PRINTER'S NO. 3519
No. 2467 Session of 2004
INTRODUCED BY FORCIER, BAKER, BASTIAN, BEBKO-JONES, BENNINGHOFF,
BIRMELIN, BOYD, BROWNE, BUXTON, CAPPELLI, CLYMER, COSTA,
DALEY, DeWEESE, DIVEN, D. EVANS, FABRIZIO, GABIG, GOOD,
HANNA, HERMAN, HESS, KILLION, LAUGHLIN, LEH, LYNCH, MARKOSEK,
McCALL, METCALFE, PETRARCA, SAINATO, SANTONI, SATHER,
SCAVELLO, STETLER, TIGUE, WATSON, WHEATLEY AND WILT,
MARCH 23, 2004
REFERRED TO COMMITTEE ON FINANCE, MARCH 23, 2004
AN ACT
1 Amending the act of December 18, 1984 (P.L.1005, No.205),
2 entitled "An act mandating actuarial funding standards for
3 all municipal pension systems; establishing a recovery
4 program for municipal pension systems determined to be
5 financially distressed; providing for the distribution of the
6 tax on the premiums of foreign fire insurance companies; and
7 making repeals," further providing for contents of actuarial
8 valuation report.
9 The General Assembly of the Commonwealth of Pennsylvania
10 hereby enacts as follows:
11 Section 1. Section 202(b) of the act of December 18, 1984
12 (P.L.1005, No.205), known as the Municipal Pension Plan Funding
13 Standard and Recovery Act, amended December 19, 1997 (P.L.611,
14 No.61), is amended to read:
15 Section 202. Contents of actuarial valuation report.
16 * * *
17 (b) Contents of actuarial exhibits; defined benefit plans
18 self-insured in whole or in part.--For any pension plan which is
1 a defined benefit plan and which is self-insured in whole or in
2 part, all applicable actuarial exhibits shall be prepared in
3 accordance with the entry age normal actuarial cost method with
4 entry age established as the actual entry age for all plan
5 members unless the municipality applies for and is granted
6 authorization by the commission to use an alternative actuarial
7 cost method. Authorization shall be granted if the municipality
8 demonstrates on an individual pension plan basis that there are
9 compelling reasons of an actuarial nature for the use of an
10 alternative actuarial cost method. The commission shall issue
11 rules and regulations specifying the criteria which the
12 commission will use to determine the question of the existence
13 of compelling reasons for the use of an alternative actuarial
14 cost method, the documentation which a municipality seeking the
15 authorization will be required to supply and the acceptable
16 alternative actuarial cost methods which the commission may
17 authorize. The actuarial cost method shall be used to value all
18 aspects of the benefit plan or plans of the pension plan unless
19 the municipality applies for and is granted authorization by the
20 commission to use approximation techniques other than the
21 actuarial cost method for aspects of the benefit plan or plans
22 of the pension plan other than the retirement benefit.
23 Authorization shall be granted if the municipality demonstrates
24 on an individual pension plan basis that there are compelling
25 reasons of an actuarial nature for the use of these
26 approximation techniques. The commission shall issue rules and
27 regulations specifying the criteria which the commission will
28 use to determine the question of the existence of compelling
29 reasons for the use of approximation techniques, the
30 documentation which a municipality seeking the authorization
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1 will be required to supply and the acceptable approximation
2 technique which the commission may authorize. The actuarial
3 exhibits shall use actuarial assumptions which are, in the
4 judgment of the actuary and the governing body of the plan, the
5 best available estimate of future occurrences in the case of
6 each assumption. With respect to economic actuarial assumptions,
7 the assumptions shall either be within the range specified in
8 rules and regulations issued by the commission or documentation
9 explaining and justifying the choice of assumptions outside the
10 range shall accompany the report. The actuarial exhibits shall
11 measure all aspects of the benefit plan or plans of the pension
12 plan in accordance with modifications in the benefit plan or
13 plans, if any, and salaries which as of the valuation date are
14 known or can reasonably be expected to be in force during the
15 ensuing plan year. The actuarial valuation report shall contain
16 the following actuarial exhibits:
17 (1) An exhibit of the normal cost of the benefits
18 provided by the benefit plan as of the date of the actuarial
19 valuation, expressed as a percentage of the future covered
20 payroll of the active membership of the pension plan as of
21 the date of the actuarial valuation.
22 (2) An exhibit of the actuarial accrued liability of the
23 benefit plan as of the date of the actuarial valuation in
24 total which shall be the actuarial present value of all
25 projected benefits provided by the benefit plan reduced by
26 the actuarial present value of future normal costs, and in
27 particular, which shall include the following required
28 actuarial present values for pension plan benefits of related
29 items:
30 (i) Required actuarial present values on account of
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1 active members:
2 (A) Retirement benefits.
