HOUSE AMENDED
PRIOR PRINTER'S NOS. 283, 932 PRINTER'S NO. 1521
No. 284 Session of 1997
INTRODUCED BY MOWERY AND STOUT, JANUARY 29, 1997
AS RE-REPORTED FROM COMMITTEE ON APPROPRIATIONS, HOUSE OF
REPRESENTATIVES, AS AMENDED, DECEMBER 8, 1997
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," further providing for contents of actuarial <--
8 valuation ADDITIONS TO THE ACTUARIAL VALUATION REPORT and for <--
9 supplemental State assistance.
10 The General Assembly of the Commonwealth of Pennsylvania
11 hereby enacts as follows:
12 Section 1. Section 202(b)(4) SECTIONS 404(B) AND 607(J) of <--
13 the act of December 18, 1984 (P.L.1005, No.205), known as the
14 Municipal Pension Plan Funding Standard and Recovery Act,
15 amended February 14, 1986 (P.L.23, No.9), is DECEMBER 10, 1996 <--
16 (P.L.934, NO.150), ARE amended to read:
17 Section 202. Contents of actuarial valuation report. <--
18 * * *
19 (b) Contents of actuarial exhibits; defined benefit plans
20 self-insured in whole or in part.--For any pension plan which is
1 a defined benefit plan and which is self-insured in whole or in
2 part, all applicable actuarial exhibits shall be prepared in
3 accordance with the entry age normal actuarial cost method with
4 entry age established as the actual entry age for all plan
5 members unless the municipality applies for and is granted
6 authorization by the commission to use an alternative actuarial
7 cost method. Authorization shall be granted if the municipality
8 demonstrates on an individual pension plan basis that there are
9 compelling reasons of an actuarial nature for the use of an
10 alternative actuarial cost method. The commission shall issue
11 rules and regulations specifying the criteria which the
12 commission will use to determine the question of the existence
13 of compelling reasons for the use of an alternative actuarial
14 cost method, the documentation which a municipality seeking the
15 authorization will be required to supply and the acceptable
16 alternative actuarial cost methods which the commission may
17 authorize. The actuarial cost method shall be used to value all
18 aspects of the benefit plan or plans of the pension plan unless
19 the municipality applies for and is granted authorization by the
20 commission to use approximation techniques other than the
21 actuarial cost method for aspects of the benefit plan or plans
22 of the pension plan other than the retirement benefit.
23 Authorization shall be granted if the municipality demonstrates
24 on an individual pension plan basis that there are compelling
25 reasons of an actuarial nature for the use of these
26 approximation techniques. The commission shall issue rules and
27 regulations specifying the criteria which the commission will
28 use to determine the question of the existence of compelling
29 reasons for the use of approximation techniques, the
30 documentation which a municipality seeking the authorization
19970S0284B1521 - 2 -
1 will be required to supply and the acceptable approximation
2 technique which the commission may authorize. The actuarial
3 exhibits shall use actuarial assumptions which are, in the
4 judgment of the actuary and the governing body of the plan, the
5 best available estimate of future occurrences in the case of
6 each assumption. With respect to economic actuarial assumptions,
7 the assumptions shall either be within the range specified in
8 rules and regulations issued by the commission or documentation
9 explaining and justifying the choice of assumptions outside the
10 range shall accompany the report. The actuarial exhibits shall
11 measure all aspects of the benefit plan or plans of the pension
12 plan in accordance with modifications in the benefit plan or
13 plans, if any, and salaries which as of the valuation date are
14 known or can reasonably be expected to be in force during the
15 ensuing plan year. The actuarial valuation report shall contain
16 the following actuarial exhibits:
17 * * *
18 (4) An exhibit of any additional funding costs
19 associated with the amortization of any unfunded actuarial
20 accrued liability of the pension plan, indicating for each
21 increment of unfunded actuarial accrued liability specified
22 in paragraph (3), the level annual dollar contribution
23 required to pay an amount equal to the actuarial assumption
24 as to investment earnings applied to the principal amount of
25 the remaining balance of the increment of unfunded actuarial
26 accrued liability and to retire by the applicable
27 amortization target date specified in this paragraph the
28 principal amount of the remaining balance of the increment of
29 unfunded actuarial accrued liability. The amortization target
30 date applicable for each type of increment of unfunded
19970S0284B1521 - 3 -
1 actuarial accrued liability shall be as follows:
2 (i) (A) In the case of a pension plan established
3 on or prior to January 1, 1985 for the unfunded
4 actuarial accrued liability in existence as of the
5 beginning of the plan year occurring in calendar year
6 1985, at the end of the plan year occurring in
7 calendar year 2015; or
8 (B) In the case of a pension plan established
9 after January 1, 1985, for the unfunded actuarial
10 accrued liability then or subsequently determined to
11 be or to have been in existence as of the date of the
12 establishment of the plan, at the end of the plan
13 year occurring 30 years after the calendar year in
14 which the pension plan was established.
15 (ii) Increment or decrement of net unfunded
16 actuarial accrued liability attributable to a change in
17 actuarial assumptions, at the end of the plan year
18 occurring 20 years after the calendar year in which
19 actuarial assumption modification was effective.
