement System under Chapter 11 or any deferred retirement

option plan or similar program established by a local government

that provides for the commencement and accumulation of

retirement benefit payments for active employees with

disbursement of the accumulated payments and interest earnings

as a lump sum upon termination of employment.

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

defined benefit pension plan who is eligible to participate in a

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

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

"DROP participant account."  A pension trust fund ledger

account established under section 1121(a).

* * *

"Local government."  A municipality or any county.

* * *

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

contractor] who provides regular services for a municipality in

return for compensation from the municipality. The term does not

include an independent contractor or a DROP participant.

* * *

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

Section 103.  Methodology.

In Notwithstanding any provisions of the act of August 31,

<--

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

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

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

requiring municipal pension systems to have an actuarial

investigation of the fund made by an actuary who shall report

his findings to the Department of Community Affairs,"

municipalities and counties may utilize any reasonable actuarial

assumptions or methodologies provided for in this act.

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

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

to read:

Section 202.  Contents of actuarial valuation report.

* * *

(b)  Contents of actuarial exhibits; defined benefit plans

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

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

part, all applicable actuarial exhibits shall be prepared in

accordance with the entry age normal actuarial cost method with

entry age established as the actual entry age for all plan

members unless the municipality applies for and is granted

authorization by the commission to use an alternative actuarial

cost method. Authorization shall be granted if the municipality

demonstrates on an individual pension plan basis that there are

compelling reasons of an actuarial nature for the use of an

alternative actuarial cost method. The commission shall issue

rules and regulations specifying the criteria which the

commission will use to determine the question of the existence

of compelling reasons for the use of an alternative actuarial

cost method, the documentation which a municipality seeking the

authorization will be required to supply and the acceptable

alternative actuarial cost methods which the commission may

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

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

the municipality applies for and is granted authorization by the

commission to use approximation techniques other than the

actuarial cost method for aspects of the benefit plan or plans

of the pension plan other than the retirement benefit.

Authorization shall be granted if the municipality demonstrates

on an individual pension plan basis that there are compelling

reasons of an actuarial nature for the use of these

approximation techniques. The commission shall issue rules and

regulations specifying the criteria which the commission will

use to determine the question of the existence of compelling

reasons for the use of approximation techniques, the

documentation which a municipality seeking the authorization

will be required to supply and the acceptable approximation

technique which the commission may authorize. The actuarial

exhibits shall use actuarial assumptions which are, in the

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

best available estimate of future occurrences in the case of

each assumption. With respect to economic actuarial assumptions,

the assumptions shall either be within the range specified in

rules and regulations issued by the commission or documentation

explaining and justifying the choice of assumptions outside the

range shall accompany the report. The actuarial exhibits shall

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

plan in accordance with modifications in the benefit plan or

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

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

ensuing plan year. In preparing the actuarial exhibits or any

actuarial valuation report, the municipality shall exclude the

compensation of all DROP participants from the active member

payroll and all DROP participants from active member data. The

actuarial valuation report shall contain the following actuarial

exhibits:

* * *

(4)  An exhibit of any additional funding costs

associated with the amortization of any unfunded actuarial

accrued liability of the pension plan, indicating for each

increment of unfunded actuarial accrued liability specified

in paragraph (3), the level annual dollar contribution

required to pay an amount equal to the actuarial assumption

as to investment earnings applied to the principal amount of

the remaining balance of the increment of unfunded actuarial

accrued liability and to retire by the applicable

amortization target date specified in this paragraph the

principal amount of the remaining balance of the increment of

unfunded actuarial accrued liability. The amortization target

date applicable for each type of increment of unfunded

actuarial accrued liability shall be as follows:

(i)  The following apply:

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

or prior to January 1, 1985 for the unfunded

actuarial accrued liability in existence as of the

beginning of the plan year occurring in calendar year

1985, at the end of the plan year occurring in

calendar year 2015; or

(B)  In the case of a pension plan established

after January 1, 1985, for the unfunded actuarial

accrued liability then or subsequently determined to

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

establishment of the plan, at the end of the plan

year occurring 30 years after the calendar year in

which the pension plan was established.

