PRIOR PRINTER'S NO. 436 PRINTER'S NO. 1033
No. 28 Session of 2001
INTRODUCED BY LEWIS, NICKOL, ALLEN, ARMSTRONG, BELFANTI, CALTAGIRONE, CAPPELLI, CLARK, L. I. COHEN, CRUZ, DALLY, FAIRCHILD, FICHTER, FLICK, GEIST, GEORGE, HARHART, HASAY, HENNESSEY, LAUGHLIN, MANDERINO, MARSICO, McILHATTAN, McNAUGHTON, MICHLOVIC, ORIE, ROSS, SAYLOR, SCHRODER, SEMMEL, STEELMAN, STERN, T. STEVENSON, SURRA, E. Z. TAYLOR, J. TAYLOR, TULLI, VANCE, WOJNAROSKI, YOUNGBLOOD, WILT, HORSEY, WATERS, CIVERA, WASHINGTON AND HERMAN, JANUARY 31, 2001
AS AMENDED ON THIRD CONSIDERATION, HOUSE OF REPRESENTATIVES, MARCH 12, 2001
AN ACT 1 Amending Titles 24 (Education) and 71 (State Government) of the 2 Pennsylvania Consolidated Statutes, further providing for 3 partial advance funding of future supplemental annuities, FOR <-- 4 TERMINATION OF ANNUITIES and amortization payments for 5 liabilities arising out of future supplemental annuities. 6 The General Assembly of the Commonwealth of Pennsylvania 7 hereby enacts as follows: 8 Section 1. Section 8328(a) and (d) of Title 24 of the 9 Pennsylvania Consolidated Statutes are amended and the section 10 is amended by adding a subsection to read: 11 § 8328. Actuarial cost method. 12 (a) Employer contribution rate on behalf of active 13 members.--The amount of the total employer contributions on 14 behalf of all active members shall be computed by the actuary as 15 a percentage of the total compensation of all active members
1 during the period for which the amount is determined and shall 2 be so certified by the board. The total contribution rate on 3 behalf of all active members shall consist of the normal 4 contribution rate as defined in subsection (b) [and], the 5 accrued liability contribution rate as defined in subsection (c) 6 and the supplemental annuity advance funding contribution rate 7 as defined in subsection (g). The total contribution rate shall 8 be modified by the experience adjustment factors as calculated 9 in subsection (e) but in no case shall it be less than zero. 10 * * * 11 (d) Supplemental annuity contribution rate.--Contributions 12 from the Commonwealth and other employers required to provide 13 for the payment of the supplemental annuities provided for in 14 sections 8348, 8348.1 and 8348.2 shall be paid over a period of 15 20 years from July 1, 1991. The amount of each annual 16 supplemental annuities contribution shall be 5% greater than the 17 amount of such contribution for the previous fiscal year. In the 18 event that supplemental annuities are increased by legislation 19 enacted subsequent to July 1, 1991, and before January 1, 2001, 20 the additional liability for the increased benefits shall be 21 funded in annual installments increasing by 5% each year over a 22 period of 20 years from the July 1, coincident with or next 23 following the effective date of such legislation. 24 Notwithstanding the preceding, the funding for the supplemental 25 annuities commencing 1994 provided for in section 8348.3 shall 26 be as provided in section 8348.3(f)[.] and the funding for the 27 supplemental annuities commencing 1998 provided for in section 28 8348.5 (relating to supplemental annuities commencing 1998) 29 shall be as provided in section 8348.5(f). Notwithstanding the 30 preceding, in the event that supplemental annuities are 20010H0028B1033 - 2 -
1 increased by legislation enacted after December 31, 2000, the 2 additional unfunded actuarial accrued liability to be amortized 3 shall be calculated under section 8510(d) (relating to partial 4 advance funding of future supplemental annuities) and funded in 5 annual level dollar installments over a period of ten years from 6 the first July 1 occurring 360 or more days after the effective 7 date of the legislation. 8 * * * 9 (g) Supplemental annuity advance funding contribution 10 rate.--For the fiscal year beginning July 1, 2001, the total 11 contribution rate as calculated annually according to this 12 section shall include as a separate component the rate certified 13 by the board as necessary to partially advance fund future 14 supplemental annuities in accordance with section 8510 15 notwithstanding any other provision of this section. 16 Section 2. Section 8502(k) of Title 24 is SECTIONS 8502(K) <-- 17 AND 8346 OF TITLE 24 ARE amended to read: 18 § 8346. TERMINATION OF ANNUITIES. <-- 19 (A) GENERAL RULE.--IF AN ANNUITANT RETURNS TO SCHOOL SERVICE 20 OR ENTERS STATE SERVICE AND ELECTS MULTIPLE SERVICE MEMBERSHIP, 21 ANY ANNUITY PAYABLE TO HIM UNDER THIS PART SHALL CEASE AND IN 22 THE CASE OF AN ANNUITY OTHER THAN A DISABILITY ANNUITY THE 23 PRESENT VALUE OF SUCH ANNUITY, ADJUSTED FOR FULL COVERAGE IN THE 24 CASE OF A JOINT COVERAGE MEMBER WHO MAKES THE APPROPRIATE BACK 25 CONTRIBUTIONS FOR FULL COVERAGE, SHALL BE FROZEN AS OF THE DATE 26 SUCH ANNUITY CEASES. AN ANNUITANT WHO IS CREDITED WITH AN 27 ADDITIONAL 10% OF MEMBERSHIP SERVICE AS PROVIDED IN SECTION 28 8302(B.2) (RELATING TO CREDITED SCHOOL SERVICE) AND WHO RETURNS 29 TO SCHOOL SERVICE, EXCEPT AS PROVIDED IN SUBSECTION (B), SHALL 30 FORFEIT SUCH CREDITED SERVICE AND SHALL HAVE HIS FROZEN PRESENT 20010H0028B1033 - 3 -
