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                                                      PRINTER'S NO. 1778

THE GENERAL ASSEMBLY OF PENNSYLVANIA


HOUSE BILL

No. 1432 Session of 2003


        INTRODUCED BY NICKOL, HERMAN, BAKER, BALDWIN, BARD, BEBKO-JONES,
           BENNINGHOFF, BUNT, BUXTON, CALTAGIRONE, CAPPELLI, CAUSER,
           CLYMER, CRAHALLA, CURRY, DALLY, DeWEESE, FEESE, FREEMAN,
           GABIG, GEIST, GERGELY, GOODMAN, HARHAI, HUTCHINSON, JAMES,
           KIRKLAND, LAUGHLIN, LEACH, LEH, LEWIS, MANN, MARSICO,
           McILHATTAN, MICOZZIE, R. MILLER, S. MILLER, NAILOR, PAYNE,
           PETRI, PHILLIPS, PICKETT, ROBERTS, RUBLEY, SAINATO, SATHER,
           SHANER, B. SMITH, SOLOBAY, STEIL, STERN, STETLER, TANGRETTI,
           E. Z. TAYLOR, THOMAS, TRAVAGLIO, VANCE, WANSACZ, WILT,
           YOUNGBLOOD AND J. TAYLOR, MAY 12, 2003

        REFERRED TO COMMITTEE ON LOCAL GOVERNMENT, MAY 12, 2003

                                     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 the certification of
     8     municipal pension costs, for the administration of the
     9     General Municipal Pension System State Aid Program and for
    10     the continuation of the financially distressed municipal
    11     pension system recovery program; adding provisions for the
    12     establishment and administration of in-service retirement
    13     option plans in local governments; and repealing the
    14     financially distressed municipal pension plan determination
    15     procedure.

    16     The General Assembly of the Commonwealth of Pennsylvania
    17  hereby enacts as follows:
    18     Section 1.  The title of the act of December 18, 1984
    19  (P.L.1005, No.205), known as the Municipal Pension Plan Funding
    20  Standard and Recovery Act, is amended to read:


     1                               AN ACT
     2  Mandating actuarial funding standards for all municipal pension
     3     systems; establishing a recovery program for municipal
     4     pension systems determined to be financially distressed;
     5     providing for the distribution of the tax on the premiums of
     6     foreign fire insurance companies; providing for the
     7     establishment and administration of in-service retirement
     8     option plans in local governments; and making repeals.
     9     Section 2.  The definition of "municipal employee" in section
    10  102 of the act is amended and the section is amended by adding
    11  definitions to read:
    12  Section 102.  Definitions.
    13     Except as provided in Chapter 7, the following words and
    14  phrases when used in this act shall have the meanings given to
    15  them in this section unless the context clearly indicates
    16  otherwise:
    17     * * *
    18     "IROP."  An in-service retirement option plan created and
    19  operated by a local government or the Pennsylvania Municipal
    20  Retirement System under Chapter 11 or any deferred retirement
    21  option plan or similar program established by a local government
    22  that provides for the commencement and accumulation of
    23  retirement benefit payments for active employees with
    24  disbursement of the accumulated payments and interest earnings
    25  as a lump sum upon termination of employment.
    26     "IROP participant."  A retired member of a local government-
    27  defined benefit pension plan who is eligible to participate in
    28  an IROP under section 1112 and who has elected to participate in
    29  an IROP under section 1113.
    30     "IROP participant account."  A pension trust fund ledger
    20030H1432B1778                  - 2 -     

     1  account established under section 1121(a).
     2     "Local government."  A municipality or any county.
     3     * * *
     4     "Municipal employee."  Any person [other than an independent
     5  contractor] who provides regular services for a municipality in
     6  return for compensation from the municipality. The term does not
     7  include an independent contractor or an IROP participant.
     8     * * *
     9     Section 3.  Section 202(b) of the act, amended December 19,
    10  1997 (P.L.611, No. 61), is amended to read:
    11  Section 202.  Contents of actuarial valuation report.
    12     * * *
    13     (b)  Contents of actuarial exhibits; defined benefit plans
    14  self-insured in whole or in part.--For any pension plan which is
    15  a defined benefit plan and which is self-insured in whole or in
    16  part, all applicable actuarial exhibits shall be prepared in
    17  accordance with the entry age normal actuarial cost method with
    18  entry age established as the actual entry age for all plan
    19  members unless the municipality applies for and is granted
    20  authorization by the commission to use an alternative actuarial
    21  cost method. Authorization shall be granted if the municipality
    22  demonstrates on an individual pension plan basis that there are
    23  compelling reasons of an actuarial nature for the use of an
    24  alternative actuarial cost method. The commission shall issue
    25  rules and regulations specifying the criteria which the
    26  commission will use to determine the question of the existence
    27  of compelling reasons for the use of an alternative actuarial
    28  cost method, the documentation which a municipality seeking the
    29  authorization will be required to supply and the acceptable
    30  alternative actuarial cost methods which the commission may
    20030H1432B1778                  - 3 -     

