THE GENERAL ASSEMBLY OF PENNSYLVANIA

SENATE BILL

INTRODUCED BY WILLIAMS, COSTA, SCHWANK, ERICKSON, VOGEL, FONTANA AND SOLOBAY, JANUARY 26, 2012

REFERRED TO FINANCE, JANUARY 26, 2012  

AN ACT

Amending Title 24 (Education) of the Pennsylvania Consolidated

Statutes, further providing for actuarial cost method and for

administrative duties of board; providing for partial advance

funding of future supplemental annuities; further providing

for State accumulation account and for annuity reserve

account; and providing for supplemental annuity advance

funding account.

The General Assembly of the Commonwealth of Pennsylvania

hereby enacts as follows:

Section 1.  Section 8328(a) and (d) of Title 24 of the

Pennsylvania Consolidated Statutes are amended and the section

is amended by adding a subsection to read:

§ 8328.  Actuarial cost method.

(a)  Employer contribution rate.--The amount of the total

employer contributions shall be computed by the actuary as a

percentage of the total compensation of all active members

during the period for which the amount is determined and shall

be so certified by the board. The total employer contribution

rate shall be the sum of the final contribution rate as computed

in subsection (h) plus the premium assistance contribution rate

as computed in subsection (f). The actuarially required 

contribution rate shall consist of the normal contribution rate

as defined in subsection (b), the accrued liability contribution

rate as defined in subsection (c), [and] the supplemental

annuity contribution rate as defined in subsection (d) and the

supplemental annuity advance funding contribution rate as

defined in subsection (g.1). Beginning July 1, 2004, the

actuarially required contribution rate shall be modified by the

experience adjustment factors as calculated in subsection (e).

* * *

(d)  Supplemental annuity contribution rate.--

(1)  For the period of July 1, 2002, to June 30, 2011,

contributions from the Commonwealth and other employers

required to provide for the payment of the supplemental

annuities provided for in sections 8348, 8348.1, 8348.2,

8348.4 and 8348.5 shall be paid over a period of ten years

from July 1, 2002. The funding for the supplemental annuities

commencing 2002 provided for in section 8348.6 shall be as

provided in section 8348.6(f). The funding for the

supplemental annuities commencing 2003 provided for in

section 8348.7 shall be as provided in section 8348.7(f). The

amount of each annual supplemental annuities contribution

shall be equal to the amount of such contribution for the

fiscal year beginning July 1, 2002.

(2)  For fiscal years beginning July 1, 2011,

contributions from the Commonwealth and other employers whose

employees are members of the system required to provide for

the payment of supplemental annuities as provided in sections

8348, 8348.1, 8348.2, 8348.3, 8348.4, 8348.5, 8348.6 and

8348.7 shall be paid as part of the accrued liability

contribution rate as provided for in subsection (c)(4), and

there shall not be a separate supplemental annuity

contribution rate attributable to those supplemental

annuities. In the event that supplemental annuities are

increased by legislation enacted subsequent to June 30, 2010,

and before January 1, 2013, the additional liability for the

increase in benefits shall be funded as a level percentage of

compensation over a period of ten years from the July 1

second succeeding the date such legislation is enacted.

Notwithstanding this paragraph, in the event that

supplemental annuities are increased by legislation enacted

after December 31, 2012, the additional unfunded actuarial

accrued liability to be amortized shall be calculated under

section 8510(d) (relating to partial advance funding of

future supplemental annuities) and funded in annual level

dollar installments over a period of ten years from the first

July 1 occurring 360 or more days after the effective date of

the legislation.

* * *

(g.1)  Supplemental annuity advance funding contribution

rate.--For the fiscal year beginning July 1, 2013, the total

contribution rate as calculated annually according to this

section shall include as a separate component the rate certified

by the board as necessary to partially advance fund future

supplemental annuities in accordance with section 8510

notwithstanding any other provision of this section.

* * *

Section 2.  Section 8502(k) of Title 24 is amended to read:

§ 8502.  Administrative duties of board.

* * *

(k)  Certification of employer contributions.--The board

shall, each year in addition to the itemized budget required

under section 8330 (relating to appropriations by the

Commonwealth), certify to the employers and the Commonwealth the

employer contribution rate expressed as a percentage of members'

payroll necessary for the funding of prospective annuities for

active members and the annuities of annuitants, and certify the

rates and amounts of the normal contributions as determined

pursuant to section 8328(b) (relating to actuarial cost method),

accrued liability contributions as determined pursuant to

section 8328(c), supplemental annuities contribution rate as

determined pursuant to section 8328(d), the experience

adjustment factor as determined pursuant to section 8328(e), 

premium assistance contributions as determined pursuant to

section 8328(f), the costs added by legislation as determined

pursuant to section 8328(i), the actuarial required contribution

rate as determined pursuant to section 8328(i), the collared

contribution rate as determined pursuant to section 8328(g), the

final contribution rate as determined pursuant to section

8328(h), [and] the shared-risk contribution rate as determined

under section 8321(b) (relating to regular member contributions

for current service) and the supplemental annuity advance

funding contribution rate as determined pursuant to section

8328(g.1), which shall be paid to the fund and credited to the

appropriate accounts. These certifications shall be regarded as

final and not subject to modification by the Secretary of the

Budget.

* * *

Section 3.  Title 24 is amended by adding a section to read:

§ 8510.  Partial advance funding of future supplemental

annuities.

