PRINTER'S NO. 3120
No. 2269 Session of 2003
INTRODUCED BY NICKOL, DECEMBER 17, 2003
REFERRED TO COMMITTEE ON FINANCE, DECEMBER 17, 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 and for the administration of the
9 General Municipal Pension System State Aid Program.
10 The General Assembly of the Commonwealth of Pennsylvania
11 hereby enacts as follows:
12 Section 1. Section 202(b) of the act of December 18, 1984
13 (P.L.1005, No.205), known as the Municipal Pension Plan Funding
14 Standard and Recovery Act, amended December 19, 1997 (P.L.611,
15 No.61), is amended to read:
16 Section 202. Contents of actuarial valuation report.
17 * * *
18 (b) Contents of actuarial exhibits; defined benefit plans
19 self-insured in whole or in part.--For any pension plan which is
20 a defined benefit plan and which is self-insured in whole or in
21 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
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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 (1) An exhibit of the normal cost of the benefits
16 provided by the benefit plan as of the date of the actuarial
17 valuation, expressed as a percentage of the future covered
18 payroll of the active membership of the pension plan as of
19 the date of the actuarial valuation.
20 (2) An exhibit of the actuarial accrued liability of the
21 benefit plan as of the date of the actuarial valuation in
22 total which shall be the actuarial present value of all
23 projected benefits provided by the benefit plan reduced by
24 the actuarial present value of future normal costs, and in
25 particular, which shall include the following required
26 actuarial present values for pension plan benefits of related
27 items:
28 (i) Required actuarial present values on account of
29 active members:
30 (A) Retirement benefits.
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1 (B) Disability benefits.
2 (C) Survivor benefits.
3 (D) Refund liability due to withdrawal from
4 active service or death.
5 (E) Other benefits, specifying the nature of
6 each type.
7 This item shall include a footnote indicating the amount
8 of accumulated member contributions without accrued
9 interest.
10 (ii) Required actuarial present values on account of
11 former members with a deferred, vested or otherwise
12 nonforfeitable right to a retirement benefit.
13 (iii) Required actuarial present values on account
14 of former members who do not have a deferred, vested or
15 otherwise nonforfeitable right to the retirement benefit
16 and who have not withdrawn any accumulated member
17 contributions.
18 (iv) Required actuarial present values on account of
19 benefit recipients:
20 (A) Retirement benefits.
21 (B) Disability benefits.
22 (C) Surviving spouse benefits.
23 (D) Surviving child benefits.
24 (E) Other benefits, specifying the nature of
25 each type.
26 (v) Required actuarial present values for other
27 benefits provided by the benefit plan, specifying the
28 nature of each type.
29 (vi) Actuarial present value of future normal cost.
30 (3) An exhibit of the unfunded actuarial accrued
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1 liability of the pension plan in total, which shall be the
2 actuarial accrued liability of the pension plan calculated
3 pursuant to paragraph (2) less the actuarial value of assets
4 of the pension plan calculated pursuant to subsection (e)(1),
5 and which, in particular, shall include the following:
6 (i) The remaining balance of the unfunded actuarial
7 accrued liability in existence as of the first actuarial
8 valuation report required by this section occurring next
9 following the date of enactment of this section.
10 (ii) The remaining balance of each increment of
11 unfunded actuarial accrued liability attributable to
12 modifications in the benefit plan governing the pension
13 plan which were applicable to active members, separately
14 indicating each and designating each by the plan year in
15 which the benefit plan modification was made effective.
16 (iii) The remaining balance of each increment of
17 unfunded actuarial accrued liability attributable to
18 modifications in the benefit plan governing the pension
19 plan which were applicable to retired members and other
20 benefit recipients, separately indicating each and
21 designating each by the plan year in which the benefit
22 plan modification was made effective.
23 (iv) The remaining balance of each increment of net
24 unfunded actuarial accrued liability attributable to
25 modifications in the actuarial assumptions used to
26 calculate the actuarial accrued liability of the pension
27 plan separately indicating each and designating each by
28 the plan year in which the actuarial assumption
29 modification was made effective.
30 (v) The remaining balance of each increment or
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1 decrement of net unfunded actuarial accrued liability
2 attributable to net actuarial experience losses or gains,
3 separately indicating each and designating each by the
4 plan year in which the actuarial experience loss or gain
5 was recognized.
6 (vi) The remaining balance of each increment of
7 unfunded actuarial accrued liability attributable to the
8 provision of survivor benefits payable under section
9 5(e)(2) of the act of May 29, 1956 (1955 P.L.1804,
10 No.600), referred to as the Municipal Police Pension Law,
11 separately indicating each and designating each by the
12 year in which the actuarial experience loss was
13 recognized.
14 The initial determination of the unfunded actuarial accrued
15 liability attributable to a modification in the benefit plan
16 governing the pension plan or to a modification in the
17 actuarial assumptions used to calculate the actuarial accrued
18 liability of the pension plan shall be made by calculating
19 the unfunded actuarial accrued liability of the pension plan
20 in accordance with the benefit plan provisions and actuarial
21 assumptions which were in effect prior to the modification
22 and by calculating the unfunded actuarial accrued liability
23 of the pension plan in accordance with the modification in
24 the provisions of the benefit plan governing the pension plan
25 or the actuarial assumptions used to calculate the actuarial
26 accrued liability of the pension plan, whichever is
27 applicable, and the remaining benefit plan provisions and
28 actuarial assumptions. The initial determination of the
29 unfunded actuarial accrued liability attributable to an
30 actuarial loss shall be made in conjunction with the analysis
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1 of increases or decreases in the unfunded actuarial accrued
2 liability of the pension plan required pursuant to paragraph
3 (6).