     1  authorize. The actuarial cost method shall be used to value all
     2  aspects of the benefit plan or plans of the pension plan unless
     3  the municipality applies for and is granted authorization by the
     4  commission to use approximation techniques other than the
     5  actuarial cost method for aspects of the benefit plan or plans
     6  of the pension plan other than the retirement benefit.
     7  Authorization shall be granted if the municipality demonstrates
     8  on an individual pension plan basis that there are compelling
     9  reasons of an actuarial nature for the use of these
    10  approximation techniques. The commission shall issue rules and
    11  regulations specifying the criteria which the commission will
    12  use to determine the question of the existence of compelling
    13  reasons for the use of approximation techniques, the
    14  documentation which a municipality seeking the authorization
    15  will be required to supply and the acceptable approximation
    16  technique which the commission may authorize. The actuarial
    17  exhibits shall use actuarial assumptions which are, in the
    18  judgment of the actuary and the governing body of the plan, the
    19  best available estimate of future occurrences in the case of
    20  each assumption. With respect to economic actuarial assumptions,
    21  the assumptions shall either be within the range specified in
    22  rules and regulations issued by the commission or documentation
    23  explaining and justifying the choice of assumptions outside the
    24  range shall accompany the report. The actuarial exhibits shall
    25  measure all aspects of the benefit plan or plans of the pension
    26  plan in accordance with modifications in the benefit plan or
    27  plans, if any, and salaries which as of the valuation date are
    28  known or can reasonably be expected to be in force during the
    29  ensuing plan year. In preparing the actuarial exhibits or any
    30  actuarial valuation report, the municipality shall exclude the
    20030H1432B1778                  - 4 -     

     1  compensation of all IROP participants from the active member
     2  payroll, all IROP participants from active member data and the
     3  balance in the IROP participant account from the assets of the
     4  pension trust fund. The actuarial valuation report shall contain
     5  the following actuarial exhibits:
     6         (1)  An exhibit of the normal cost of the benefits
     7     provided by the benefit plan as of the date of the actuarial
     8     valuation, expressed as a percentage of the future covered
     9     payroll of the active membership of the pension plan as of
    10     the date of the actuarial valuation.
    11         (2)  An exhibit of the actuarial accrued liability of the
    12     benefit plan as of the date of the actuarial valuation in
    13     total which shall be the actuarial present value of all
    14     projected benefits provided by the benefit plan reduced by
    15     the actuarial present value of future normal costs, and in
    16     particular, which shall include the following required
    17     actuarial present values for pension plan benefits of related
    18     items:
    19             (i)  Required actuarial present values on account of
    20         active members:
    21                 (A)  Retirement benefits.
    22                 (B)  Disability benefits.
    23                 (C)  Survivor benefits.
    24                 (D)  Refund liability due to withdrawal from
    25             active service or death.
    26                 (E)  Other benefits, specifying the nature of
    27             each type.
    28         This item shall include a footnote indicating the amount
    29         of accumulated member contributions without accrued
    30         interest.
    20030H1432B1778                  - 5 -     

     1             (ii)  Required actuarial present values on account of
     2         former members with a deferred, vested or otherwise
     3         nonforfeitable right to a retirement benefit.
     4             (iii)  Required actuarial present values on account
     5         of former members who do not have a deferred, vested or
     6         otherwise nonforfeitable right to the retirement benefit
     7         and who have not withdrawn any accumulated member
     8         contributions.
     9             (iv)  Required actuarial present values on account of
    10         benefit recipients:
    11                 (A)  Retirement benefits.
    12                 (B)  Disability benefits.
    13                 (C)  Surviving spouse benefits.
    14                 (D)  Surviving child benefits.
    15                 (E)  Other benefits, specifying the nature of
    16             each type.
    17             (v)  Required actuarial present values for other
    18         benefits provided by the benefit plan, specifying the
    19         nature of each type.
    20             (vi)  Actuarial present value of future normal cost.
    21         (3)  An exhibit of the unfunded actuarial accrued
    22     liability of the pension plan in total, which shall be the
    23     actuarial accrued liability of the pension plan calculated
    24     pursuant to paragraph (2) less the actuarial value of assets
    25     of the pension plan calculated pursuant to subsection (e)(1),
    26     and which, in particular, shall include the following:
    27             (i)  The remaining balance of the unfunded actuarial
    28         accrued liability in existence as of the first actuarial
    29         valuation report required by this section occurring next
    30         following the date of enactment of this section.
    20030H1432B1778                  - 6 -     