1 VALUE ADJUSTED AS IF HIS 10% RETIREMENT INCENTIVE HAD NOT BEEN
2 APPLIED TO HIS ACCOUNT. IN THE EVENT THAT THE COST-OF-LIVING
3 INCREASE ENACTED DECEMBER 18, 1979, OCCURRED DURING THE PERIOD
4 OF SUCH STATE OR SCHOOL EMPLOYMENT, THE FROZEN PRESENT VALUE
5 SHALL BE INCREASED, ON OR AFTER THE MEMBER ATTAINS
6 SUPERANNUATION AGE, BY THE PERCENT APPLICABLE HAD HE NOT
7 RETURNED TO SERVICE.
8 (B) RETURN TO SCHOOL SERVICE DURING EMERGENCY.--WHEN, IN THE
9 JUDGMENT OF THE EMPLOYER, AN EMERGENCY CREATES AN INCREASE IN
10 THE WORK LOAD SUCH THAT THERE IS SERIOUS IMPAIRMENT OF SERVICE
11 TO THE PUBLIC OR IN THE EVENT OF A SHORTAGE OF APPROPRIATE
12 SUBJECT CERTIFIED TEACHERS, AN ANNUITANT MAY BE RETURNED TO
13 SCHOOL SERVICE FOR A PERIOD NOT TO EXCEED [95] 120 FULL-DAY
14 SESSIONS IN ANY SCHOOL YEAR WITHOUT LOSS OF HIS ANNUITY. IN
15 COMPUTING THE NUMBER OF DAYS AN ANNUITANT HAS RETURNED TO SCHOOL
16 SERVICE, ANY AMOUNT OF TIME LESS THAN ONE-HALF OF A DAY SHALL BE
17 COUNTED AS ONE-HALF OF A DAY.
18 (C) SUBSEQUENT DISCONTINUANCE OF SERVICE.--UPON SUBSEQUENT
19 DISCONTINUANCE OF SERVICE, SUCH MEMBER OTHER THAN A FORMER
20 ANNUITANT WHO HAD THE EFFECT OF HIS FROZEN PRESENT VALUE
21 ELIMINATED IN ACCORDANCE WITH SUBSECTION (D) OR A FORMER
22 DISABILITY ANNUITANT SHALL BE ENTITLED TO AN ANNUITY WHICH IS
23 ACTUARIALLY EQUIVALENT TO THE SUM OF THE PRESENT VALUE AS
24 DETERMINED UNDER SUBSECTION (A) AND THE PRESENT VALUE OF A
25 MAXIMUM SINGLE LIFE ANNUITY BASED ON YEARS OF SERVICE CREDITED
26 SUBSEQUENT TO REENTRY IN THE SYSTEM AND HIS FINAL AVERAGE SALARY
27 COMPUTED BY REFERENCE TO HIS COMPENSATION DURING HIS ENTIRE
28 PERIOD OF SCHOOL AND STATE SERVICE.
29 (D) ELIMINATION OF THE EFFECT OF FROZEN PRESENT VALUE.--
30 (1) AN ANNUITANT WHO RETURNS TO SCHOOL SERVICE AND EARNS
20010H0028B1033 - 4 -
1 THREE ELIGIBILITY POINTS BY PERFORMING CREDITED SCHOOL 2 SERVICE FOLLOWING THE MOST RECENT PERIOD OF RECEIPT OF AN 3 ANNUITY UNDER THIS PART, OR AN ANNUITANT WHO ENTERS STATE 4 SERVICE AND: 5 (I) IS A MULTIPLE SERVICE MEMBER; OR 6 (II) WHO ELECTS MULTIPLE SERVICE MEMBERSHIP, AND 7 EARNS THREE ELIGIBILITY POINTS BY PERFORMING CREDITED STATE 8 SERVICE OR CREDITED SCHOOL SERVICE FOLLOWING THE MOST RECENT 9 PERIOD OF RECEIPT OF AN ANNUITY UNDER THIS PART, AND WHO HAD 10 THE PRESENT VALUE OF HIS ANNUITY FROZEN IN ACCORDANCE WITH 11 SUBSECTION (A), SHALL QUALIFY TO HAVE THE EFFECT OF THE 12 FROZEN PRESENT VALUE RESULTING FROM ALL PREVIOUS PERIODS OF 13 RETIREMENT ELIMINATED, PROVIDED THAT ALL PAYMENTS UNDER 14 OPTION 4 AND ANNUITY PAYMENTS PAYABLE DURING PREVIOUS PERIODS 15 OF RETIREMENT PLUS INTEREST AS SET FORTH IN PARAGRAPH (3) 16 SHALL BE RETURNED TO THE FUND IN THE FORM OF AN ACTUARIAL 17 ADJUSTMENT TO HIS SUBSEQUENT BENEFITS OR IN SUCH FORM AS THE 18 BOARD MAY OTHERWISE DIRECT. 19 (2) UPON SUBSEQUENT DISCONTINUANCE OF SERVICE AND THE 20 FILING OF AN APPLICATION FOR AN ANNUITY, A FORMER ANNUITANT 21 WHO QUALIFIES TO HAVE THE EFFECT OF A FROZEN PRESENT VALUE 22 ELIMINATED UNDER THIS SUBSECTION SHALL BE ENTITLED TO RECEIVE 23 THE HIGHER OF EITHER: 24 (I) AN ANNUITY (PRIOR TO OPTIONAL MODIFICATION) 25 CALCULATED AS IF THE FREEZING OF THE FORMER ANNUITANT'S 26 ACCOUNT PURSUANT TO SUBSECTION (A) HAD NOT OCCURRED, 27 ADJUSTED ACCORDING TO PARAGRAPH (3), PROVIDED THAT A 28 FORMER ANNUITANT OF THE SYSTEM OR A FORMER ANNUITANT OF 29 THE STATE EMPLOYEES' RETIREMENT SYSTEM WHO RETIRED UNDER 30 A PROVISION OF LAW GRANTING ADDITIONAL SERVICE CREDIT IF 20010H0028B1033 - 5 -