4 (4) An exhibit of any additional funding costs
5 associated with the amortization of any unfunded actuarial
6 accrued liability of the pension plan, indicating for each
7 increment of unfunded actuarial accrued liability specified
8 in paragraph (3), the level annual dollar contribution
9 required to pay an amount equal to the actuarial assumption
10 as to investment earnings applied to the principal amount of
11 the remaining balance of the increment of unfunded actuarial
12 accrued liability and to retire by the applicable
13 amortization target date specified in this paragraph the
14 principal amount of the remaining balance of the increment of
15 unfunded actuarial accrued liability. The amortization target
16 date applicable for each type of increment of unfunded
17 actuarial accrued liability shall be as follows:
18 (i) (A) In the case of a pension plan established
19 on or prior to January 1, 1985 for the unfunded
20 actuarial accrued liability in existence as of the
21 beginning of the plan year occurring in calendar year
22 1985, at the end of the plan year occurring in
23 calendar year 2015; or
24 (B) In the case of a pension plan established
25 after January 1, 1985, for the unfunded actuarial
26 accrued liability then or subsequently determined to
27 be or to have been in existence as of the date of the
28 establishment of the plan, at the end of the plan
29 year occurring 30 years after the calendar year in
30 which the pension plan was established.
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1 (ii) Increment or decrement of net unfunded
2 actuarial accrued liability attributable to a change in
3 actuarial assumptions, at the end of the plan year
4 occurring 20 years after the calendar year in which
5 actuarial assumption modification was effective.
6 (iii) Increment of net unfunded actuarial accrued
7 liability attributable to a modification in the benefit
8 plan applicable to active members, at the end of the plan
9 year occurring 20 years after the calendar year in which
10 the benefit plan modification was effective.
11 (iv) Increment of unfunded actuarial accrued
12 liability attributable to a modification in the benefit
13 plan applicable to retired members and other benefit
14 recipients, at the end of the plan year occurring 10
15 years after the calendar year in which the benefit plan
16 modification was effective.
17 (v) Increment or decrement of net unfunded actuarial
18 accrued liability attributable to an actuarial experience
19 loss or gain, at the end of plan year occurring 15 years
20 after the calendar year in which the actuarial experience
21 loss or gain was recognized.
22 (vi) Increment of unfunded actuarial accrued
23 liability attributable to the provision of survivor
24 benefits payable under section 5(e)(2) of the act of May
25 29, 1956 (1955 P.L.1804, No.600), referred to as the
26 Municipal Police Pension Law, at the end of the plan year
27 occurring 40 years after the calendar year in which the
28 survivor benefits were first payable.
29 With respect to any applicable pension plan other than a plan
30 which comprises all or part of a moderately distressed or a
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1 severely distressed municipal pension system, if the
2 remaining average period between the current average attained
3 age of active members as of the valuation date and the later
4 of their earliest average normal retirement age or their
5 average assumed retirement age is less than the applicable
6 period or periods ending with the amortization target date or
7 dates specified in subparagraph (i), (ii), (iii) or (v), the
8 appropriate amortization target date for the applicable
9 subparagraph determined with reference to the longest
10 applicable remaining average period rounded to the next
11 largest whole number shall be used. With respect to any plan
12 year beginning after December 31, 1997, if, as of the
13 beginning of the plan year, the ratio of the actuarial value
14 of assets to the actuarial accrued liability exceeds 0.70 and
15 the governing body of the municipality has passed a
16 resolution to irrevocably commit the municipality to apply
17 the limit on the additional funding costs, as provided
18 herein, in the preparation of the current and all future
19 exhibits under this paragraph, then the sum of the additional
20 funding costs for subparagraphs (i), (ii), (iii), (iv) and
21 (v) above shall not exceed the amount required to amortize
22 the remaining unfunded actuarial accrued liability as of the
23 beginning of the plan year over 10 years in level annual
24 dollar contributions. The exhibit shall indicate the total
25 dollar amount of additional funding costs associated with the
26 amortization of any unfunded actuarial accrued liability of
27 the pension plan applicable for that plan year and any
28 subsequent plan year occurring prior to the preparation of
29 the next required actuarial valuation report, which shall be
30 the total of the additional funding costs associated with the
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1 amortization of each increment of unfunded actuarial accrued
2 liability. The exhibit shall also indicate the plan year in
3 which any unfunded actuarial accrued liability of the pension
4 plan would be fully amortized if the total annual additional
5 funding cost calculated pursuant to this paragraph were met
6 continuously without increase or decrease in amount until the
7 total unfunded actuarial accrued liability currently existing
8 was fully amortized. In calculating the additional funding
9 costs associated with the amortization of any unfunded
10 actuarial accrued liability of the pension plan in any plan
11 year, any amortization contribution made in the interval
12 since the last actuarial valuation report shall be allocated
13 to each type of increment of unfunded actuarial accrued
14 liability in proportion to the remaining dollar amount of
15 each type.
16 * * *
17 Section 2. The act is amended by adding a section to read:
18 Section 209. Certification of municipal pension costs.
19 The commission shall determine annually the actual financial
20 requirement for each municipal pension plan based on the data
21 contained in the most recent complete report required to be
22 filed by the municipality pursuant to this chapter and shall
23 certify annually to the Auditor General the actual financial
24 requirements for each municipal pension plan based on the data
25 contained in the most recent actuarial valuation report required
26 to be filed by the municipality pursuant to this chapter. The
27 Auditor General shall use the data certified by the commission
28 to implement the provisions of section 402(f)(2).
29 Section 3. This act shall take effect in 60 days.
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