PRIOR PRINTER'S NOS. 283, 932, 1521 PRINTER'S NO. 1987
No. 284 Session of 1997
INTRODUCED BY MOWERY AND STOUT, JANUARY 29, 1997
SENATE AMENDMENTS TO HOUSE AMENDMENTS, MAY 4, 1998
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 additions to the
8 actuarial valuation report and, for supplemental State <--
9 assistance AND FOR A HOME RULE MUNICIPALITY FORMERLY <--
10 CLASSIFIED AS A CITY OF THE SECOND CLASS; AUTHORIZING THE
11 REESTABLISHMENT OF INITIAL UNFUNDED ACTUARIAL ACCRUED
12 LIABILITY; SPECIFYING A NEW 40-YEAR AMORTIZATION PERIOD; AND
13 PRESCRIBING THE CALCULATION OF THE AMORTIZATION CONTRIBUTION
14 FOR THE PENSION FUNDS.
15 The General Assembly of the Commonwealth of Pennsylvania
16 hereby enacts as follows:
17 Section 1. Sections 404(b) and 607(j) of the act of December
18 18, 1984 (P.L.1005, No.205), known as the Municipal Pension Plan
19 Funding Standard and Recovery Act, amended December 10, 1996
20 (P.L.934, No.150), are amended to read:
21 Section 404. Municipalities issuing bonds or notes for pension
22 plan funding.
23 * * *
1 (b) Additions to actuarial valuation report.--[The] For the
2 duration of the aggregated amortization period established under
3 paragraph (1), the actuarial valuation report prepared under
4 sections 201 and 202 shall [include], in addition to the
5 exhibits required by section 202, include:
6 (1) an exhibit stating the amount and date of each
7 contribution to the pension plan comprised of the proceeds of
8 bonds and notes and disclosing the initial and remaining
9 aggregated amortization periods for each contribution
10 calculated as of the date of the initial actuarial valuation
11 report filed after the contribution using the total unfunded
12 actuarial accrued liability of the pension plan and the
13 aggregated additional funding requirements, as determined
14 under paragraph (2);
15 (2) an exhibit prepared in conformance with section
16 202(b)(3) and (4), except that the actuarial value of assets
17 [subtracted from the actuarial accrued liability shall not
18 take into account contributions comprised of] shall be
19 computed as the actuarial value of assets that would have
20 existed had the proceeds of bonds and notes [and earnings on
21 such contributions for the duration of the aggregated
22 amortization period established under paragraph (1)] not been
23 contributed to the pension fund; and
24 (3) for each series of bonds or notes issued to fund an
25 unfunded actuarial accrued liability and for each series of
26 bonds or notes issued to refund such bonds or notes, an
27 exhibit of the debt and debt service requirements that shall
28 disclose the original principal amount of the bonds or notes
29 issued, the date and amount of each required principal and
30 interest payment, the amortization of premium or discount, if
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1 applicable, and the remaining amount of bond or note
2 principal upon application of each payment.
3 * * *
4 Section 607. Remedies applicable to various recovery program
5 levels.
6 * * *
7 (j) Supplemental State assistance.--If every pension plan of
8 the municipality which is a defined benefit plan and which is
9 self-insured in whole or in part has filed an actuarial
10 valuation report utilizing the standardized actuarial cost
11 method and economic actuarial assumptions within the range of
12 actuarial assumptions specified in section 202(b) and if the
13 municipality has implemented the aggregation of trust funds
14 pursuant to subsection (b), the municipality may receive
15 supplemental State assistance from the Supplemental State
16 Assistance Fund established pursuant to section 608. The amount
17 of the supplemental State assistance to which the municipality
18 is entitled shall be determined annually based on the
19 determination scoring which the municipality received from the
20 commission pursuant to section 503, as follows:
21 (1) The determination score of the municipality shall be
22 reduced by an amount equal to 25% of the maximum possible
23 determination score.
24 (2) The result calculated pursuant to paragraph (1)
25 shall be expressed as a percentage of the maximum possible
26 determination score.