     1             (ii)  The remaining balance of each increment of
     2         unfunded actuarial accrued liability attributable to
     3         modifications in the benefit plan governing the pension
     4         plan which were applicable to active members, separately
     5         indicating each and designating each by the plan year in
     6         which the benefit plan modification was made effective.
     7             (iii)  The remaining balance of each increment of
     8         unfunded actuarial accrued liability attributable to
     9         modifications in the benefit plan governing the pension
    10         plan which were applicable to retired members and other
    11         benefit recipients, separately indicating each and
    12         designating each by the plan year in which the benefit
    13         plan modification was made effective.
    14             (iv)  The remaining balance of each increment of net
    15         unfunded actuarial accrued liability attributable to
    16         modifications in the actuarial assumptions used to
    17         calculate the actuarial accrued liability of the pension
    18         plan separately indicating each and designating each by
    19         the plan year in which the actuarial assumption
    20         modification was made effective.
    21             (v)  The remaining balance of each increment or
    22         decrement of net unfunded actuarial accrued liability
    23         attributable to net actuarial experience losses or gains,
    24         separately indicating each and designating each by the
    25         plan year in which the actuarial experience loss or gain
    26         was recognized.
    27     The initial determination of the unfunded actuarial accrued
    28     liability attributable to a modification in the benefit plan
    29     governing the pension plan or to a modification in the
    30     actuarial assumptions used to calculate the actuarial accrued
    20030H1432B1778                  - 7 -     

     1     liability of the pension plan shall be made by calculating
     2     the unfunded actuarial accrued liability of the pension plan
     3     in accordance with the benefit plan provisions and actuarial
     4     assumptions which were in effect prior to the modification
     5     and by calculating the unfunded actuarial accrued liability
     6     of the pension plan in accordance with the modification in
     7     the provisions of the benefit plan governing the pension plan
     8     or the actuarial assumptions used to calculate the actuarial
     9     accrued liability of the pension plan, whichever is
    10     applicable, and the remaining benefit plan provisions and
    11     actuarial assumptions. The initial determination of the
    12     unfunded actuarial accrued liability attributable to an
    13     actuarial loss shall be made in conjunction with the analysis
    14     of increases or decreases in the unfunded actuarial accrued
    15     liability of the pension plan required pursuant to paragraph
    16     (6).
    17         (4)  An exhibit of any additional funding costs
    18     associated with the amortization of any unfunded actuarial
    19     accrued liability of the pension plan, indicating for each
    20     increment of unfunded actuarial accrued liability specified
    21     in paragraph (3), the level annual dollar contribution
    22     required to pay an amount equal to the actuarial assumption
    23     as to investment earnings applied to the principal amount of
    24     the remaining balance of the increment of unfunded actuarial
    25     accrued liability and to retire by the applicable
    26     amortization target date specified in this paragraph the
    27     principal amount of the remaining balance of the increment of
    28     unfunded actuarial accrued liability. The amortization target
    29     date applicable for each type of increment of unfunded
    30     actuarial accrued liability shall be as follows:
    20030H1432B1778                  - 8 -     

     1             (i)  (A)  In the case of a pension plan established
     2             on or prior to January 1, 1985 for the unfunded
     3             actuarial accrued liability in existence as of the
     4             beginning of the plan year occurring in calendar year
     5             1985, at the end of the plan year occurring in
     6             calendar year 2015; or
     7                 (B)  In the case of a pension plan established
     8             after January 1, 1985, for the unfunded actuarial
     9             accrued liability then or subsequently determined to
    10             be or to have been in existence as of the date of the
    11             establishment of the plan, at the end of the plan
    12             year occurring 30 years after the calendar year in
    13             which the pension plan was established.
    14             (ii)  Increment or decrement of net unfunded
    15         actuarial accrued liability attributable to a change in
    16         actuarial assumptions, at the end of the plan year
    17         occurring 20 years after the calendar year in which
    18         actuarial assumption modification was effective.
    19             (iii)  Increment of net unfunded actuarial accrued
    20         liability attributable to a modification in the benefit
    21         plan applicable to active members, at the end of the plan
    22         year occurring 20 years after the calendar year in which
    23         the benefit plan modification was effective.
    24             (iv)  Increment of unfunded actuarial accrued
    25         liability attributable to a modification in the benefit
    26         plan applicable to retired members and other benefit
    27         recipients, at the end of the plan year occurring 10
    28         years after the calendar year in which the benefit plan
    29         modification was effective.
    30             (v)  Increment or decrement of net unfunded actuarial
    20030H1432B1778                  - 9 -     

     1         accrued liability attributable to an actuarial experience
     2         loss or gain, at the end of plan year occurring 15 years
     3         after the calendar year in which the actuarial experience
     4         loss or gain was recognized.
     5     With respect to any applicable pension plan other than a plan
     6     which comprises all or part of a moderately distressed or a
     7     severely distressed municipal pension system, if the
     8     remaining average period between the current average attained
     9     age of active members as of the valuation date and the later
    10     of their earliest average normal retirement age or their
    11     average assumed retirement age is less than the applicable
    12     period or periods ending with the amortization target date or
    13     dates specified in subparagraph (i), (ii), (iii) or (v), the
    14     appropriate amortization target date for the applicable
    15     subparagraph determined with reference to the longest
    16     applicable remaining average period rounded to the next
    17     largest whole number shall be used. With respect to any plan
    18     year beginning after December 31, 1997, if, as of the
    19     beginning of the plan year, the ratio of the actuarial value
    20     of assets to the actuarial accrued liability exceeds 0.70 and
    21     the governing body of the municipality has passed a
    22     resolution to irrevocably commit the municipality to apply
    23     the limit on the additional funding costs, as provided
    24     herein, in the preparation of the current and all future
    25     exhibits under this paragraph, then the sum of the additional
    26     funding costs for subparagraphs (i), (ii), (iii), (iv) and
    27     (v) above shall not exceed the amount required to amortize
    28     the remaining unfunded actuarial accrued liability as of the
    29     beginning of the plan year over 10 years in level annual
    30     dollar contributions. The exhibit shall indicate the total
    20030H1432B1778                 - 10 -     