(ii)  The following apply:

(A)  Increment or decrement of net unfunded

actuarial accrued liability attributable to a change

in actuarial assumptions, at the end of the plan year

occurring 20 years after the calendar year in which

actuarial assumption modification was effective.

(B)  Increment or decrement of net unfunded

actuarial accrued liability attributable to a change

in actuarial assumptions made on or after the

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

year occurring 15 years after the calendar year in

which the actuarial assumption modification was

effective.

(iii)  The following apply:

(A)  Increment of net unfunded actuarial accrued

liability attributable to a modification in the

benefit plan applicable to active members, at the end

of the plan year occurring 20 years after the

calendar year in which the benefit plan modification

was effective.

(B)  From and after the effective date of this

clause, the increment of net unfunded actuarial

accrued liability attributable to a modification in

the benefit plan mandated by new legislation, at the

end of the plan year occurring 20 years after the

calendar year in which the benefit plan modification

was effective.

(iv)  The following apply:

(A)  Increment of unfunded actuarial accrued

liability attributable to a modification in the

benefit plan applicable to retired members and other

benefit recipients, at the end of the plan year

occurring 10 years after the calendar year in which

the benefit plan modification was effective.

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

increment of unfunded actuarial accrued liability

attributable to a modification in the benefit plan

for active members adopted on or after the effective

date of this clause and not mandated by new

legislation, at the end of the plan year occurring

ten years after the calendar year in which the

benefit plan modification was effective.

(C)  An increment of unfunded actuarial accrued

liability attributable to a modification in the

benefit plan applicable to retired members and other

benefit recipients not mandated by new legislation,

at the end of the plan year following the year in

which the modification was effective.

(v)  The following apply:

(A)  Increment or decrement of net unfunded

actuarial accrued liability attributable to an

actuarial experience loss or gain, at the end of plan

year occurring [15] 20 years after the calendar year

in which the actuarial experience loss or gain was

recognized.

(B)  Notwithstanding any other provision of this

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

year occurring in calendar year 2003, the outstanding

balance of the increment of unfunded actuarial

accrued liability attributable to the net actuarial

investment losses incurred in calendar years 2001 and

2002 may, at the sole discretion of the municipality,

be amortized with the amortization target date being

the end of the plan year occurring 30 years after

January 1, 2003. In order for a municipality to

extend the applicable amortization period pursuant to

this clause, the municipality must file a revised

actuarial valuation report reflecting the

amortization period extension provided for under this

clause with the executive director of the commission

no later than September 30, 2004. Any such revised

actuarial valuation report may not be filed in lieu

of the actuarial valuation report prepared in

compliance with clause (A) and required to be filed

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

the purposes of recalculating the 2004 minimum

municipal obligation of the municipality and

calculating the 2005 minimum municipal obligation of

the municipality to reflect the amortization period

extension. Any such revised actuarial valuation

report shall not affect distributions under the

General Municipal Pension System State Aid Program

under Chapter 4.

* * *

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

Section 210.  Actuarial asset valuation.

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

each of its pension plans to equal the greater of:

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

biennial actuarial valuation report accepted by the

commission:

(i)  increased by contributions and other deposits

except investment income;

(ii)  decreased by benefit payments and

administrative expenses or other payments; and

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

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

valuation; or

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

(b)  Methodology.--

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

value of cash, investment securities and other property

belonging to the municipal pension plan according to a method

for valuing assets adopted by the governing body of the

municipal pension plan upon the recommendation of the

actuary.

(2)  The method for valuing assets shall be adequately

disclosed in the accompanying documentation or exhibits and,

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

produce a result that in total is:

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

the assets of the municipal pension plan; or

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

assets of the municipal pension plan.

(c)  Temporary valuation.--

(1)  For the two-year actuarial valuation reporting

period beginning in 2009, a municipality may utilize a method

for valuing assets which does not produce a result that in

total is:

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

the assets of the municipal pension plan; or

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

assets of the municipal pension plan.

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

valuation reporting period, subsection (b) applies.

Section 211.  Revised actuarial valuation report.

Upon enactment of legislation which would alter the actuarial

valuation of a pension plan, a revised actuarial valuation

report shall be filed with the commission as the commission

directs.

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

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

Section 302.  Minimum funding standard; defined benefit plans

self-insured in whole or in part.

