1Amending Title 24 (Education) of the Pennsylvania Consolidated
2Statutes, further providing for definitions and for actuarial
3cost method; providing for supplemental annuities commencing
42014; and further providing for management of fund and
5accounts.

6The General Assembly of the Commonwealth of Pennsylvania
7hereby enacts as follows:

8Section 1. The definition of "valuation interest" in section
98102 of Title 24 of the Pennsylvania Consolidated Statutes is
10amended and the section is amended by adding definitions to
11read:

12§ 8102. Definitions.

13The following words and phrases when used in this part shall
14have, unless the context clearly indicates otherwise, the
15meanings given to them in this section:

16* * *

17"Actual interest." Amounts credited annually to the annuity 
18reserve account calculated by multiplying the difference of the
 

1fund's time-weighted rate of return for the preceding year minus 
2the board's actuarial interest rate assumption for the preceding 
3year, times the mean amount of the annuity reserve account for 
4the preceding year.

5* * *

6"Time-weighted rate of return." The fund's total investment
7return, including both realized and unrealized gains and losses,
8based on the actuarial value of assets used for determining
9annual contribution rates.

10* * *

11"Valuation interest." Interest at 5 1/2% per annum,
12compounded annually and applied to all accounts other than the
13members' savings account and the annuity reserve account.

14* * *

15Section 2. Section 8328 of Title 24 is amended to read:

16§ 8328. Actuarial cost method.

17(a) Employer contribution rate.--The amount of the total
18employer contributions shall be computed by the actuary as a
19percentage of the total compensation of all active members
20during the period for which the amount is determined and shall
21be so certified by the board. The total employer contribution 
22rate shall be the sum of the final contribution rate as computed 
23in subsection (h) plus the premium assistance contribution rate 
24as computed in subsection (f). The actuarially required
25contribution rate shall consist of the normal contribution rate
26as defined in subsection (b), the accrued liability contribution
27rate as defined in subsection (c) and the supplemental annuity
28contribution rate as defined in subsection (d). Beginning July
291, 2004, the actuarially required contribution rate shall be
30modified by the experience adjustment factors as calculated in

1subsection (e).

2(b) Normal contribution rate.--The normal contribution rate
3shall be determined after each actuarial valuation. Until all
4accrued liability contributions have been completed, the normal
5contribution rate shall be determined, on the basis of an annual
6interest rate and such mortality and other tables as shall be
7adopted by the board in accordance with generally accepted
8actuarial principles, as a level percentage of the compensation
9of the average new active member, which percentage, if
10contributed on the basis of his prospective compensation through
11the entire period of active school service, would be sufficient
12to fund the liability for any prospective benefit payable to
13him, in excess of that portion funded by his prospective member
14contributions, excluding the shared-risk contributions.

15(c) Accrued liability contribution rate.--

16(1) For the fiscal years beginning July 1, 2002, and 
17ending June 30, 2011, the accrued liability contribution rate
18shall be computed as the rate of total compensation of all
19active members which shall be certified by the actuary as
20sufficient to fund over a period of [ten] 20 years from July
211, 2002, the present value of the liabilities for all
22prospective benefits of active members, except for the
23supplemental benefits provided in sections 8348 (relating to 
24supplemental annuities), 8348.1 (relating to additional 
25supplemental annuities), 8348.2 (relating to further 
26additional supplemental annuities), 8348.3 (relating to 
27supplemental annuities commencing 1994), 8348.4 (relating to 
28special supplemental postretirement adjustment), 8348.5
29(relating to supplemental annuities commencing 1998), 8348.6
30(relating to supplemental annuities commencing 2002) [and],

18348.7 (relating to supplemental annuities commencing 2003) 
2and 8348.8 (relating to supplemental annuities commencing 
32014), in excess of the total assets in the fund (calculated
4by recognizing the actuarially expected investment return
5immediately and recognizing the difference between the actual
6investment return and the actuarially expected investment
7return over a five-year period), excluding the balance in the
8annuity reserve account, and of the present value of normal
9contributions and of member contributions payable with
10respect to all active members on July 1, 2002, during the
11remainder of their active service.

12(2) For the fiscal years beginning July 1, 2003, and 
13ending June 30, 2011, the amount of each annual accrued
14liability contribution shall be equal to the amount of such
15contribution for the fiscal year, beginning July 1, 2002,
16except that, if the accrued liability is increased by
17legislation enacted subsequent to June 30, 2002, but before
18July 1, 2003, such additional liability shall be funded over
19a period of [ten] 20 years from the first day of July,
20coincident with or next following the effective date of the
21increase. The amount of each annual accrued liability
22contribution for such additional legislative liabilities
23shall be equal to the amount of such contribution for the
24first annual payment.