3 (B) Disability benefits.
4 (C) Survivor benefits.
5 (D) Refund liability due to withdrawal from
6 active service or death.
7 (E) Other benefits, specifying the nature of
8 each type.
9 This item shall include a footnote indicating the amount
10 of accumulated member contributions without accrued
11 interest.
12 (ii) Required actuarial present values on account of
13 former members with a deferred, vested or otherwise
14 nonforfeitable right to a retirement benefit.
15 (iii) Required actuarial present values on account
16 of former members who do not have a deferred, vested or
17 otherwise nonforfeitable right to the retirement benefit
18 and who have not withdrawn any accumulated member
19 contributions.
20 (iv) Required actuarial present values on account of
21 benefit recipients:
22 (A) Retirement benefits.
23 (B) Disability benefits.
24 (C) Surviving spouse benefits.
25 (D) Surviving child benefits.
26 (E) Other benefits, specifying the nature of
27 each type.
28 (v) Required actuarial present values for other
29 benefits provided by the benefit plan, specifying the
30 nature of each type.
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1 (vi) Actuarial present value of future normal cost.
2 (3) An exhibit of the unfunded actuarial accrued
3 liability of the pension plan in total, which shall be the
4 actuarial accrued liability of the pension plan calculated
5 pursuant to paragraph (2) less the actuarial value of assets
6 of the pension plan calculated pursuant to subsection (e)(1),
7 and which, in particular, shall include the following:
8 (i) The remaining balance of the unfunded actuarial
9 accrued liability in existence as of the first actuarial
10 valuation report required by this section occurring next
11 following the date of enactment of this section.
12 (ii) The remaining balance of each increment of
13 unfunded actuarial accrued liability attributable to
14 modifications in the benefit plan governing the pension
15 plan which were applicable to active members, separately
16 indicating each and designating each by the plan year in
17 which the benefit plan modification was made effective.
18 (iii) The remaining balance of each increment of
19 unfunded actuarial accrued liability attributable to
20 modifications in the benefit plan governing the pension
21 plan which were applicable to retired members and other
22 benefit recipients, separately indicating each and
23 designating each by the plan year in which the benefit
24 plan modification was made effective.
25 (iv) The remaining balance of each increment of net
26 unfunded actuarial accrued liability attributable to
27 modifications in the actuarial assumptions used to
28 calculate the actuarial accrued liability of the pension
29 plan separately indicating each and designating each by
30 the plan year in which the actuarial assumption
20040H2467B3519 - 5 -
1 modification was made effective.
2 (v) The remaining balance of each increment or
3 decrement of net unfunded actuarial accrued liability
4 attributable to net actuarial experience losses or gains,
5 separately indicating each and designating each by the
6 plan year in which the actuarial experience loss or gain
7 was recognized.
8 (vi) The remaining balance of each increment of
9 unfunded actuarial accrued liability attributable to the
10 provision of survivor benefits payable under section
11 5(e)(2) of the act of May 29, 1956 (1955 P.L.1804,
12 No.600), referred to as the Municipal Police Pension Law,
13 separately indicating each and designating each by the
14 plan year in which the actuarial experience loss was
15 recognized.
16 The initial determination of the unfunded actuarial accrued
17 liability attributable to a modification in the benefit plan
18 governing the pension plan or to a modification in the
19 actuarial assumptions used to calculate the actuarial accrued
20 liability of the pension plan shall be made by calculating
21 the unfunded actuarial accrued liability of the pension plan
22 in accordance with the benefit plan provisions and actuarial
23 assumptions which were in effect prior to the modification
24 and by calculating the unfunded actuarial accrued liability
25 of the pension plan in accordance with the modification in
26 the provisions of the benefit plan governing the pension plan
27 or the actuarial assumptions used to calculate the actuarial
28 accrued liability of the pension plan, whichever is
29 applicable, and the remaining benefit plan provisions and
30 actuarial assumptions. The initial determination of the
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1 unfunded actuarial accrued liability attributable to an
2 actuarial loss shall be made in conjunction with the analysis
3 of increases or decreases in the unfunded actuarial accrued
4 liability of the pension plan required pursuant to paragraph
5 (6).