1 TERMINATION OF SCHOOL OR STATE SERVICE OR RETIREMENT 2 OCCURRED DURING A SPECIFIC PERIOD OF TIME SHALL NOT BE 3 PERMITTED TO RETAIN THE ADDITIONAL SERVICE CREDIT UNDER 4 THE PRIOR LAW WHEN THE ANNUITY IS COMPUTED FOR HIS MOST 5 RECENT RETIREMENT; OR 6 (II) AN ANNUITY (PRIOR TO OPTIONAL MODIFICATION) 7 CALCULATED AS IF THE FORMER ANNUITANT DID NOT QUALIFY TO 8 HAVE THE EFFECT ON THE FROZEN PRESENT VALUE ELIMINATED, 9 UNLESS THE FORMER ANNUITANT NOTIFIES THE BOARD IN WRITING BY 10 THE LATER OF THE DATE THE APPLICATION FOR ANNUITY IS FILED OR 11 THE EFFECTIVE DATE OF RETIREMENT THAT THE FORMER ANNUITANT 12 WISHES TO RECEIVE THE LOWER ANNUITY. 13 (3) IN ADDITION TO ANY OTHER ADJUSTMENT TO THE PRESENT 14 VALUE OF THE MAXIMUM SINGLE LIFE ANNUITY THAT A MEMBER MAY BE 15 ENTITLED TO RECEIVE THAT OCCURS AS A RESULT OF ANY OTHER 16 PROVISION OF LAW, THE PRESENT VALUE OF THE MAXIMUM SINGLE 17 LIFE ANNUITY SHALL BE REDUCED BY ALL AMOUNTS PAID OR PAYABLE 18 TO HIM DURING ALL PREVIOUS PERIODS OF RETIREMENT PLUS 19 INTEREST ON THESE AMOUNTS UNTIL THE DATE OF SUBSEQUENT 20 RETIREMENT. THE INTEREST FOR EACH YEAR SHALL BE CALCULATED 21 BASED UPON THE ANNUAL INTEREST RATE ADOPTED FOR THAT SCHOOL 22 YEAR BY THE BOARD FOR THE CALCULATION OF THE NORMAL 23 CONTRIBUTION RATE PURSUANT TO SECTION 8328(B) (RELATING TO 24 ACTUARIAL COST METHOD). 25 § 8502. Administrative duties of board. 26 * * * 27 (k) Certification of employer contributions.--The board 28 shall, each year in addition to the itemized budget required 29 under section 8330 (relating to appropriations by the 30 Commonwealth), certify to the employers and the Commonwealth the 20010H0028B1033 - 6 -
1 employer contribution rate expressed as a percentage of members' 2 payroll necessary for the funding of prospective annuities for 3 active members and the annuities of annuitants, and certify the 4 rates and amounts of the normal contributions as determined 5 pursuant to section 8328(b) (relating to actuarial cost method), 6 accrued liability contributions as determined pursuant to 7 section 8328(c), supplemental annuities contribution rate as 8 determined pursuant to section 8328(d) [and], the experience 9 adjustment factor as determined pursuant to section 8328(e) 10 [and], premium assistance contributions as determined pursuant 11 to section 8328(f) and supplemental annuity advance funding 12 contribution rate as determined pursuant to section 8328(g), 13 which shall be paid to the fund and credited to the appropriate 14 accounts. These certifications shall be regarded as final and 15 not subject to modification by the Budget Secretary. 16 * * * 17 Section 3. Title 24 is amended by adding a section to read: 18 § 8510. Partial advance funding of future supplemental 19 annuities. 20 (a) Program for partial advance funding of future 21 supplemental annuities established.--Beginning with fiscal year 22 2001-2002, the annual certification of the employers' 23 contribution rate by the board pursuant to section 8502(k) 24 (relating to administrative duties of board) shall include a 25 specified supplemental annuity advance funding contribution rate 26 as a separate component. The contributions resulting from the 27 application of the supplemental annuity advance funding 28 contribution rate to the total compensation of all active 29 members during each applicable period shall be credited to the 30 supplemental annuity advance funding account together with the 20010H0028B1033 - 7 -
1 actual investment earnings thereon. The balance in the 2 supplemental annuity advance funding account shall be 3 transferred to the annuity reserve account on the first July 1 4 that occurs 360 or more days after the effective date of each 5 instance of future legislation providing supplemental annuities 6 and shall be applied to reduce the unfunded actuarial accrued 7 liability to be amortized as a result of the enacted 8 supplemental annuities. 9 (b) Initial supplementary annuity advance funding 10 contribution rate.--For the fiscal year 2001-2002, and each 11 fiscal year thereafter until changed by the board as provided in 12 subsection (c), the supplemental annuity advance funding 13 contribution rate established in section 8328(g) (relating to 14 actuarial cost method) shall be 0.3%. 