25(3) Notwithstanding any other provision of law,
26beginning July 1, 2004, and ending June 30, 2011, the
27outstanding balance of the increase in accrued liability due
28to the change in benefits enacted in 2001 and the outstanding
29balance of the net actuarial loss incurred in fiscal year
302000-2001 shall be amortized in equal dollar annual

1contributions over a period that ends 30 years after July 1,
22002, and the outstanding balance of the net actuarial loss
3incurred in fiscal year 2001-2002 shall be amortized in equal
4dollar annual contributions over a period that ends 30 years
5after July 1, 2003. For fiscal years beginning on or after
6July 1, 2004, if the accrued liability is increased by
7legislation enacted subsequent to June 30, 2003, such
8additional liability shall be funded in equal dollar annual
9contributions over a period of ten years from the first day
10of July coincident with or next following the effective date
11of the increase.

12(4) For the fiscal year beginning July 1, 2011, the 
13accrued liability contribution rate shall be computed as the 
14rate of total compensation of all active members which shall 
15be certified by the actuary as sufficient to fund as a level 
16percentage of compensation over a period of 24 years from 
17July 1, 2011, the present value of the liabilities for all 
18prospective benefits calculated as of June 30, 2010, 
19including the supplemental benefits as provided in sections 
208348, 8348.1, 8348.2, 8348.3, 8348.4, 8348.5, 8348.6 and 
218348.7, in excess of the actuarially calculated assets in the 
22fund (calculated recognizing all realized and unrealized 
23investment gains and losses each year in level annual 
24installments over a ten-year period). In the event that the 
25accrued liability is increased by legislation enacted 
26subsequent to June 30, 2010, such additional liability shall 
27be funded as a level percentage of compensation over a period 
28of ten years from the July 1 second succeeding the date such 
29legislation is enacted.

30(d) Supplemental annuity contribution rate.--

1(1) For the period of July 1, 2002, to June 30, 2011, 
2contributions from the Commonwealth and other employers
3required to provide for the payment of the supplemental
4annuities provided for in sections 8348, 8348.1, 8348.2,
58348.4 and 8348.5 shall be paid over a period of [ten] 20
6years from July 1, 2002. The funding for the supplemental
7annuities commencing 2002 provided for in section 8348.6
8shall be as provided in section 8348.6(f). The funding for
9the supplemental annuities commencing 2003 provided for in
10section 8348.7 shall be as provided in section 8348.7(f). The
11amount of each annual supplemental annuities contribution
12shall be equal to the amount of such contribution for the
13fiscal year beginning July 1, 2002.

14(2) For fiscal years beginning July 1, 2011,
15contributions from the Commonwealth and other employers whose 
16employees are members of the system required to provide for 
17the payment of supplemental annuities as provided in sections 
188348, 8348.1, 8348.2, 8348.3, 8348.4, 8348.5, 8348.6 and 
198348.7 shall be paid as part of the accrued liability 
20contribution rate as provided for in subsection (c)(4), and 
21there shall not be a separate supplemental annuity 
22contribution rate attributable to those supplemental 
23annuities. In the event that supplemental annuities are 
24increased by legislation enacted subsequent to June 30, 2010, 
25the additional liability for the increase in benefits shall 
26be funded as a level percentage of compensation over a period 
27of ten years from the July 1 second succeeding the date such 
28legislation is enacted.

29(3) The additional liabilities for supplemental 
30annuities provided in section 8348.8 shall be calculated by
 

1the actuary as the supplemental annuity contribution 
2attributable to the additional liability for the benefit 
3increase, less the supplemental annuity adjustment factor 
4calculated in subsection (h.1), but in no case shall it be 
5less than zero. The sums calculated by the actuary shall be 
6funded in equal dollar annual installments over periods of 20 
7years.

8(e) Experience adjustment factor.--

9(1) For each year after the establishment of the accrued
10liability contribution rate for the fiscal year beginning
11July 1, 2011, any increase or decrease in the unfunded
12accrued liability, excluding the gains or losses on the
13assets of the health insurance account, due to actual
14experience differing from assumed experience, changes in
15actuarial assumptions, changes in contributions caused by the 
16final contribution rate being different from the actuarially 
17required contribution rate, active members making shared-risk 
18contributions or changes in the terms and conditions of the
19benefits provided by the system by judicial, administrative
20or other processes other than legislation, including, but not
21limited to, reinterpretation of the provisions of this part,
22shall be amortized as a level percentage of compensation over
23a period of 24 years beginning with the July 1 second
24succeeding the actuarial valuation determining said increases 
25or decreases.

26(2) (Reserved).

27(f) Premium assistance contribution rate.--For each fiscal
28year beginning with July 1, 1991, the total contribution rate as
29calculated according to this section shall be increased annually
30in the full amount certified by the board as necessary to fund

1the premium assistance program in accordance with section 8509
2(relating to health insurance premium assistance program),
3notwithstanding any other provisions of this section.

4(g) Temporary application of collared contribution rate.--

5(1) The collared contribution rate for each year shall
6be determined by comparing the actuarially required
7contribution rate, calculated without regard for the costs
8added by legislation, to the prior year's final contribution
9rate.

