PRIOR PRINTER'S NO. 25 PRINTER'S NO. 2287
No. 21 Session of 1997
INTRODUCED BY NICKOL, JANUARY 27, 1997
AS REPORTED FROM COMMITTEE ON LOCAL GOVERNMENT, HOUSE OF REPRESENTATIVES, AS AMENDED, SEPTEMBER 30, 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 report. 9 The General Assembly of the Commonwealth of Pennsylvania 10 hereby enacts as follows: 11 Section 1. Section 202(b)(4) of the act of December 18, 1984 12 (P.L.1005, No.205), known as the Municipal Pension Plan Funding 13 Standard and Recovery Act, amended February 14, 1986 (P.L.23, 14 No.9), is amended to read: 15 Section 202. Contents of actuarial valuation report. 16 * * * 17 (b) Contents of actuarial exhibits; defined benefit plans 18 self-insured in whole or in part.--For any pension plan which is 19 a defined benefit plan and which is self-insured in whole or in 20 part, all applicable actuarial exhibits shall be prepared in
1 accordance with the entry age normal actuarial cost method with 2 entry age established as the actual entry age for all plan 3 members unless the municipality applies for and is granted 4 authorization by the commission to use an alternative actuarial 5 cost method. Authorization shall be granted if the municipality 6 demonstrates on an individual pension plan basis that there are 7 compelling reasons of an actuarial nature for the use of an 8 alternative actuarial cost method. The commission shall issue 9 rules and regulations specifying the criteria which the 10 commission will use to determine the question of the existence 11 of compelling reasons for the use of an alternative actuarial 12 cost method, the documentation which a municipality seeking the 13 authorization will be required to supply and the acceptable 14 alternative actuarial cost methods which the commission may 15 authorize. The actuarial cost method shall be used to value all 16 aspects of the benefit plan or plans of the pension plan unless 17 the municipality applies for and is granted authorization by the 18 commission to use approximation techniques other than the 19 actuarial cost method for aspects of the benefit plan or plans 20 of the pension plan other than the retirement benefit. 21 Authorization shall be granted if the municipality demonstrates 22 on an individual pension plan basis that there are compelling 23 reasons of an actuarial nature for the use of these 24 approximation techniques. The commission shall issue rules and 25 regulations specifying the criteria which the commission will 26 use to determine the question of the existence of compelling 27 reasons for the use of approximation techniques, the 28 documentation which a municipality seeking the authorization 29 will be required to supply and the acceptable approximation 30 technique which the commission may authorize. The actuarial 19970H0021B2287 - 2 -
1 exhibits shall use actuarial assumptions which are, in the 2 judgment of the actuary and the governing body of the plan, the 3 best available estimate of future occurrences in the case of 4 each assumption. With respect to economic actuarial assumptions, 5 the assumptions shall either be within the range specified in 6 rules and regulations issued by the commission or documentation 7 explaining and justifying the choice of assumptions outside the 8 range shall accompany the report. The actuarial exhibits shall 9 measure all aspects of the benefit plan or plans of the pension 10 plan in accordance with modifications in the benefit plan or 11 plans, if any, and salaries which as of the valuation date are 12 known or can reasonably be expected to be in force during the 13 ensuing plan year. The actuarial valuation report shall contain 14 the following actuarial exhibits: 15 * * * 16 (4) An exhibit of any additional funding costs 17 associated with the amortization of any unfunded actuarial 18 accrued liability of the pension plan, indicating for each 19 increment of unfunded actuarial accrued liability specified 20 in paragraph (3), the level annual dollar contribution 21 required to pay an amount equal to the actuarial assumption 22 as to investment earnings applied to the principal amount of 23 the remaining balance of the increment of unfunded actuarial 24 accrued liability and to retire by the applicable 25 amortization target date specified in this paragraph the 26 principal amount of the remaining balance of the increment of 27 unfunded actuarial accrued liability. The amortization target 28 date applicable for each type of increment of unfunded 29 actuarial accrued liability shall be as follows: 30 (i) (A) In the case of a pension plan established 19970H0021B2287 - 3 -