     1     dollar amount of additional funding costs associated with the
     2     amortization of any unfunded actuarial accrued liability of
     3     the pension plan applicable for that plan year and any
     4     subsequent plan year occurring prior to the preparation of
     5     the next required actuarial valuation report, which shall be
     6     the total of the additional funding costs associated with the
     7     amortization of each increment of unfunded actuarial accrued
     8     liability. The exhibit shall also indicate the plan year in
     9     which any unfunded actuarial accrued liability of the pension
    10     plan would be fully amortized if the total annual additional
    11     funding cost calculated pursuant to this paragraph were met
    12     continuously without increase or decrease in amount until the
    13     total unfunded actuarial accrued liability currently existing
    14     was fully amortized. In calculating the additional funding
    15     costs associated with the amortization of any unfunded
    16     actuarial accrued liability of the pension plan in any plan
    17     year, any amortization contribution made in the interval
    18     since the last actuarial valuation report shall be allocated
    19     to each type of increment of unfunded actuarial accrued
    20     liability in proportion to the remaining dollar amount of
    21     each type.
    22         (5)  An exhibit of the total administrative cost of the
    23     pension plan for the plan year occurring immediately prior to
    24     the plan year for which the actuarial valuation report is
    25     made.
    26         (6)  An exhibit containing an analysis of the increase or
    27     decrease in the unfunded actuarial accrued liability of the
    28     pension plan since the most recent prior actuarial valuation
    29     report, including specifically an indication of increases or
    30     decreases due to the following:
    20030H1432B1778                 - 11 -     

     1             (i)  Modifications in the benefit plan or plans of
     2         the pension plan.
     3             (ii)  Changes in actuarial assumptions.
     4             (iii)  Deviations in the actual experience of the
     5         pension plan from the experience expected by virtue of
     6         the actuarial assumptions.
     7             (iv)  Presence or absence of payments to amortize the
     8         unfunded accrued liability of the pension plan.
     9             (v)  Other reasons.
    10     The analysis shall be based on the best professional judgment
    11     of the approved actuary reached after preparing the various
    12     applicable actuarial exhibits of the actuarial valuation
    13     report. If, in the opinion of the approved actuary, the
    14     inclusion of any portion of this information is not
    15     appropriate, that portion of the analysis may be omitted with
    16     the provision of adequate explanation or justification of the
    17     appropriateness of the omission.
    18         (7)  An exhibit summarizing the economic and demographic
    19     actuarial assumptions used in the preparation of the
    20     actuarial exhibits.
    21         (8)  A summary of the principal provisions of the benefit
    22     plan of the pension plan upon which the actuarial exhibits
    23     are based.
    24     * * *
    25     Section 4.  The act is amended by adding a section to read:
    26  Section 209.  Certification of municipal pension costs.
    27     The commission shall determine annually the actual financial
    28  requirement for each municipal pension plan based on the data
    29  contained in the most recent complete report required to be
    30  filed by the municipality pursuant to this chapter and shall
    20030H1432B1778                 - 12 -     

     1  certify annually to the Auditor General the actual financial
     2  requirements for each municipal pension plan based on the data
     3  contained in the most recent actuarial valuation report required
     4  to be filed by the municipality pursuant to this chapter. The
     5  Auditor General shall use the data certified by the commission
     6  to implement the provisions of section 402(f)(2).
     7     Section 5.  Section 302(b)(2) of the act, amended December
     8  18, 1990 (P.L.753, No.189), is amended to read:
     9  Section 302.  Minimum funding standard; defined benefit plans
    10                 self-insured in whole or in part.
    11     * * *
    12     (b)  Financial requirements of the pension plan.--
    13         * * *
    14         (2)  The normal cost and administrative expense
    15     requirements for the following plan year shall be expressed
    16     as a dollar amount and shall be determined by applying the
    17     normal cost of the benefit plan and the administrative
    18     expense payable from the assets attributable to the benefit
    19     plan, as reported in the actuarial valuation report of the
    20     pension plan and expressed as a percentage of payroll, to the
    21     payroll of the active membership of the pension plan as of
    22     the date the financial requirements of the pension plan are
    23     determined. In expressing the normal cost and administrative
    24     expense requirements as a dollar amount, the municipality
    25     shall exclude the compensation of all IROP participants from
    26     the payroll of the active membership of the pension plan.
    27         * * *
    28     Section 6.  Section 402(e)(2) of the act is amended to read:
    29  Section 402.  Revision of financing from State revenue sources;
    30                 General Municipal Pension System State Aid
    20030H1432B1778                 - 13 -     