* * *

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

* * *

(2)  The normal cost and administrative expense

requirements for the following plan year shall be expressed

as a dollar amount and shall be determined by applying the

normal cost of the benefit plan and the administrative

expense payable from the assets attributable to the benefit

plan, as reported in the actuarial valuation report of the

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

payroll of the active membership of the pension plan as of

the date the financial requirements of the pension plan are

determined. In expressing the normal cost and administrative

expense requirements as a dollar amount, the municipality

shall exclude the compensation of all DROP participants from

the payroll of the active membership of the pension plan.

* * *

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

amended to read:

Section 402.  Revision of financing from State revenue sources;

General Municipal Pension System State Aid Program.

* * *

(e)  Allocation of general municipal pension system State

aid.--

* * *

(2)  The applicable number of units shall be attributable

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

for a minimum of six consecutive months prior to December 31

preceding the date of certification and who was participating

in a pension plan maintained by that municipality, provided

that the municipality maintains a generally applicable

pension plan for that type of employee which was either

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

established after December 31, 1984, has been maintained by

that municipality for at least three plan years. For the

purpose of computing and reporting the applicable number of

units, a DROP participant shall not be reported to the

Auditor General as an active employee. The applicable number

of units per employee attributable to each eligible recipient

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

officer. The applicable number of units attributable to each

eligible recipient city, borough, incorporated town and

township shall be as follows:

(i)  Police officer - two units.

(ii)  Firefighter - two units.

(iii)  Employee other than police officer or

firefighter - one unit.

* * *

Section 501.  Initiation of distress determination.

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

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

commission for a determination of its status pursuant to this

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

the required information as prescribed in rules and regulations

issued by the commission. Determinations pursuant to this

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

biennial actuarial valuation reports filed on behalf of each

municipal pension plan to determine the municipality's

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

Section 502.  Pension plans for inclusion in determination.

The determination provided for in this chapter shall be made

for a municipality taking into account all pension plans which

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

created after the last biennial actuarial valuation date. The

initial actuarial valuation report for any plan shall not be

recognized in the determination of a municipality's distress

level. If the municipality filed an actuarial valuation report

for any pension plan in the prior reporting period, that

valuation report shall control the determination of distress

without regard to the funding status of any newly established

plan. If no other plan was previously maintained by a

municipality, the newly established plan shall be assigned a

distress score of 0.

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

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

Section 503.  Determination procedure.

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

chapter shall be made by the commission using the actuarial

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

municipal finance indicators specified in subsection (c), and

the scoring system associated with each].

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

[indicators] indicator shall be based on the most current

actuarial valuation report or reports filed by the applicable

municipality with the commission pursuant to law and shall be

made in aggregate for all pension plans maintained by the

applicable municipality. [The actuarial indicators and the

associated scoring system for each shall be as follows:

(1)  The aggregate amount of current pension plan

benefits payable shall be computed as a percentage of the

current market value of aggregate plan assets:

(2)  The aggregate actuarial value of plan assets shall

be computed as a percentage of the aggregate accrued

actuarial liability:

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

percentage of covered payroll reduced by the aggregate amount

of any member contributions expressed as a percentage of

covered payroll is added to the aggregate amount of any

employer contributions to the Federal old age, survivors,

disability and health insurance program expressed as a

percentage of covered payroll:

(4)  The aggregate requirement to amortize the unfunded

accrued actuarial liability on a level annual dollar basis

according to the applicable amortization schedules specified

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

requirement:

(5)  The difference between the aggregate amount of

normal cost plus the requirement to amortize the unfunded

accrued actuarial liability on a level annual dollar basis

according to the applicable amortization schedules specified

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

member contributions, State allocations dedicated for pension

purposes and municipal contributions received for the

previous year is computed and expressed as a percentage of

covered payroll:

(6)  The compound annual percentage rate of increase in

the aggregate amount of the unfunded accrued actuarial

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

unless the amount of the unfunded accrued actuarial liability

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

first or fourth year:

(7)  The compound annual percentage rate of increase in

the aggregate amount of municipal contributions over the most

recent four-year period is computed:

The actuarial indicator shall be the ratio of the actuarial

value of assets to the actuarial accrued liability, expressed as

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

accordance with the following actuarial distress scoring system:

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

indicators shall be based on the most recent financial report or

reports filed by the applicable municipality with the Department

of Community Affairs and certified by the secretary or by the

designee of the secretary. Before certification for a

municipality that has issued bonds or notes to fund an unfunded

actuarial accrued liability under the act of July 12, 1972

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

or under the laws applicable to the municipality, the municipal

finance data extracted from the most recent financial report or

reports shall be adjusted as directed by the commission to hold

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

municipal debt issued to fund an unfunded actuarial accrued

liability and the debt service on that debt. The municipal

finance indicators and the associated scoring system for each

shall be as follows:

(1)  The total amount of taxes collected by the

municipality for the current year are divided by the

population of the municipality as of the last Federal census,

and the percentage increase in the amount of municipal taxes

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

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

property (adjusted mill rate) in the municipality for the

most recent year and the percentage increase in the amount of

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

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

municipal bonded debt plus the total municipal floating debt

less the total municipal credits against municipal debt is

divided by the population of the municipality as of the last

Federal census:

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

municipal bonded debt plus the total municipal floating debt

less the total municipal credits against municipal debt is

computed as a percentage of the assessed value of real

property in the municipality:

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

municipal bonded debt plus the total municipal floating debt

less the total municipal credits against municipal debt is

computed as a percentage of the market value of real property

in the municipality:

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

retired during the preceding 12 months plus the interest paid

during the preceding 12 months on all municipal debt is

computed as a percentage of the total taxes collected by the

municipality for the same period:

(7)  The market value of real property in the

municipality for the current year is divided by the

population of the municipality as of the last Federal census,

and the percentage increase in the amount of market value per

capita in the most recent year over the amount of market

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

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

expenditures (total municipal expenditures less any municipal

urban renewal expenditures and less any municipal enterprise

expenditures) divided by the population of the municipality

as of the last Federal census and the percentage increase in

the amount of adjusted total municipal expenditures per

capita in the most recent year over the amount of adjusted

total municipal expenditures per capita in the most recent

five-year period:

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

pension system financial distress shall be as follows:

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

any municipality which has a distress determination scoring

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

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

any municipality which has a distress determination scoring

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

or greater than two but with an unfunded actuarial accrued

<--

liability of less than $50,000.

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

municipality which has a distress determination scoring equal

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

<--

accrued liability of not less than $50,000.

Section 602.  Application.

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

recovery program shall be available to municipalities based on

the extent of financial distress of the municipal pension system

determined by the commission, as provided in this section.

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

remedies contained in level I of the recovery program as

specified in section 604 shall apply to any municipality which

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

distressed, as that status is defined based upon the actuarial

considerations [and municipal finance considerations] of the

determination procedure pursuant to section 503 [is not

determined to be distressed or is determined to be distressed

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

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

applicable].

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

remedies contained in level II of the recovery program as

specified in section 605 shall apply to any municipality which

is determined to be moderately distressed, as that status is

defined based on the actuarial considerations [and municipal

finance considerations] of the determination procedure in rules

and regulations issued by the commission pursuant to section

503[, which complies with any applicable preconditions for

participation in this level of the recovery program and which

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

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

remedies contained in level III of the recovery program as

specified in section 606 shall apply to any municipality which

is determined to be severely distressed, as that status is

defined based on the actuarial considerations [and municipal

finance considerations] of the determination procedure in rules

and regulations issued by the commission pursuant to section

503[, which complies with any applicable preconditions for

participation in this level of the recovery program and which

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

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

the extent of financial distress of a municipal pension system

determined by the commission subsequent to the initial

determination is lower than the minimum prescribed in section

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

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

the remedies elected and implemented while it was eligible to

participate in [a higher recovery program level, provided that

the municipality continues to comply with the preconditions for

participation in the higher recovery program level and to

utilize the mandatory remedies applicable to the higher recovery

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

the time of commencement and of implementation. Any change or

<--

amendment of recovery remedies in this act subsequent to

election and implementation shall be deemed to be cumulative and

not in lieu of previously adopted remedies.

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

Section 603.  [Election] Determination procedure.