15 (c) Subsequent supplemental annuity advance funding 16 contribution rate.--In making the annual valuation under section 17 8502(j) as of the first July 1 that occurs 360 or more days 18 after the effective date of legislation increasing supplemental 19 annuities enacted after December 31, 2000, the actuary shall 20 certify a new supplemental annuity advance funding contribution 21 rate calculated as being sufficient to accumulate an amount 22 equal to 25% of the actuarial accrued liability of the increased 23 supplemental annuities under the legislation over the subsequent 24 five-year period using the established interest and salary 25 assumptions utilized for the conduct of the annual actuarial 26 valuation under section 8502(j). The board shall certify the 27 rate calculated by the actuary as the supplemental annuity 28 advance funding contribution rate pursuant to subsection (a) and 29 section 8502(k). 30 (d) Calculation of unfunded actuarial accrued liability to 20010H0028B1033 - 8 -
1 be amortized.--The actuary shall calculate the unfunded 2 actuarial accrued liability for the increased supplemental 3 annuities under legislation enacted after December 31, 2000, to 4 be amortized under section 8328(g), as the difference resulting 5 from subtracting the balance in the supplemental annuity advance 6 funding account transferable to the annuity reserve account 7 under section 8526.1(c) (relating to supplemental annuity 8 advance funding account) from the actuarial accrued liability of 9 the supplemental annuities being implemented, with the account 10 balance and actuarial accrued liability both calculated as of 11 the first July 1 occurring 360 or more days after the effective 12 date of the legislation. 13 Section 4. Sections 8524 and 8525 of Title 24 are amended to 14 read: 15 § 8524. State accumulation account. 16 The State accumulation account shall be the ledger account to 17 which shall be credited all contributions of the Commonwealth 18 and other employers as well as the earnings of the fund, except 19 the premium assistance contributions and earnings thereon in the 20 health insurance account and the supplemental annuity advance 21 funding contributions and earnings thereon in the supplemental 22 annuity advance funding account. Valuation interest shall be 23 allowed on the total amount of such account less any earnings of 24 the fund credited during the year. The reserves necessary for 25 the payment of annuities and death benefits as approved by the 26 board and as provided in Chapter 83 (relating to membership, 27 contributions and benefits) shall be transferred from the State 28 accumulation account to the annuity reserve account. At the end 29 of each year the required interest shall be transferred from the 30 State accumulation account to the credit of the members' savings 20010H0028B1033 - 9 -
1 account and the annuity reserve account. The administrative 2 expenses of the board shall be charged to the State accumulation 3 account. 4 § 8525. Annuity reserve account. 5 (a) Credits and charges to account.--The annuity reserve 6 account shall be the ledger account to which shall be credited 7 the reserves held for the payment of annuities and death 8 benefits on account of all annuitants and the contributions from 9 the Commonwealth and other employers as determined in accordance 10 with section 8328 (relating to actuarial cost method) for the 11 payment of the supplemental annuities provided in sections 8348 12 (relating to supplemental annuities), 8348.1 (relating to 13 additional supplemental annuities) and 8348.2 (relating to 14 further additional supplemental annuities), 8348.3 (relating to 15 supplemental annuities commencing 1994), 8348.4 (relating to 16 special supplemental postretirement adjustment) and 8348.5 17 (relating to supplemental annuities commencing 1998). The 18 annuity reserve account shall be credited with valuation 19 interest. After the transfers provided in sections 8523 20 (relating to members' savings account) [and], 8524 (relating to 21 State accumulation account) and 8526.1(c) (relating to 22 supplemental annuity advance funding account), all annuity and 23 death benefit payments shall be charged to the annuity reserve 24 account and paid from the fund. 25 (b) Transfers from account.--Should an annuitant be 26 subsequently restored to active service, the present value of 27 his member's annuity at the time of reentry into school service 28 shall be transferred from the annuity reserve account and placed 29 to his individual credit in the members' savings account. In 30 addition, the actuarial reserve for his annuity less the amount 20010H0028B1033 - 10 -
1 transferred to the members' savings account shall be transferred 2 from the annuity reserve account to the State accumulation 3 account. 4 Section 5. Title 24 is amended by adding a section to read: 5 § 8526.1. Supplemental annuity advance funding account. 6 (a) Purpose of account.--The supplemental annuity advance 7 funding account shall be a ledger account to which shall be 8 credited the reserves held to offset actuarial accrued 9 liabilities incurred in the provision of future supplemental 10 annuities. 11 (b) Credits to account.--The supplemental annuity advance 12 funding account shall be credited with the contributions from 13 the Commonwealth and other employers as determined in accordance 14 with section 8510 (relating to partial advance funding of future 15 supplemental annuities) and contributed in accordance with 16 section 8328(g) (relating to actuarial cost method). The actual 17 investment earnings attributable to the balance of the 18 supplemental annuity advance funding account shall be credited 19 to the account. 20 (c) Transfers from account.--In the event that supplemental 21 annuities are provided by legislation enacted after December 31, 22 2000, the balance in the supplemental annuity advance funding 23 account shall be transferred to the annuity reserve account on 24 the first July 1 occurring 360 or more days after the effective 25 date of the legislation. 26 Section 6. Section 5508(a) and (e) of Title 71 are amended 27 and the section is amended by adding a subsection to read: 28 § 5508. Actuarial cost method. 29 (a) Employer contribution rate on behalf of active 30 members.--The amount of the Commonwealth and other employer 20010H0028B1033 - 11 -
1 contributions on behalf of all active members shall be computed 2 by the actuary as a percentage of the total compensation of all 3 active members during the period for which the amount is 4 determined and shall be so certified by the board. The total 5 employer contribution rate on behalf of all active members shall 6 consist of the employer normal contribution rate, as defined in 7 subsection (b), [and] the accrued liability contribution rate as 8 defined in subsection (c) and the supplemental annuity advance 9 funding contribution rate as defined in subsection (h). The 10 total employer contribution rate shall be modified by the 11 experience adjustment factor as calculated in subsection (f) but 12 in no case shall it be less than zero. 13 * * * 14 (e) Supplemental annuity contribution rate.