27 (2.1) For the supplemental State assistance distributed
28 in December of 1997, the percentage calculated pursuant to
29 paragraph (2) shall be applied to the dollar amount of
30 difference between the greater of the amount of the municipal
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1 contribution or the amount of the actual municipal deposit to
2 all municipal pension plans in aggregate and the full minimum
3 municipal obligation with respect to the pension plans
4 pursuant to section 302 or 303, whichever is applicable, to
5 determine the amount of supplemental State assistance for the
6 municipality.
7 (3) [The] For the supplemental State assistance
8 distributed in December of 1998 and thereafter, the
9 percentage calculated pursuant to paragraph (2) shall be
10 applied to the dollar amount of difference between the amount
11 of the municipal contribution to all municipal pension plans
12 in aggregate and the full minimum municipal obligation with
13 respect to the pension plan pursuant to section 302 or 303,
14 whichever is applicable, to determine the amount of
15 supplemental State assistance for the municipality. For the
16 purposes of this paragraph, the municipal contribution of a
17 municipality that has issued bonds or notes to fund an
18 unfunded actuarial accrued liability under the act of July
19 12, 1972 (P.L.781, No.185), known as the Local Government
20 Unit Debt Act, or under other laws applicable to the
21 municipality, shall include debt service on the bonds or
22 notes, or both, issued to fund an unfunded actuarial accrued
23 liability.
24 In the event that the total amount of supplemental State
25 assistance determined as payable to all municipalities entitled
26 to receive supplemental State assistance exceeds the maximum
27 appropriation provided for in section 608(b), the amount of
28 supplemental State assistance which shall be payable to each
29 municipality shall be proportionately reduced. The supplemental
30 State assistance shall be distributed annually on the first
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1 business day occurring in December. For the purposes of this
2 subsection, the term "municipal contribution" shall mean the sum
3 of the current year's minimum municipal obligation, the annual
4 interest payable on any current or prior period funding
5 deficiencies and the total amount of any discretionary deposits
6 to the pension fund in the current year.