6 (4) An exhibit of any additional funding costs
7 associated with the amortization of any unfunded actuarial
8 accrued liability of the pension plan, indicating for each
9 increment of unfunded actuarial accrued liability specified
10 in paragraph (3), the level annual dollar contribution
11 required to pay an amount equal to the actuarial assumption
12 as to investment earnings applied to the principal amount of
13 the remaining balance of the increment of unfunded actuarial
14 accrued liability and to retire by the applicable
15 amortization target date specified in this paragraph the
16 principal amount of the remaining balance of the increment of
17 unfunded actuarial accrued liability. The amortization target
18 date applicable for each type of increment of unfunded
19 actuarial accrued liability shall be as follows:
20 (i) (A) In the case of a pension plan established
21 on or prior to January 1, 1985 for the unfunded
22 actuarial accrued liability in existence as of the
23 beginning of the plan year occurring in calendar year
24 1985, at the end of the plan year occurring in
25 calendar year 2015; or
26 (B) In the case of a pension plan established
27 after January 1, 1985, for the unfunded actuarial
28 accrued liability then or subsequently determined to
29 be or to have been in existence as of the date of the
30 establishment of the plan, at the end of the plan
20040H2467B3519 - 7 -
1 year occurring 30 years after the calendar year in
2 which the pension plan was established.
3 (ii) Increment or decrement of net unfunded
4 actuarial accrued liability attributable to a change in
5 actuarial assumptions, at the end of the plan year
6 occurring 20 years after the calendar year in which
7 actuarial assumption modification was effective.
8 (iii) Increment of net unfunded actuarial accrued
9 liability attributable to a modification in the benefit
10 plan applicable to active members, at the end of the plan
11 year occurring 20 years after the calendar year in which
12 the benefit plan modification was effective.
13 (iv) Increment of unfunded actuarial accrued
14 liability attributable to a modification in the benefit
15 plan applicable to retired members and other benefit
16 recipients, at the end of the plan year occurring 10
17 years after the calendar year in which the benefit plan
18 modification was effective.
19 (v) (A) Increment or decrement of net unfunded
20 actuarial accrued liability attributable to an
21 actuarial experience loss or gain, at the end of plan
22 year occurring 15 years after the calendar year in
23 which the actuarial experience loss or gain was
24 recognized.
25 (B) Notwithstanding any other provision of this
26 act or other law, as of the beginning of the plan
27 year occurring in calendar year 2003, the outstanding
28 balance of the increment of unfunded actuarial
29 accrued liability attributable to the net actuarial
30 investment losses incurred in calendar years 2001 and
20040H2467B3519 - 8 -
1 2002 may, at the sole discretion of the municipality,
2 be amortized with the amortization target date being
3 the end of the plan year occurring 30 years after
4 January 1, 2003. In order for a municipality to
5 extend the applicable amortization period pursuant to
6 this clause, the municipality must file a revised
7 actuarial valuation report reflecting the
8 amortization period extension provided for under this
9 clause with the executive director of the commission
10 no later than September 30, 2004. Any such revised
11 actuarial valuation report may not be filed in lieu
12 of the actuarial valuation report prepared in
13 compliance with clause (A) and required to be filed
14 on or before March 31, 2004, and may be used only for
15 the purposes of recalculating the 2004 minimum
16 municipal obligation of the municipality and
17 calculating the 2005 minimum municipal obligation of
18 the municipality to reflect the amortization period
19 extension. Any such revised actuarial valuation
20 report shall not affect distributions under the
21 General Municipal Pension System State Aid Program
22 under Chapter 4.
23 (vi) Increment of unfunded actuarial accrued
24 liability attributable to the provision of survivor
25 benefits payable under section 5(e)(2) of the Municipal
26 Police Pension Law, at the end of the plan year occurring
27 40 years after the calendar year in which the survivor
28 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
20040H2467B3519 - 9 -
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)(A),
8 the 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
20040H2467B3519 - 10 -
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 (5) An exhibit of the total administrative cost of the
17 pension plan for the plan year occurring immediately prior to
18 the plan year for which the actuarial valuation report is
19 made.
20 (6) An exhibit containing an analysis of the increase or
21 decrease in the unfunded actuarial accrued liability of the
22 pension plan since the most recent prior actuarial valuation
23 report, including specifically an indication of increases or
24 decreases due to the following:
25 (i) Modifications in the benefit plan or plans of
26 the pension plan.
27 (ii) Changes in actuarial assumptions.
28 (iii) Deviations in the actual experience of the
29 pension plan from the experience expected by virtue of
30 the actuarial assumptions.
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1 (iv) Presence or absence of payments to amortize the
2 unfunded accrued liability of the pension plan.
3 (v) Other reasons.
4 The analysis shall be based on the best professional judgment
5 of the approved actuary reached after preparing the various
6 applicable actuarial exhibits of the actuarial valuation
7 report. If, in the opinion of the approved actuary, the
8 inclusion of any portion of this information is not
9 appropriate, that portion of the analysis may be omitted with
10 the provision of adequate explanation or justification of the
11 appropriateness of the omission.
12 (7) An exhibit summarizing the economic and demographic
13 actuarial assumptions used in the preparation of the
14 actuarial exhibits.
15 (8) A summary of the principal provisions of the benefit
16 plan of the pension plan upon which the actuarial exhibits
17 are based.
18 * * *
19 Section 2. This act shall take effect in 60 days.
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