--Contributions 15 from the Commonwealth required to provide for the payment of 16 supplemental annuities as provided in sections 5708, 5708.1 and 17 5708.2 shall be paid over a period of 20 years from July 1, 18 1991. The amount of each annual supplemental annuities 19 contribution shall be 5% greater than the amount of such 20 contribution for the previous fiscal year. In the event that 21 supplemental annuities are increased by legislation enacted 22 subsequent to July 1, 1991, and before January 1, 2001, the 23 additional liability for the increase in benefits shall be 24 funded in annual installments increasing by 5% each year over a 25 period of 20 years from the July first, coincident with or next 26 following the effective date of such legislation. 27 Notwithstanding the preceding, the funding for the supplemental 28 annuities commencing 1994 provided for in section 5708.3 shall 29 be as provided in section 5708.3(f)[.] and the funding for the 30 supplemental annuities commencing 1998 provided for in section 20010H0028B1033 - 12 -
1 5708.5 (relating to supplemental annuities commencing 1998) 2 shall be as provided in section 5708.5(f). Notwithstanding the 3 preceding, in the event that supplemental annuities are 4 increased by legislation enacted after December 31, 2000, the 5 additional unfunded actuarial accrued liability to be amortized 6 shall be calculated under section 5909(d) (relating to partial 7 advance funding of future supplemental annuities) and funded in 8 annual level dollar installments over a period of ten years from 9 the first July 1 occurring 360 or more days after the effective 10 date of the legislation. 11 * * * 12 (h) Supplemental annuity advance funding contribution 13 rate.--For the fiscal year beginning July 1, 2001, the total 14 contribution rate as calculated annually according to this 15 section shall include as a separate component the rate certified 16 by the board as necessary to partially advance fund future 17 supplemental annuities in accordance with section 5909 18 notwithstanding any other provision of this section. 19 Section 7. Section 5902(k) of Title 71 is amended to read: 20 § 5902. Administrative duties of the board. 21 * * * 22 (k) Certification of employer contributions.--The board 23 shall, each year in addition to the itemized budget required 24 under section 5509 (relating to appropriations and assessments 25 by the Commonwealth), certify, as a percentage of the members' 26 payroll, the employers' contributions as determined pursuant to 27 section 5508 (relating to actuarial cost method) necessary for 28 the funding of prospective annuities for active members and the 29 annuities of annuitants and certify the rates and amounts of the 30 employers' normal contributions as determined pursuant to 20010H0028B1033 - 13 -
1 section 5508(b), accrued liability contributions as determined 2 pursuant to section 5508(c), supplemental annuities contribution 3 rate as determined pursuant to section 5508(e) [and], the 4 experience adjustment factor as determined pursuant to section 5 5508(f) and the supplemental annuity advance funding 6 contribution rate as determined pursuant to section 5508(h), 7 which shall be paid to the fund and credited to the appropriate 8 accounts. These certifications shall be regarded as final and 9 not subject to modification by the Budget Secretary. 10 * * * 11 Section 8. Title 71 is amended by adding a section to read: 12 § 5909. Partial advance funding of future supplemental 13 annuities. 14 (a) Program for partial advance funding of future 15 supplemental annuities established.--Beginning with fiscal year 16 2001-2002, the annual certification of the employers' 17 contribution rate by the board pursuant to section 5902(k) 18 (relating to administrative duties of the board) shall include a 19 specified supplemental annuity advance funding contribution rate 20 as a separate component. The contributions resulting from the 21 application of the supplemental annuity advance funding 22 contribution rate to the total compensation of all active 23 members during each applicable period shall be credited to the 24 supplemental annuity advance funding account together with the 25 actual investment earnings thereon. The balance in the 26 supplemental annuity advance funding account shall be 27 transferred to the annuity reserve account on the first July 1 28 that occurs 360 or more days after the effective date of each 29 instance of future legislation providing supplemental annuities 30 and shall be applied to reduce the unfunded actuarial accrued 20010H0028B1033 - 14 -