7 * * *
8 SECTION 2. THE ACT IS AMENDED BY ADDING A CHAPTER TO READ: <--
9 CHAPTER 9
10 MODIFICATION OF ACTUARIAL FUNDING STANDARD
11 SECTION 901. MODIFICATION OF ACTUARIAL FUNDING STANDARD.
12 (A) MODIFICATION OF ACTUARIAL FUNDING STANDARD.--THE
13 ACTUARIAL REPORTING AND FUNDING REQUIREMENTS ESTABLISHED UNDER
14 CHAPTERS 2, 3 AND 6 ARE MODIFIED BY THIS SECTION FOR A
15 MUNICIPALITY. THE AMORTIZATION CONTRIBUTION ESTABLISHED FOR EACH
16 PENSION FUND UNDER THIS SECTION SHALL BE AN INTEGRAL COMPONENT
17 OF THE AGGREGATE AMORTIZATION CONTRIBUTION REQUIREMENTS
18 DETERMINED UNDER SECTION 302(B)(3). A MUNICIPALITY DETERMINING
19 AMORTIZATION CONTRIBUTIONS UNDER THIS SECTION SHALL CONTINUE TO
20 DETERMINE THE TOTAL FINANCIAL REQUIREMENTS OF ITS PENSION FUNDS
21 UNDER SECTION 302. IF A MUNICIPALITY IS DELINQUENT IN SATISFYING
22 THE TOTAL FINANCIAL REQUIREMENTS OF ITS PENSION FUNDS, IT SHALL
23 BE SUBJECT TO THE PENALTY AND ENFORCEMENT PROVISIONS SPECIFIED
24 IN SECTIONS 302(E), 306 AND 307.
25 (B) CALCULATION OF UNFUNDED ACTUARIAL ACCRUED LIABILITY.--A
26 MUNICIPALITY SHALL DETERMINE THE UNFUNDED ACTUARIAL ACCRUED
27 LIABILITY FOR EACH OF ITS PENSION FUNDS AS OF JANUARY 1, 1998.
28 THE CALCULATION OF THE UNFUNDED ACTUARIAL ACCRUED LIABILITY
29 SHALL BE MADE AND CERTIFIED BY AN APPROVED ACTUARY UNDER SECTION
30 202(B)(3) USING THE ACTUARIAL ASSUMPTIONS EMPLOYED IN
19970S0284B1987 - 5 -
1 PREPARATION OF THE JANUARY 1, 1997, ACTUARIAL VALUATION REPORT
2 REQUIRED UNDER SECTION 201 EXCEPT THAT THE ACTUARIAL VALUE OF
3 ASSETS CALCULATED UNDER SECTION 202(E)(1) SHALL REFLECT AS
4 ASSETS THE VALUE OF ALL DEPOSITS TO THE PENSION FUND MADE WITHIN
5 THE PLAN YEAR COMMENCING JANUARY 1, 1998, THAT WERE COMPRISED OF
6 THE PROCEEDS FROM PENSION BONDS.
7 (C) REQUIRED AMORTIZATION CONTRIBUTIONS.--COMMENCING IN THE
8 PLAN YEAR BEGINNING JANUARY 1, 1998, A MUNICIPALITY SHALL MAKE
9 ANNUAL LEVEL DOLLAR AMORTIZATION CONTRIBUTIONS TO EACH OF ITS
10 PENSION FUNDS THAT ARE SUFFICIENT TO FULLY AMORTIZE THE UNFUNDED
11 ACTUARIAL ACCRUED LIABILITIES OVER THE FOLLOWING 40 YEARS. THE
12 ANNUAL LEVEL DOLLAR AMORTIZATION CONTRIBUTION FOR EACH PENSION
13 FUND SHALL BE CALCULATED BY AN APPROVED ACTUARY ASSUMING 10%
14 INVESTMENT EARNINGS ON THE AMORTIZATION CONTRIBUTIONS THROUGHOUT
15 THE 40-YEAR PERIOD. THE LEVEL DOLLAR AMORTIZATION CONTRIBUTION
16 FOR A PENSION FUND IS SUBJECT TO THE LIMIT ON THE ADDITIONAL
17 FUNDING COSTS IN SECTION 202(B)(4).
18 (D) DETERMINATION AND AMORTIZATION OF ACTUARIAL GAIN OR
19 LOSS.--
20 (1) FOR EACH PENSION FUND SUBJECT TO THE PROVISIONS OF
21 THIS SECTION, THE MUNICIPALITY SHALL ESTABLISH AND MAINTAIN A
22 COMPARATIVE INTEREST RATE AMORTIZATION TABULATION FOR THE
23 DURATION OF THE 40-YEAR AMORTIZATION PERIOD. THE TABULATION
24 SHALL REFLECT THE CALCULATION OF A BALANCE AS OF THE END OF
25 EACH PLAN YEAR THAT SHALL BE CALCULATED AS THE SUM OF THE
26 PREVIOUS YEAR'S BALANCE AND THE AMORTIZATION CONTRIBUTION
27 DETERMINED UNDER THIS SECTION PLUS INTEREST ON THAT SUM TO
28 THE END OF THE PLAN YEAR ASSUMING A 10% RATE OF RETURN. THE
29 TABULATION SHALL ALSO REFLECT AN ANNUAL INTEREST ADJUSTMENT
30 FOR EACH YEAR CALCULATED AS THE AMOUNT OF THE INTEREST
19970S0284B1987 - 6 -
1 CREDITED IN THE DETERMINATION OF THE BALANCE LESS THE AMOUNT