     1                 Program.
     2     * * *
     3     (e)  Allocation of general municipal pension system State
     4  aid.--
     5         * * *
     6         (2)  The applicable number of units shall be attributable
     7     to each active employee who was employed on a full-time basis
     8     for a minimum of six consecutive months prior to December 31
     9     preceding the date of certification and who was participating
    10     in a pension plan maintained by that municipality, provided
    11     that the municipality maintains a generally applicable
    12     pension plan for that type of employee which was either
    13     established on or prior to December 31, 1984, or, if
    14     established after December 31, 1984, has been maintained by
    15     that municipality for at least three plan years. For the
    16     purpose of computing and reporting the applicable number of
    17     units, an IROP participant shall not be reported to the
    18     Auditor General as an active employee. The applicable number
    19     of units per employee attributable to each eligible recipient
    20     county of the second class shall be two units for each police
    21     officer. The applicable number of units attributable to each
    22     eligible recipient city, borough, incorporated town and
    23     township shall be as follows:
    24             (i)  Police officer - two units.
    25             (ii)  Firefighter - two units.
    26             (iii)  Employee other than police officer or
    27         firefighter - one unit.
    28         * * *
    29     Section 7.  Chapter 5 of the act is repealed.
    30     Section 8.  Sections 602, 603, 604, 605 and 606 of the act
    20030H1432B1778                 - 14 -     

     1  are repealed.
     2     Section 9.  Section 607(a) of the act is amended to read:
     3  Section 607.  Remedies applicable to various recovery program
     4                 levels.
     5     (a)  Generally.--Notwithstanding any provision of law,
     6  municipal charter, municipal ordinance, municipal resolution, or
     7  pension plan agreement, document or instrument to the contrary,
     8  the remedies specified in this section shall be available to the
     9  applicable municipalities. After December 31, 2003, a
    10  municipality may continue to utilize any of the remedies
    11  specified in this section that it elected, implemented and used
    12  on December 31, 2003.
    13     * * *
    14     Section 10.  Section 608 of the act is repealed.
    15     Section 11.  The act is amended by adding a chapter to read:
    16                             CHAPTER 11
    17               IN-SERVICE RETIREMENT OPTION PLANS LAW
    18                            SUBCHAPTER A
    19                       PRELIMINARY PROVISIONS
    20  Section 1101.  Short title.
    21     This chapter shall be known and may be cited as the In-
    22  Service Retirement Option Plans Law.
    23  Section 1102.  Declaration of purpose.
    24     It is the purpose of this chapter to provide for an in-
    25  service retirement option plan under which an eligible member of
    26  the local government's retirement system may elect to
    27  participate in an IROP, defer receipt of retirement system
    28  benefits and continue employment with the local government.
    29  Section 1103.  Definitions.
    30     The following words and phrases when used in this chapter
    20030H1432B1778                 - 15 -     

     1  shall have the meanings given to them in this section unless the
     2  context clearly indicates otherwise:
     3     "Normal retirement benefit."  The retirement benefit payable
     4  to a member of a defined benefit pension plan on or after the
     5  date on which the member first satisfies the age and service
     6  requirements for full, unreduced retirement benefits, including
     7  supplemental amounts provided to the member after retirement as
     8  cost-of-living increases.
     9     "Subsidiary IROP participant account."  The separate,
    10  interest-bearing, subsidiary IROP participant account
    11  established for an IROP participant under section 1121.
    12  Section 1104.  Employment status.
    13     Participation in an IROP does not guarantee the IROP
    14  participant's employment by the local government during the
    15  specified period of the IROP.
    16                            SUBCHAPTER B
    17                         GENERAL PROVISIONS
    18  Section 1111.  Establishment of IROP.
    19     (a)  Local governments.--A local government that has
    20  established or maintains a defined benefit pension plan for a
    21  group of its employees which is self-insured in whole or in part
    22  under section 202(b), except for a local government that has
    23  joined the Pennsylvania Municipal Retirement System, may
    24  establish by ordinance an IROP for those employees as part of
    25  the pension plan. The ordinance establishing the IROP shall
    26  specify a uniform participation period for the IROP that is not
    27  more than five years in duration.
    28     (b)  PMRS participants.--A local government that has
    29  established or maintains a defined benefit plan for a group of
    30  its employees which is self-insured in whole or in part under
    20030H1432B1778                 - 16 -     