1 liability to be amortized as a result of the enacted 2 supplemental annuities. 3 (b) Initial supplementary annuity advance funding 4 contribution rate.--For the fiscal year 2001-2002, and each 5 fiscal year thereafter until changed by the board as provided in 6 subsection (c), the supplemental annuity advance funding 7 contribution rate established in section 5508(h) (relating to 8 actuarial cost method) shall be 0.3%. 9 (c) Subsequent supplemental annuity funding contribution 10 rate.--In making the annual valuation under section 5902(j), 11 that calculates the amortization contribution to be made under 12 section 5508(h) as of the first July 1 that occurs 360 or more 13 days after the effective date of legislation increasing the 14 supplemental annuities enacted after December 31, 2000, the 15 actuary shall certify a new supplemental annuity advance funding 16 contribution rate calculated as sufficient to accumulate an 17 amount equal to 25% of the actuarial accrued liability of the 18 increased supplemental annuities over the subsequent five-year 19 period using the established interest and salary assumptions 20 utilized for the conduct of the annual actuarial valuation under 21 section 5902(j). The board shall certify the rate calculated by 22 the actuary as the supplemental annuity advance funding 23 contribution rate pursuant to subsection (a) and section 24 5902(k). 25 (d) Calculation of unfunded actuarial accrued liability to 26 be amortized.--The actuary shall calculate the unfunded 27 actuarial accrued liability of the increased supplemental 28 annuities under legislation enacted after December 31, 2000, to 29 be amortized under section 5508(h), as the difference resulting 30 from subtracting the balance in the supplemental annuity advance 20010H0028B1033 - 15 -
1 funding account transferable to the annuity reserve account 2 under section 5939.1 (relating to supplemental annuity advance 3 funding account) from the actuarial accrued liability of the 4 supplemental liabilities being implemented, with the account 5 balance and the actuarial accrued liability both calculated as 6 of the first July 1 occurring 360 or more days after the 7 effective date of the legislation. 8 Section 9. Sections 5934 and 5935(a) of Title 71 are amended 9 to read: 10 § 5934. State accumulation account. 11 The State accumulation account shall be the ledger account to 12 which shall be credited all contributions of the Commonwealth or 13 other employers whose employees are members of the system and 14 made in accordance with the provisions of section 5507(a) 15 (relating to contributions by the Commonwealth and other 16 employers) except that the amounts received under the provisions 17 of the act of May 12, 1943 (P.L.259, No.120), [and] the amounts 18 received under the provisions of the Liquor Code, act of April 19 12, 1951 (P.L.90, No.21), and section 5508(h) (relating to 20 actuarial cost method) shall be credited to the State Police 21 benefit account [or], the enforcement officers' benefit account 22 or the supplemental annuity advance funding account as the case 23 may be. All amounts transferred to the fund by county retirement 24 systems or pension plans in accordance with the provisions of 25 section 5507(c) also shall be credited to the State accumulation 26 account. The State accumulation account shall be credited with 27 valuation interest. The reserves necessary for the payment of 28 annuities and death benefits as approved by the board and as 29 provided in Chapter 57 (relating to benefits) shall be 30 transferred from the State accumulation account to the annuity 20010H0028B1033 - 16 -