10(2) If, for any of the fiscal years beginning July 1,
112011, July 1, 2012, and on or after July 1, 2013, the
12actuarially required contribution rate, calculated without
13regard for the costs added by legislation, is more than 3%,
143.5% and 4.5%, respectively, of the total compensation of all
15active members greater than the prior year's final
16contribution rate, then the collared contribution rate shall
17be applied and be equal to the prior year's final
18contribution rate increased by 3%, 3.5% and 4.5%,
19respectively, of total compensation of all active members.
20Otherwise, and for all other fiscal years, the collared
21contribution rate shall not be applicable. In no case shall
22the collared contribution rate be less than 4% of the total
23compensation of all active members.

24(h) Final contribution rate.--

25(1) For the fiscal year beginning July 1, 2010, the 
26final contribution rate is 5% of the total compensation of 
27all active members. For each subsequent fiscal year for which 
28the collared contribution rate is applicable, the final 
29contribution rate shall be the collared contribution rate as 
30calculated in subsection (g), plus the costs added by
 

1legislation.

2(2) For all other fiscal years, the final contribution
3rate shall be the actuarially required contribution rate,
4provided that the final contribution rate shall not be less
5than the normal contribution rate as provided in subsection
6(b).

7(h.1) Supplemental annuity adjustment factor.--Beginning
8with the fiscal year ending June 30, 2014, and continuing
9annually thereafter, any increase or decrease in the accrued
10liability for annuitant member benefits due to the crediting of
11actual interest shall be amortized in equal dollar annual
12installments over a period of 20 years beginning with July 1
13next succeeding the actuarial valuation.

14(i) Definitions.--As used in this section, the following
15words and phrases shall have the meanings given to them in this
16subsection unless the context clearly indicates otherwise:

17"Actuarially required contribution rate." The sum of the
18following:

19(1) the normal contribution rate as calculated in
20subsection (b);

21(2) the accrued liability contribution rate as
22calculated in subsection (c);

23(3) the supplemental annuity contribution rate as
24calculated in subsection (d);

25(4) the experience adjustment factor as calculated in
26subsection (e); and

27(5) any costs added by legislation enacted prior to the
28last actuarial valuation.

29"Costs added by legislation." The sum, if positive, of all
30changes in the actuarially required contribution rate resulting

1from legislation enacted in the year since the last actuarial
2valuation and not included in the determination of the prior
3year's final contribution rate, computed as the rate of total
4compensation of all active members certified by the actuary as
5sufficient to make the employer normal contributions and
6sufficient to amortize legislatively created changes in the
7unfunded actuarial liability as a level percentage of
8compensation over a period of ten years from the July 1 second
9succeeding the date of enactment.

10Section 3. Title 24 is amended by adding a section to read:

11§ 8348.8. Supplemental annuities commencing 2014.

12(a) Benefits.--Commencing with the first monthly annuity
13payment after July 1, 2014, and annually thereafter, any
14eligible benefit recipient shall be entitled to receive further
15additional monthly supplemental annuities from the system. These
16shall be in addition to the supplemental annuities provided for
17in sections 8348 (relating to supplemental annuities), 8348.1
18(relating to additional supplemental annuities), 8348.2
19(relating to further additional supplemental annuities), 8348.3
20(relating to supplemental annuities commencing 1994), 8348.5
21(relating to supplemental annuities commencing 1998), 8348.6
22(relating to supplemental annuities commencing 2002) and 8348.7
23(relating to supplemental annuities commencing 2003).

24(b) Amounts of supplemental annuities.--Beginning July 1,
252014, and annually thereafter, the amounts of the supplemental
26annuities payable pursuant to this section shall be calculated
27by applying the lesser of 3% or the percentage change in the
28Consumer Price Index for All Urban Consumers (CPI-U) for the
29Pennsylvania, New Jersey, Delaware and Maryland area, for the
30most recent 12-month period for which figures have been

1officially reported by the Bureau of Labor Statistics of the
2United States Department of Labor, immediately prior to the date
3the adjustment is due to take effect, to the then-current
4annuity amount.

5(c) Payment.--The additional monthly supplemental annuities
6provided under this section shall be paid automatically unless
7the intended recipient files a written notice with the system
8requesting that the additional monthly supplemental annuities
9not be paid.

10(d) Conditions.--The additional supplemental annuities
11provided under this section shall be payable under the same
12terms and conditions as provided under the option plan in effect
13July 1, 2014.

14(e) Benefits paid to beneficiaries or survivors.--No
15supplemental annuity effective after the death of the member
16shall be payable to the beneficiary or survivor annuitant of the
17deceased member.

18(f) Funding.--The additional liability for the increase in
19benefits provided by this section shall be funded in equal
20dollar annual installments over a period of 20 years beginning
21July 1, 2015.

22(g) Definition.--As used in this section, the term "eligible
23benefit recipient" means a person who is receiving a
24superannuation, withdrawal or disability annuity and who
25commenced receipt of that annuity on or prior to July 1, 2014.

26Section 4. This act shall take effect immediately.