(a)  Establishment.--Beginning with fiscal year 2013-2014 the

annual certification of the employers' contribution rate by the

board pursuant to section 8502(k) (relating to administrative

duties of the board) shall include a specified supplemental

annuity advance funding contribution rate as a separate

component. The contributions resulting from the application of

the supplemental annuity advance funding contribution rate to

the total compensation of all active members during each

applicable period shall be credited to the supplemental annuity

advance funding account together with the actual investment

earnings thereon. The balance in the supplemental annuity

advance funding account shall be transferred to the annuity

reserve account on the first July 1 that occurs 360 or more days

after the effective date of each instance of future legislation

providing supplemental annuities and shall be applied to reduce

the unfunded actuarial accrued liability to be amortized as a

result of the enacted supplemental annuities.

(b)  Initial supplementary annuity advance funding

contribution rate.--For the fiscal year 2013-2014 and all fiscal

years thereafter until changed by the board as provided in

subsection (c), the supplemental annuity advance funding

contribution rate established in section 8328(g.1) (relating to

actuarial cost method) shall be 0.3%.

(c)  Subsequent supplemental annuity advance funding

contribution rate.--In making the annual valuation under section

8502(j) (relating to Public School Employees' Retirement Board)

as of the first July 1 that occurs 360 or more days after the

effective date of legislation increasing supplemental annuities

enacted after December 31, 2012, the actuary shall certify a new

supplemental annuity advance funding contribution rate

calculated as being sufficient to accumulate an amount equal to

25% of the actuarial accrued liability of the next projected

supplemental annuity over the subsequent five-year period using

the established interest and salary assumptions utilized for the

conduct of the annual actuarial valuation under section 8502(j).

The board shall certify the rate calculated by the actuary as

the supplemental annuity advance funding contribution rate

pursuant to subsection (a) and section 8502(k).

(d)  Calculation of unfunded actuarial accrued liability to

be  amortized.--The actuary shall calculate the unfunded

actuarial accrued liability for the increased supplemental

annuities under legislation enacted after December 31, 2012, to

be amortized under section 8328(g) (relating to actuarial cost

method), as the difference resulting from subtracting the

balance in the supplemental annuity advance funding account

transferable to the annuity reserve account under section

8526.1(c) (relating to supplemental annuity partial advance

funding account) from the actuarial accrued liability of the

supplemental annuities being implemented, with the account

balance and actuarial accrued liability both calculated as of

the first July 1 occurring 360 or more days after the effective

date of the legislation.

Section 4.  Sections 8524 and 8525(a) of Title 24 are amended

to read:

§ 8524.  State accumulation account.

The State accumulation account shall be the ledger account to

which shall be credited all contributions of the Commonwealth

and other employers as well as the earnings of the fund, except

the premium assistance contributions and earnings thereon in the

health insurance account and the supplemental annuity advance

funding contributions and earnings thereon in the supplemental

annuity advance funding account. Valuation interest shall be

allowed on the total amount of such account less any earnings of

the fund credited during the year. The reserves necessary for

the payment of annuities and death benefits as approved by the

board and as provided in Chapter 83 (relating to membership,

contributions and benefits) shall be transferred from the State

accumulation account to the annuity reserve account. At the end

of each year the required interest shall be transferred from the

State accumulation account to the credit of the members' savings

account and the annuity reserve account. The administrative

expenses of the board shall be charged to the State accumulation

account.

§ 8525.  Annuity reserve account.

(a)  Credits and charges to account.--The annuity reserve

account shall be the ledger account to which shall be credited

the reserves held for the payment of annuities and death

benefits on account of all annuitants and the contributions from

the Commonwealth and other employers as determined in accordance

with section 8328 (relating to actuarial cost method) for the

payment of the supplemental annuities provided in sections 8348

(relating to supplemental annuities), 8348.1 (relating to

additional supplemental annuities), 8348.2 (relating to further

additional supplemental annuities), 8348.3 (relating to

supplemental annuities commencing 1994), 8348.4 (relating to

special supplemental postretirement adjustment), 8348.5

(relating to supplemental annuities commencing 1998), 8348.6

(relating to supplemental annuities commencing 2002) and 8348.7

(relating to supplemental annuities commencing 2003). The

annuity reserve account shall be credited with valuation

interest. After the transfers provided in sections 8523

(relating to members' savings account), [and] 8524 (relating to

State accumulation account) and 8526.1(c) (relating to

supplemental annuity advance funding account), all annuity and

death benefit payments shall be charged to the annuity reserve

account and paid from the fund.

* * *

Section 5.  Title 24 is amended by adding a section to read:

§ 8526.1.  Supplemental annuity advance funding account.

(a)  Purpose.--The supplemental annuity advance funding

account shall be a ledger account to which shall be credited the

reserves held to offset actuarial accrued liabilities incurred

in the provision of future supplemental annuities.

(b)  Credits to account.--The supplemental annuity partial

advance funding account shall be credited with the contributions

from the Commonwealth and other employers as determined in

accordance with section 8510 (relating to advance funding of

future supplemental annuities) and contributed in accordance

with section 8328 (relating to actuarial cost method). The

actual investment earnings attributable to the balance of the

supplemental annuity advance funding account shall be credited

to the account.

(c)  Transfers from account.--In the event that supplemental

annuities are provided by legislation enacted after December 31,

2011, the balance in the supplemental annuity advance funding

account shall be transferred to the annuity reserve account on

the first July 1 occurring 360 or more days after the effective

date of the legislation.

Section 6.  The amendment or addition of 24 Pa.C.S. §§

8328(a), (d) and (g.1), 8502(k), 8510, 8524, 8525(a) and 8526.1

shall apply to fiscal years commencing July 1, 2013, and

thereafter.

Section 7.  This act shall take effect in 60 days or July 1,

2012, whichever is sooner.