The [election to utilize the various remedies contained in

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

governing body of the municipality. The election] determination 

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

commission for the determination of financial distress with

respect to the municipal pension system pursuant to section 501.

Upon notification of the determination of financial distress by

the commission, the municipality shall elect whether or not to

utilize the voluntary remedies of any level of the recovery

program which may be applicable to the municipality. [Any

election to utilize the remedies contained in a level of the

recovery program shall be made on forms prescribed by the

commission and shall include any information required by the

commission.]

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

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

Section 604.  Recovery program level I.

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

recovery program applies may utilize the following remedies:

(1)  The aggregation of trust funds pursuant to section

607(b).

(2)  The establishment of total member contribution

pursuant to section 607(c).

(3)  The deviation from municipal contribution

limitations pursuant to section 607(d).

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

initial distress determination scoring in 1985 which is equal to

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

the minimum municipal obligation for the year 1986 because the

payment of the minimum municipal obligation would result in the

municipality exceeding the maximum contribution limitation for

that municipality as set forth in the pertinent laws for that

class of municipality, may delay the implementation of the full

funding of the minimum municipal obligation until 1987. Any

municipality electing to delay full implementation of the

minimum municipal obligation shall make a municipal contribution

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

year delay of the full actuarial funding standard, the

municipality may utilize the following additional remedies:

(1)  The deviation from municipal contribution

limitations pursuant to section 607(d).

(2)  The special municipal taxing authority pursuant to

section 607(f).]

(c)  Reduction for Level I municipalities.--

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

minimum municipal obligation consisting of the normal cost

and administrative expenses of the pension plans plus:

(i)  75% of the amortization contribution

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

minus

(ii)  anticipated member contributions.

(2)  This reduction of payments to amortize the actuarial

accrued liability shall be authorized for a period of one

biennial actuarial valuation reporting period (total of two

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

section 302(c) shall apply to the minimum municipal

obligation calculation.

(d)  Asset valuation.--

(1)  Following the expiration of the period applicable to

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

period of one biennial actuarial valuation reporting period

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

a level I municipality may utilize a method for valuing

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

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

the assets of the municipal pension plan; or

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

assets of the municipal pension plan.

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

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

assets.

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

read:

Section 605.  Recovery program level II.

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

of the recovery program applies shall utilize the following

remedies:

(1)  The aggregation of trust funds pursuant to section

607(b).

(2)  The submission of a plan for administrative

improvement pursuant to section 607(i).

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

II of the recovery program applies may utilize the following

remedies:

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

607(b).

(2)]  The establishment of total member contributions

pursuant to section 607(c).

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

limitations pursuant to section 607(d).

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

for newly hired municipal employees pursuant to section

607(e).

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

pursuant to section 607(f).

[(6)  The delayed implementation of funding standard over

ten years pursuant to section 607(g).

(7)  Supplemental State assistance pursuant to section

607(j).]

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

reduced minimum municipal obligation consisting of the

normal cost and administrative expenses of the pension 

plan plus:

(A)  75% of the amortization contribution

requirement, calculated according to section 202(b)

(4); minus

(B)  anticipated member contributions.

(ii)  This reduction of payments to amortize the

actuarial accrued liability shall be authorized for a

period of two consecutive actuarial valuation reporting

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

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

minimum municipal obligation calculation.

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

applicable to the asset valuation provisions of section

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

actuarial valuation reporting periods (allowing an

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

II municipality may utilize a method for valuing assets

that may not produce a result that in total is:

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

consecutive actuarial valuation reporting periods

(total of four years); or

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

the assets of the municipal pension plan.

(ii)  At the end of the additional period under

subparagraph (i), section 210 shall apply to the

actuarial valuation of assets.

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

<--

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

pension plan are:

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

liabilities prior to adoption; and

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

after adoption.

Section 606.  Recovery program level III.

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

<--

to which level III of the recovery program applies may utilize

the [following remedies:

<--

(1)  The establishment of total member contributions

pursuant to section 607(c).

(2)  The deviation from municipal contribution

limitations pursuant to section 607(d).

(3)  The] special municipal taxing authority pursuant to

<--

section 607(f).

[(4)  The delayed implementation of funding standard over

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

implementation of funding standard over 15 years with 40-year