     1  section 202(b) and has joined the Pennsylvania Municipal
     2  Retirement System may establish an IROP for those employees as a
     3  part of the pension plan only through participation in the IROP
     4  established and administered by the Pennsylvania Municipal
     5  Retirement System.
     6     (c)  PMRS standards.--The Pennsylvania Municipal Retirement
     7  Board shall establish an IROP for local government-defined
     8  benefit pension plans that have joined the Pennsylvania
     9  Municipal Retirement System. The IROP so established shall be
    10  uniform, in compliance with the provisions of this chapter, open
    11  to any local government and applicable to any of the defined
    12  benefit pension plans administered by the Pennsylvania Municipal
    13  Retirement System.
    14  Section 1112.  Eligibility of member to participate in IROP.
    15     An active member of a local government retirement system that
    16  has an IROP as a part of its defined benefit pension plan who is
    17  eligible for a normal retirement benefit under the pension plan
    18  or will be eligible for a normal retirement benefit under the
    19  pension plan prior to participation in the IROP is eligible to
    20  participate in the IROP by filing a written application with the
    21  retirement system at least 30 days before the member's effective
    22  date of retirement.
    23  Section 1113.  Participation in IROP.
    24     (a)  Election by an active member.--An eligible active member
    25  may elect to participate in an IROP for the period specified in
    26  the ordinance establishing the IROP.
    27     (b)  IROP participation election.--Upon deciding to
    28  participate in an IROP, a member shall submit on forms provided
    29  and required by the retirement system:
    30         (1)  A binding and irrevocable letter of resignation from
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     1     regular employment with the local government that discloses
     2     the member's intent to retire and specifies the member's
     3     retirement date.
     4         (2)  An irrevocable written election to participate in
     5     the IROP that:
     6             (i)  Details an IROP participant's rights and
     7         obligations under the IROP.
     8             (ii)  Includes an agreement to forgo:
     9                 (A)  Active membership in the retirement system.
    10                 (B)  Any growth in the salary base used for
    11             calculating the regular retirement benefit.
    12                 (C)  Any additional benefit accrual for
    13             retirement purposes.
    14             (iii)  Specifies the effective date of IROP
    15         participation that shall be the day after the specified
    16         retirement date.
    17             (iv)  Specifies the IROP termination date that
    18         satisfies the limitation in subsection (a).
    19         (3)  Any other information required by the retirement
    20     system.
    21     (c)  IROP termination.--
    22         (1)  An IROP participant may change the IROP termination
    23     date to an earlier date within the limitations of subsection
    24     (a). No penalty shall be imposed for early termination of
    25     IROP participation.
    26         (2)  Upon either early or regular termination of IROP
    27     participation:
    28             (i)  The IROP participant shall be separated from
    29         employment by the local government.
    30             (ii)  The retirement system shall pay the balance in
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     1         the IROP participant's subsidiary IROP participant
     2         account to the terminating IROP participant as provided
     3         in section 1114(d).
     4             (iii)  The IROP participant shall be ineligible to
     5         reenroll in the IROP thereafter even if the former IROP
     6         participant is reemployed by the local government with
     7         renewed active membership in the retirement system.
     8  Section 1114. Benefits payable under IROP.
     9     (a)  Fixing retirement benefit, retirement date, retirement
    10  benefits and IROP dates.-- Effective with the date of
    11  retirement, which shall be the day before the effective date of
    12  IROP participation, the member's monthly, normal retirement
    13  benefit under the pension plan, the member's effective date of
    14  retirement and the member's effective dates of beginning and
    15  terminating employment as an IROP participant shall be fixed.
    16     (b)  Effective dates of IROP participation.--
    17         (1)  A retired member's effective date of participation
    18     in an IROP shall begin the day following the effective date
    19     of the member's regular retirement.
    20         (2)  A retired member's participation in an IROP shall
    21     end on the last day of the participation period specified in
    22     the ordinance establishing the IROP that is in effect on the
    23     effective date of the retired member's participation in the
    24     IROP.
    25     (c)  Treatment of normal retirement benefit payments and
    26  accruals.--All of the retired member's monthly, normal
    27  retirement benefit and interest thereon at the assigned rate
    28  shall be credited to the IROP participant's subsidiary IROP
    29  participant account in the pension trust fund and a separate
    30  accounting of the IROP participant's accrued benefit
    20030H1432B1778                 - 19 -     

     1  accumulation under the IROP shall be calculated annually and
     2  provided to the IROP participant.
     3     (d)  Payment of IROP benefits.--On the effective date of an
     4  IROP participant's termination of employment with the local
     5  government as an IROP participant, participation in the IROP
     6  shall cease and the retirement system shall calculate and pay to
     7  the participant the participant's total accumulated IROP
     8  benefits in the IROP participant's subsidiary IROP participant
     9  account subject to the following provisions:
    10         (1)  Except as provided in paragraph (2), the terminating
    11     IROP participant or, if deceased, the participant's named
    12     beneficiary shall elect on a form provided by the retirement
    13     system to receive payment of the IROP benefits in accordance
    14     with one of the following options:
    15             (i)  The balance in the IROP participant's subsidiary
    16         IROP participant account less withholding taxes, if any,
    17         remitted to the Internal Revenue Service shall be paid
    18         within 45 days by the retirement system from the account
    19         to the IROP participant or surviving beneficiary.
    20             (ii)  The balance in the IROP participant's
    21         subsidiary IROP participant account shall be paid within
    22         45 days by the retirement system from the account
    23         directly to the custodian of an eligible retirement plan
    24         as defined in section 402(c)(8)(b) of the Internal
    25         Revenue Code of 1986 (Public Law 99-514, 26 U.S.C. § 1 et
    26         seq.), or, in the case of an eligible rollover
    27         distribution to the surviving spouse of a deceased IROP
    28         participant, an eligible retirement plan that is an
    29         individual retirement account or an individual retirement
    30         annuity as described in section 402(c)(9) of the Internal
    20030H1432B1778                 - 20 -     