1 reserve account provided for in section 5935 (relating to 2 annuity reserve account), except that the reserves necessary on 3 account of a member who is an officer of the Pennsylvania State 4 Police or an enforcement officer shall be transferred from the 5 State accumulation account to the State Police benefit account 6 provided for in section 5936 (relating to State Police benefit 7 account) or to the enforcement officers' benefit account as 8 provided for in section 5937 (relating to enforcement officers' 9 benefit account) as the case may be. 10 § 5935. Annuity reserve account. 11 (a) Credits and charges to account.--The annuity reserve 12 account shall be the ledger account to which shall be credited 13 the reserves held for payment of annuities and death benefits on 14 account of all annuitants except in the case of members who are 15 officers of the Pennsylvania State Police or enforcement 16 officers. The annuity reserve account shall be credited with 17 valuation interest. After the transfers provided in sections 18 5933 (relating to members' savings account), 5934 (relating to 19 State accumulation account) [and], 5938 (relating to 20 supplemental annuity account) and 5939.1 (relating to 21 supplemental annuity advance funding account), all annuity and 22 death benefit payments except those payable to any member who 23 retires as an officer of the Pennsylvania State Police or an 24 enforcement officer shall be charged to the annuity reserve 25 account and paid from the fund. 26 * * * 27 Section 10. Title 71 is amended by adding a section to read: 28 § 5939.1. Supplemental annuity advance funding account. 29 (a) Purpose of account.--The supplemental annuity advance 30 funding account shall be a ledger account to which shall be 20010H0028B1033 - 17 -
1 credited the reserves held to offset actuarial accrued 2 liabilities incurred in the provision of future supplemental 3 annuities. 4 (b) Credits to account.--The supplemental annuity advance 5 funding account shall be credited with the contributions from 6 the Commonwealth and other employers as determined in accordance 7 with section 5909 (relating to partial advance funding of future 8 supplemental annuities) and contributed in accordance with 9 section 5508(h) (relating to actuarial cost method). The actual 10 investment earnings attributable to the balance of the 11 supplemental annuity advance funding account shall be credited 12 to the account. 13 (c) Transfers from account.--In the event that supplemental 14 annuities are increased by legislation enacted after December 15 31, 2000, the balance in the supplemental annuity advance 16 funding account shall be transferred to the annuity reserve 17 account on the first July 1 occurring 360 or more days after the 18 effective date of the legislation. 19 Section 11. In the event that supplemental annuities under 20 the Public School Employees' Retirement Code and the State 21 Employees' Retirement Code are increased by legislation enacted 22 after December 31, 2000, the Public Employee Retirement 23 Commission shall review the prefunding target percentage and 24 overall operation of the advance funding mechanism and report 25 its findings and recommendations to the General Assembly and the 26 Governor no later than one year after the July 1 on which the 27 new supplemental annuity advance funding contribution rates are 28 implemented. 29 Section 12. This act applies to fiscal years commencing July 30 1, 2001, and thereafter. 20010H0028B1033 - 18 -
1 Section 13. This act shall take effect immediately. A11L24BIL/20010H0028B1033 - 19 -