2 OF THE INTEREST THAT WOULD HAVE BEEN CREDITED IF THE BALANCE
3 HAD BEEN CALCULATED USING THE ACTUAL RATE OF RETURN FOR THE
4 APPLICABLE PLAN YEAR RATHER THAN THE ASSUMED 10% RATE OF
5 RETURN. THE ACTUAL RATE OF RETURN USED TO CALCULATE THE
6 ANNUAL INTEREST ADJUSTMENT SHALL BE THE RATE OF RETURN
7 REALIZED ON THE MARKET VALUE OF THE PENSION FUND'S ASSETS
8 DURING THE APPLICABLE PLAN YEAR.
9 (2) IN EACH ACTUARIAL VALUATION REPORT PREPARED UNDER
10 CHAPTER 2 THAT REFLECTS AN AMORTIZATION CONTRIBUTION
11 DETERMINED UNDER THIS SECTION, THE ANNUAL INTEREST ADJUSTMENT
12 CALCULATED UNDER THIS SUBSECTION SHALL BE TREATED AS AN
13 ACTUARIAL GAIN OR LOSS AND AMORTIZED UNDER SECTION 202(B)(4).
14 (E) EFFECT OF FUTURE PENSION BONDS.--IF AN UNFUNDED
15 ACTUARIAL ACCRUED LIABILITY BEING FUNDED WITH AMORTIZATION
16 CONTRIBUTIONS DETERMINED UNDER THIS SECTION IS REDUCED THROUGH
17 THE DEPOSIT OF PENSION BONDS PROCEEDS, THE REMAINING BALANCE OF
18 THE UNFUNDED ACTUARIAL ACCRUED LIABILITY CALCULATED UNDER THIS
19 SECTION SHALL BE REDUCED PROPORTIONATELY AS SPECIFIED IN SECTION
20 202(B)(4) AND AN APPROVED ACTUARY SHALL RECALCULATE THE ANNUAL
21 LEVEL DOLLAR AMORTIZATION CONTRIBUTION REQUIRED TO FULLY
22 AMORTIZE THE REMAINING BALANCE OF THE UNFUNDED ACTUARIAL ACCRUED
23 LIABILITY OVER THE REMAINING YEARS OF THE AMORTIZATION PERIOD
24 ASSUMING A 10% RATE OF RETURN ON THE AMORTIZATION CONTRIBUTIONS.
25 THE RECALCULATED UNFUNDED ACTUARIAL ACCRUED LIABILITY AND THE
26 RECALCULATED AMORTIZATION CONTRIBUTION SHALL BE REFLECTED IN THE
27 ACTUARIAL VALUATION REPORT AND THE COMPARATIVE INTEREST RATE
28 AMORTIZATION TABULATION PREPARED AS OF THE BEGINNING OF THE PLAN
29 YEAR FOLLOWING THE DEPOSIT OF THE PENSION BOND PROCEEDS.
30 (F) DEFINITIONS.--AS USED IN THIS SECTION, THE FOLLOWING
19970S0284B1987 - 7 -
1 WORDS AND PHRASES SHALL HAVE THE MEANINGS GIVEN TO THEM IN THIS
2 SUBSECTION:
3 "AMORTIZATION CONTRIBUTION." THAT PORTION OF THE PENSION
4 PLAN CONTRIBUTION WHICH IS DESIGNED TO PAY INTEREST ON AND TO
5 AMORTIZE THE UNFUNDED ACTUARIAL ACCRUED LIABILITY.
6 "MUNICIPALITY." A HOME RULE MUNICIPALITY FORMERLY CLASSIFIED
7 AS A CITY OF THE SECOND CLASS THAT ISSUES PENSION BONDS AND
8 DEPOSITS THE PROCEEDS IN A PENSION FUND WITHIN THE PLAN YEAR
9 COMMENCING JANUARY 1, 1998, AND INCREASES THE RATIO OF THE
10 ACTUARIAL VALUE OF ASSETS TO THE ACTUARIAL ACCRUED LIABILITY OF
11 ITS PENSION FUNDS BY MORE THAN 0.25.
12 "PENSION BONDS." BONDS OR NOTES ISSUED BY A MUNICIPALITY
13 UNDER 53 PA.C.S. PT. VII SUBPT. B (RELATING TO INDEBTEDNESS AND
14 BORROWING), KNOWN AS THE LOCAL GOVERNMENT UNIT DEBT ACT TO
15 FINANCE REDUCTION OF THE UNFUNDED ACTUARIAL ACCRUED LIABILITY OF
16 ONE OR MORE PENSION FUNDS.
17 Section 2 3. The amendment of section 404(b) of the act <--
18 shall apply to actuarial exhibits of additional funding costs
19 associated with the amortization of any unfunded actuarial
20 accrued liability prepared for plan years beginning after the
21 effective date of this act.
22 SECTION 4. THE ADDITION OF SECTION 901 OF THE ACT SHALL <--
23 APPLY TO PLAN YEARS COMMENCING JANUARY 1, 1998, AND THEREAFTER.
24 Section 3 5. This act shall take effect immediately. <--
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