     1         Revenue Code.
     2         (2)  If the IROP participant or beneficiary fails to
     3     elect a method of payment within 60 days after the
     4     participant's termination date, the retirement system shall
     5     pay the balance as a lump sum as provided in paragraph (1).
     6         (3)  The form of payment selected by the IROP participant
     7     or surviving beneficiary shall comply with the minimum
     8     distribution requirements of the Internal Revenue Code.
     9     (e)  Taxation, attachment and assignment of IROP
    10  participant's account.--
    11         (1)  Except as provided in paragraphs (2), (3) and (4),
    12     the right of an IROP participant to any benefit or right
    13     accrued or accruing under the provisions of this chapter and
    14     the moneys in the IROP participant's subsidiary IROP
    15     participant account are exempt from any State or municipal
    16     tax, levy and sale, garnishment, attachment, spouse's
    17     election or any other process whatsoever.
    18         (2)  Rights under this chapter shall be subject to
    19     forfeiture as provided by the act of July 8, 1978 (P.L.752,
    20     No.140), known as the Public Employee Pension Forfeiture Act.
    21     Forfeitures under this subsection or under any other
    22     provision of law may not be applied to increase the benefits
    23     that any IROP participant otherwise would receive under this
    24     chapter.
    25         (3)  Rights under this chapter shall be subject to
    26     attachment in favor of an alternate payee as set forth in a
    27     qualified domestic relations order.
    28         (4)  Under subsection (d)(1)(ii), a distributee may elect
    29     to have an eligible rollover distribution paid directly to an
    30     eligible retirement plan by way of a direct rollover. For
    20030H1432B1778                 - 21 -     

     1     purposes of this paragraph, a "distributee" includes an IROP
     2     participant, an IROP participant's designated beneficiary and
     3     an IROP participant's former spouse who is an alternate payee
     4     under a qualified domestic relations order. For purposes of
     5     this paragraph, "eligible rollover distribution" has the
     6     meaning given the term by section 402(f)(2)(A) of the
     7     Internal Revenue Code, except that a qualified trust shall be
     8     considered an eligible retirement plan only if it accepts the
     9     distributee's eligible rollover distribution and, in the case
    10     of an eligible rollover distribution to a surviving spouse,
    11     an eligible retirement plan is an "individual retirement
    12     account" or an "individual retirement annuity" as those terms
    13     are defined in section 408(a) and (b) of the Internal Revenue
    14     Code.
    15     (f)  Effect of disability pension benefits.--If an IROP
    16  participant becomes eligible for a disability pension benefit
    17  and terminates employment, the monthly normal retirement benefit
    18  of the IROP participant shall terminate.
    19     (g)  Eligibility for active member benefits.--Except for
    20  those benefits specified under section 1113(b)(2)(ii) as forgone
    21  by the member, an IROP participant shall be eligible for any
    22  employee benefits provided to active employees before retirement
    23  as set forth in the ordinance instituting the IROP.
    24     (h)  Eligibility for benefits otherwise provided by law.--An
    25  IROP participant shall be eligible for all preretirement
    26  benefits for employees otherwise provided by law, including, but
    27  not limited to, benefits under the act of June 2, 1915 (P.L.736,
    28  No.338), known as the Workers' Compensation Act; the act of June
    29  28, 1935 (P.L.477, No.193), referred to as the Enforcement
    30  Officer Disability Benefits Law; the act of December 5, 1936
    20030H1432B1778                 - 22 -     

     1  (2nd Sp.Sess., 1937 P.L.2897, No.1), known as the Unemployment
     2  Compensation Law; the act of June 24, 1976 (P.L.424, No.101),
     3  referred to as the Emergency and Law Enforcement Personnel Death
     4  Benefits Act; and the Public Safety Officers' Benefit Act of
     5  1976 (Public Law 94-430, 42 U.S.C. § 90 stat. 1347).
     6  Section 1115.  Death benefits under IROP.
     7     (a)  IROP benefits for named beneficiary.--If an IROP
     8  participant dies, the IROP participant's named beneficiary shall
     9  be entitled to apply for and receive the benefits accrued in the
    10  IROP participant's subsidiary IROP participant account as
    11  provided in section 1114(d).
    12     (b)  Final credited monthly retirement benefit.--The monthly
    13  retirement system benefit accrued in the IROP participant's
    14  subsidiary IROP participant account during the month of an IROP
    15  participant's death shall be the final monthly retirement system
    16  benefit credited for IROP participation.
    17     (c)  IROP eligibility terminates upon participant's death.--
    18  An IROP participant's eligibility to participate in the IROP
    19  terminates upon the death of the IROP participant. If an IROP
    20  participant dies on or after the effective date of participation
    21  in the IROP but before the monthly retirement system benefit of
    22  the participant accruable for the month has accrued in the IROP
    23  participant's subsidiary IROP participant account, the local
    24  government shall pay the monthly retirement system benefits as
    25  though the participant had not elected IROP participation and
    26  had died after the member's effective date of retirement but
    27  before receipt of the retired member's first regular retirement
    28  benefit.
    29     (d)  Survivors ineligible for active member's death
    30  benefit.--Except as provided in subsection (e), the survivors of
    20030H1432B1778                 - 23 -     