20 (iii) Increment of net unfunded actuarial accrued
21 liability attributable to a modification in the benefit
22 plan applicable to active members, at the end of the plan
23 year occurring 20 years after the calendar year in which
24 the benefit plan modification was effective.
25 (iv) Increment of unfunded actuarial accrued
26 liability attributable to a modification in the benefit
27 plan applicable to retired members and other benefit
28 recipients, at the end of the plan year occurring 10
29 years after the calendar year in which the benefit plan
30 modification was effective.
19970S0284B1521 - 4 -
1 (v) Increment or decrement of net unfunded actuarial
2 accrued liability attributable to an actuarial experience
3 loss or gain, at the end of plan year occurring 15 years
4 after the calendar year in which the actuarial experience
5 loss or gain was recognized.
6 With respect to any applicable pension plan other than a plan
7 which comprises all or part of a moderately distressed or a
8 severely distressed municipal pension system, if the
9 remaining average period between the current average attained
10 age of active members as of the valuation date and the later
11 of their earliest average normal retirement age or their
12 average assumed retirement age is less than the applicable
13 period or periods ending with the amortization target date or
14 dates specified in subparagraph (i), (ii), (iii) or (v), the
15 appropriate amortization target date for the applicable
16 subparagraph determined with reference to the longest
17 applicable remaining average period rounded to the next
18 largest whole number shall be used. With respect to any plan
19 year beginning after the effective date of this amendatory
20 act, if the ratio of the actuarial value of assets to the
21 actuarial accrued liability exceeds 0.70, then the sum of the
22 additional funding cost for subparagraphs (i), (ii), (iii),
23 (iv) and (v) shall not exceed the amount required to amortize
24 the remaining unfunded actuarial accrued liability as of the
25 beginning of the plan year over ten years in level annual
26 dollar contributions. The exhibit shall indicate the total
27 dollar amount of additional funding costs associated with the
28 amortization of any unfunded actuarial accrued liability of
29 the pension plan applicable for that plan year and any
30 subsequent plan year occurring prior to the preparation of
19970S0284B1521 - 5 -
1 the next required actuarial valuation report, which shall be
2 the total of the additional funding costs associated with the
3 amortization of each increment of unfunded actuarial accrued
4 liability. The exhibit shall also indicate the plan year in
5 which any unfunded actuarial accrued liability of the pension
6 plan would be fully amortized if the total annual additional
7 funding cost calculated pursuant to this paragraph were met
8 continuously without increase or decrease in amount until the
9 total unfunded actuarial accrued liability currently existing
10 was fully amortized. In calculating the additional funding
11 costs associated with the amortization of any unfunded
12 actuarial accrued liability of the pension plan in any plan
13 year, any amortization contribution made in the interval
14 since the last actuarial valuation report shall be allocated
15 to each type of increment of unfunded actuarial accrued
16 liability in proportion to the remaining dollar amount of
17 each type.
18 * * *
19 Section 2. Section 607(j) of the act, amended December 10,
20 1996 (P.L.934, No.150), is amended to read:
21 SECTION 404. MUNICIPALITIES ISSUING BONDS OR NOTES FOR PENSION <--
22 PLAN FUNDING.
23 * * *
24 (B) ADDITIONS TO ACTUARIAL VALUATION REPORT.--[THE] FOR THE
25 DURATION OF THE AGGREGATED AMORTIZATION PERIOD ESTABLISHED UNDER
26 PARAGRAPH (1), THE ACTUARIAL VALUATION REPORT PREPARED UNDER
27 SECTIONS 201 AND 202 SHALL [INCLUDE], IN ADDITION TO THE
28 EXHIBITS REQUIRED BY SECTION 202, INCLUDE:
29 (1) AN EXHIBIT STATING THE AMOUNT AND DATE OF EACH
30 CONTRIBUTION TO THE PENSION PLAN COMPRISED OF THE PROCEEDS OF
19970S0284B1521 - 6 -
1 BONDS AND NOTES AND DISCLOSING THE INITIAL AND REMAINING
2 AGGREGATED AMORTIZATION PERIODS FOR EACH CONTRIBUTION
3 CALCULATED AS OF THE DATE OF THE INITIAL ACTUARIAL VALUATION
4 REPORT FILED AFTER THE CONTRIBUTION USING THE TOTAL UNFUNDED
5 ACTUARIAL ACCRUED LIABILITY OF THE PENSION PLAN AND THE
6 AGGREGATED ADDITIONAL FUNDING REQUIREMENTS, AS DETERMINED
7 UNDER PARAGRAPH (2);
8 (2) AN EXHIBIT PREPARED IN CONFORMANCE WITH SECTION
9 202(B)(3) AND (4), EXCEPT THAT THE ACTUARIAL VALUE OF ASSETS
10 [SUBTRACTED FROM THE ACTUARIAL ACCRUED LIABILITY SHALL NOT
11 TAKE INTO ACCOUNT CONTRIBUTIONS COMPRISED OF] SHALL BE
12 COMPUTED AS THE ACTUARIAL VALUE OF ASSETS THAT WOULD HAVE
13 EXISTED HAD THE PROCEEDS OF BONDS AND NOTES [AND EARNINGS ON
14 SUCH CONTRIBUTIONS FOR THE DURATION OF THE AGGREGATED
15 AMORTIZATION PERIOD ESTABLISHED UNDER PARAGRAPH (1)] NOT BEEN
16 CONTRIBUTED TO THE PENSION FUND; AND
17 (3) FOR EACH SERIES OF BONDS OR NOTES ISSUED TO FUND AN
18 UNFUNDED ACTUARIAL ACCRUED LIABILITY AND FOR EACH SERIES OF
19 BONDS OR NOTES ISSUED TO REFUND SUCH BONDS OR NOTES, AN
20 EXHIBIT OF THE DEBT AND DEBT SERVICE REQUIREMENTS THAT SHALL
21 DISCLOSE THE ORIGINAL PRINCIPAL AMOUNT OF THE BONDS OR NOTES
22 ISSUED, THE DATE AND AMOUNT OF EACH REQUIRED PRINCIPAL AND
23 INTEREST PAYMENT, THE AMORTIZATION OF PREMIUM OR DISCOUNT, IF
24 APPLICABLE, AND THE REMAINING AMOUNT OF BOND OR NOTE
25 PRINCIPAL UPON APPLICATION OF EACH PAYMENT.
26 * * *
27 Section 607. Remedies applicable to various recovery program
28 levels.
29 * * *
30 (j) Supplemental State assistance.--If every pension plan of
19970S0284B1521 - 7 -
1 the municipality which is a defined benefit plan and which is
2 self-insured in whole or in part has filed an actuarial
3 valuation report utilizing the standardized actuarial cost
4 method and economic actuarial assumptions within the range of
5 actuarial assumptions specified in section 202(b) and if the
6 municipality has implemented the aggregation of trust funds
7 pursuant to subsection (b), the municipality may receive
8 supplemental State assistance from the Supplemental State
9 Assistance Fund established pursuant to section 608. The amount
10 of the supplemental State assistance to which the municipality
11 is entitled shall be determined annually based on the
12 determination scoring which the municipality received from the
13 commission pursuant to section 503, as follows:
14 (1) The determination score of the municipality shall be
15 reduced by an amount equal to 25% of the maximum possible
16 determination score.
17 (2) The result calculated pursuant to paragraph (1)
18 shall be expressed as a percentage of the maximum possible
19 determination score.
20 (2.1) For the supplemental State assistance distributed
21 in December of 1997, the percentage calculated pursuant to
22 paragraph (2) shall be applied to the dollar amount of
23 difference between the greater of the amount of the municipal
24 contribution or the amount of the actual municipal deposit to
25 all municipal pension plans in aggregate and the full minimum
26 municipal obligation with respect to the pension plans
27 pursuant to section 302 or 303, whichever is applicable, to
28 determine the amount of supplemental State assistance for the
29 municipality.
30 (3) [The] For the supplemental State assistance
19970S0284B1521 - 8 -
1 distributed in December of 1998 and thereafter, the
2 percentage calculated pursuant to paragraph (2) shall be
3 applied to the dollar amount of difference between the amount
4 of the municipal contribution to all municipal pension plans
5 in aggregate and the full minimum municipal obligation with
6 respect to the pension plan pursuant to section 302 or 303,
7 whichever is applicable, to determine the amount of
8 supplemental State assistance for the municipality. For the
9 purposes of this paragraph, the municipal contribution of a
10 municipality that has issued bonds or notes to fund an
11 unfunded actuarial accrued liability under the act of July
12 12, 1972 (P.L.781, No.185), known as the Local Government
13 Unit Debt Act, or under other laws applicable to the
14 municipality, shall include debt service on the bonds or
15 notes, or both, issued to fund an unfunded actuarial accrued
16 liability.
17 In the event that the total amount of supplemental State
18 assistance determined as payable to all municipalities entitled
19 to receive supplemental State assistance exceeds the maximum
20 appropriation provided for in section 608(b), the amount of
21 supplemental State assistance which shall be payable to each
22 municipality shall be proportionately reduced. The supplemental
23 State assistance shall be distributed annually on the first
24 business day occurring in December. For the purposes of this
25 subsection, the term "municipal contribution" shall mean the sum
26 of the current year's minimum municipal obligation, the annual
27 interest payable on any current or prior period funding
28 deficiencies and the total amount of any discretionary deposits
29 to the pension fund in the current year.
30 * * *
19970S0284B1521 - 9 -
1 Section 3. The amendment of section 202(b)(4) of the act <--
2 SECTION 2. THE AMENDMENT OF SECTION 404(B) OF THE ACT shall <--
3 apply to actuarial exhibits of additional funding costs
4 associated with the amortization of any unfunded actuarial
5 accrued liability prepared for plan years beginning after the
6 effective date of this act.
7 Section 4 3. This act shall take effect immediately. <--
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