1 on or prior to January 1, 1985 for the unfunded 2 actuarial accrued liability in existence as of the 3 beginning of the plan year occurring in calendar year 4 1985, at the end of the plan year occurring in 5 calendar year 2015; or 6 (B) In the case of a pension plan established 7 after January 1, 1985, for the unfunded actuarial 8 accrued liability then or subsequently determined to 9 be or to have been in existence as of the date of the 10 establishment of the plan, at the end of the plan 11 year occurring 30 years after the calendar year in 12 which the pension plan was established. 13 (ii) Increment or decrement of net unfunded 14 actuarial accrued liability attributable to a change in 15 actuarial assumptions, at the end of the plan year 16 occurring 20 years after the calendar year in which 17 actuarial assumption modification was effective. 18 (iii) Increment of net unfunded actuarial accrued 19 liability attributable to a modification in the benefit 20 plan applicable to active members, at the end of the plan 21 year occurring 20 years after the calendar year in which 22 the benefit plan modification was effective. 23 (iv) Increment of unfunded actuarial accrued 24 liability attributable to a modification in the benefit 25 plan applicable to retired members and other benefit 26 recipients, at the end of the plan year occurring 10 27 years after the calendar year in which the benefit plan 28 modification was effective. 29 (v) Increment or decrement of net unfunded actuarial 30 accrued liability attributable to an actuarial experience 19970H0021B2287 - 4 -
1 loss or gain, at the end of plan year occurring 15 years 2 after the calendar year in which the actuarial experience 3 loss or gain was recognized. 4 With respect to any plan year beginning after December 31, 5 1996, if the ratio of the actuarial value of assets to the 6 actuarial accrued liability exceeds 0.70, then for all <-- 7 following years, the sum of the additional funding cost for 8 subparagraphs (i), (ii), (iii), (iv) and (v) above shall not 9 exceed the amount required to amortize the remaining unfunded 10 actuarial accrued liability as of the beginning of the plan 11 year over ten years in level annual dollar contributions. 12 With respect to any applicable pension plan other than a plan 13 which comprises all or part of a moderately distressed or a 14 severely distressed municipal pension system, if the 15 remaining average period between the current average attained 16 age of active members as of the valuation date and the later 17 of their earliest average normal retirement age or their 18 average assumed retirement age is less than the applicable 19 period or periods ending with the amortization target date or 20 dates specified in subparagraph (i), (ii), (iii) or (v), the 21 appropriate amortization target date for the applicable 22 subparagraph determined with reference to the longest 23 applicable remaining average period rounded to the next 24 largest whole number shall be used. The exhibit shall 25 indicate the total dollar amount of additional funding costs 26 associated with the amortization of any unfunded actuarial 27 accrued liability of the pension plan applicable for that 28 plan year and any subsequent plan year occurring prior to the 29 preparation of the next required actuarial valuation report, 30 which shall be the total of the additional funding costs 19970H0021B2287 - 5 -
1 associated with the amortization of each increment of 2 unfunded actuarial accrued liability. The exhibit shall also 3 indicate the plan year in which any unfunded actuarial 4 accrued liability of the pension plan would be fully 5 amortized if the total annual additional funding cost 6 calculated pursuant to this paragraph were met continuously 7 without increase or decrease in amount until the total 8 unfunded actuarial accrued liability currently existing was 9 fully amortized. In calculating the additional funding costs 10 associated with the amortization of any unfunded actuarial 11 accrued liability of the pension plan in any plan year, any 12 amortization contribution made in the interval since the last 13 actuarial valuation report shall be allocated to each type of 14 increment of unfunded actuarial accrued liability in 15 proportion to the remaining dollar amount of each type. 16 * * * 17 Section 2. This act shall take effect immediately. L11L72PJP/19970H0021B2287 - 6 -