     1  an IROP participant who dies shall not be eligible to receive
     2  retirement system death benefits payable in the event of the
     3  death of an active member.
     4     (e)  IROP participant killed in service.--If otherwise
     5  qualified as a family member under the act of May 29, 1956 (1955
     6  P.L.1804, No.600), referred to as the Municipal Police Pension
     7  Law, the named beneficiary of an IROP participant who is killed
     8  in service shall be entitled to apply for and receive a
     9  recalculation for payment of survivor benefits at 100% of the
    10  IROP participant's salary as fixed at the participant's date of
    11  retirement.
    12  Section 1116.  Subsequent employment and renewal of active
    13                 membership.
    14     After both the termination of the IROP participant's
    15  employment as an IROP participant by the local government and
    16  the expiration of the IROP participation period, a former IROP
    17  participant shall be subject to such reemployment limitations as
    18  other retired members and shall be eligible for renewed
    19  membership as an active member in the local government
    20  employees' retirement system.
    21                            SUBCHAPTER C
    22                     ADMINISTRATIVE PROVISIONS
    23  Section 1121.  IROP participant account.
    24     (a)  General rule.--If a local government creates an IROP, it
    25  shall establish an IROP participant account as an interest-
    26  bearing ledger account in its pension trust fund. The account
    27  balance shall be accounted for separately but need not be
    28  physically segregated from other pension trust fund assets.
    29     (b)  Subsidiary IROP participant accounts.--A separate
    30  interest-bearing subsidiary IROP participant account shall be
    20030H1432B1778                 - 24 -     

     1  established for each IROP participant. While a retired member is
     2  employed as an IROP participant, the member's monthly, normal
     3  retirement benefit and interest thereon shall be credited to the
     4  IROP participant's subsidiary IROP participant account under
     5  section 1114(c). The interest shall be compounded and credited
     6  monthly at an annual rate specified in the ordinance
     7  establishing the IROP that shall be not less than 1% nor more
     8  than 4 1/2%.
     9     (c)  Termination of employment.--When an IROP participant
    10  terminates employment with the local government as an IROP
    11  participant, the IROP participant's total accumulated benefits
    12  shall be calculated, charged to the IROP participant account and
    13  paid out of the pension trust fund under section 1114(d). Under
    14  section 202(b), the balance in the IROP participant account
    15  shall be excluded from actuarial valuation reports of the
    16  retirement system prepared and filed under this act.
    17     (d)  Account held in trust.--The IROP participant account
    18  shall be held in trust for the exclusive benefit of IROP retired
    19  members who are or were IROP participants and for the
    20  beneficiaries of the members.
    21  Section 1122.  Audit of Pennsylvania Municipal Retirement
    22                 System.
    23     The IROP established by the Pennsylvania Municipal Retirement
    24  Board shall be subject to financial and compliance audits
    25  conducted by the Auditor General with the initial audit
    26  conducted within one year of its establishment.
    27  Section 1123.  Existing IROPs.
    28     A local government with an IROP in existence on the effective
    29  date of this chapter that does not conform to the provisions of
    30  this chapter shall amend its plan within 180 days of the
    20030H1432B1778                 - 25 -     

     1  effective date of this chapter or when the current labor-
     2  management contract creating the plan expires, whichever is
     3  later, to conform with the provisions of this chapter with
     4  respect to future IROP participants.
     5  Section 1124.  Noncompliance.
     6     If a local government that established an IROP under section
     7  1111(a) or the Pennsylvania Municipal Retirement Board that
     8  established an IROP under section 1111(c) fails to comply within
     9  90 days with a finding by the Auditor General of noncompliance
    10  with this chapter or if the finding is appealed within 90 days
    11  of conclusion of the appeal process, the failure to comply shall
    12  be deemed sufficient refusal by the local government or the
    13  Pennsylvania Municipal Retirement Board to comply with its duty
    14  antecedent to the commencement of a mandamus action and the
    15  Auditor General shall refer the finding to the Attorney General.
    16  Upon receipt of the finding from the Auditor General, the
    17  Attorney General, following an administrative proceeding in
    18  accordance with 2 Pa.C.S. (relating to administrative law and
    19  procedure), shall proceed in the name of the Commonwealth to
    20  institute a legal proceeding for mandamus and no other remedy at
    21  law shall be deemed to be sufficiently adequate and appropriate
    22  to bar the commencement of this action.
    23     Section 12.  This act shall take effect as follows:
    24         (1)  The repeal of sections 602, 603, 604, 605, 606 and
    25     608 of the act shall take effect January 1, 2004.
    26         (2)  The remainder of this act shall take effect in 60
    27     days.


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