1Providing for cash balance pension plans for certain municipal
2employees, for administration and for benefits.

3The General Assembly of the Commonwealth of Pennsylvania
4hereby enacts as follows:

5CHAPTER 1

6PRELIMINARY PROVISIONS

7Section 101. Short title.

8This act shall be known and may be cited as the Cash Balance
9Pension Plan Act.

10Section 102. Definitions.

11The following words and phrases when used in this act shall
12have the meanings given to them in this section unless the
13context clearly indicates otherwise:

14"Cash balance pension plan." The defined benefit plan
15established in this act and effective on and after January 1,
162013, under which a member's benefit is determined on the basis
17of the member's savings account.

1"Compensation." For purposes of determining member credits
2and employer credits under a cash balance pension plan, a
3member's base salary or wages paid by an employer, excluding
4bonuses, overtime and payouts of accrued sick or vacation pay or
5any other paid time off. The term includes any disability pay
6paid by an employer as a result of a service-based disability. A
7member's compensation for a calendar year shall not exceed the
8limit prescribed by section 401(a)(17) of the IRC.

9"Employer." A borough, town, township, regional police
10department or city of the second class, second class A or third
11class.

12"Employer credit." The product of the employer crediting
13rate times the annual compensation of a member, which amount
14shall be credited to the member's savings account.

15"Employer crediting rate." The employer crediting rate
16established by this act.

17"Interest credit." The product of the interest crediting
18rate times the balance of a member savings account at the end of
19the immediately preceding calendar month, which amount shall be
20credited to the member's savings account.

21"Interest crediting rate." The interest crediting rate
22established by this act.

23"IRC." The Internal Revenue Code of 1986 (Public Law 99-514,
2426 U.S.C. § 1 et seq.).

25"Member." A person who is employed by an employer and
26eligible to participate in a cash balance pension plan.

27"Member accumulated contributions." The sum of the member
28credits together with interest credited thereon, at the interest
29crediting rate, until the date of termination of service with
30the employer. In the case of a vested member, interest shall be

1credited until the later of superannuation age or the
2determination date.

3"Member contribution rate." The mandatory member
4contribution rate established by this act.

5"Member credit." The product of the member contribution rate
6times the annual compensation of a member, which amount shall be
7credited to the member's savings account.

8"Member savings account." The individual ledger account
9established and maintained for a member solely for purposes of
10reflecting the accumulation of his member credits, employer
11credits and interest credits.

12"Pension fund." The entity which is the repository for the
13assets of a cash balance pension plan and as reserved for
14present and future retirement payments and benefits of active
15and retired members of the cash balance pension plan.

16"Pension plan." The various aspects of the relationship
17between an employer and its employees with respect to the
18retirement coverage provided by a municipality to its employees.

19"Plan document." The law, ordinance, resolution or related
20document or documents which governs the retirement coverage
21provided by an employer to its employees, including retirement
22payments and benefits, administration and funding.

23"Superannuation age." The date on which a member with a
24vested benefit under a cash balance pension plan attains age 55
25and has or would have completed 25 years of service with the
26employer.

27CHAPTER 3

28ADMINISTRATION

29Section 301. Establishment of cash balance pension plan.

30An employer shall amend its plan document to establish and

1effectuate a cash balance pension plan in accordance with the
2provisions of this act.

3Section 302. Eligibility to participate in cash balance pension
4plan.

5The following employees shall be eligible for and shall
6participate in the cash balance pension plan administered by the
7pension fund:

8(1) Each regular, full-time police officer who is
9employed by a borough, town, township or regional police
10department maintaining a police force of three or more full-
11time members who was hired on or after January 1, 2013.

12(2) Each regular, full-time police officer who is
13employed by a city of the second class, second class A or
14third class or regional police department and who was hired
15on or after January 1, 2013.

16(3) Each regular, full-time firefighter who is employed
17by a city of the second class, second class A or third class
18and who was hired on or after January 1, 2013.

19Section 303. Applicable crediting rates.

20(a) Member contribution rate.--The mandatory member
21contribution rate shall be 6% for a member who participates in
22Social Security and 9% for a member who does not participate in
23Social Security.

24(b) Employer crediting rate.--The employer crediting rate
25shall be 4.5%.

26(c) Interest crediting rate.--

27(1) The interest crediting rate for any calendar month
28within a given calendar year shall be one-twelfth of the
29published average corporate Moody's Aa nominal bond yield for
30the last business day of the preceding calendar year.

1(2) The minimum interest crediting rate for any calendar
2month shall be 0%, and the maximum interest crediting rate
3for any calendar month shall be 0.375%.

4(3) Interest credits continue until benefits commence to
5be paid from the cash balance pension plan.

6Section 304. Member savings account.

7(a) Credits to account.--

8(1) The member savings account shall be the ledger
9account to which shall be credited member credits, employer
10credits and interest credits.

11(2) Member credits and employer credits shall be
12allocated to the member savings accounts each payroll period,
13or on such other frequency as the employer shall determine
14with the approval of the pension fund, but not less
15frequently than annually.

16(3) Interest credits shall be allocated to member
17savings accounts on a monthly basis.

18(b) Charges to account.--

19(1) Upon the payment to a member, or his designated
20beneficiary, of a benefit from the cash balance pension plan,
21the payment shall be charged to the member's savings account.

22(2) Upon the election of a member to withdraw his member
23accumulated contributions in lieu of receiving a pension from
24the cash balance pension plan, the entire balance of the
25member's savings account shall be deemed forfeited and
26charged to the member's savings account.

27Section 305. Return of member accumulated contributions.

28(a) General rule.--A member whose employment terminates with
29less than eight years of credited service shall receive his
30member accumulated contributions in a lump sum.

1(b) Members who may elect.--A member may elect to receive
2his member accumulated contributions upon termination of service
3in lieu of any benefit to which the member is entitled under the
4cash balance pension plan.

5CHAPTER 5

6BENEFITS

7Section 501. Vesting.

8(a) General rule.--A member with 12 or more years of
9credited service shall have a 100% vested interest in his member
10savings account.

11(b) Partial vesting.--A member with 8 or more, but less than
1212, years of credited service shall have a 50% vested interest
13in his member savings account.

14(c) Member accumulated contributions.--Notwithstanding
15subsections (a) and (b), a member shall always be 100% vested in
16his member accumulated contributions.

17Section 502. Benefit options.

18(a) General rule.--Vested benefits under the cash balance
19pension plan shall be payable to a member who has terminated
20service with the employer as of the first day of the month
21coincident with or next following the member's attainment of
22superannuation age or, if later, the date of his termination of
23service with the employer, in an annuity which is actuarially
24equivalent to the balance of the member's savings account.

25(b) Annuity options.--Annuity options shall be established
26by the cash balance pension plan and shall include single and
27joint and survivor life annuity forms.

28(c) Actuarial factors to be published.--Actuarial factors to
29be used to convert accrued benefits under the cash balance
30pension plan into annuity and other optional forms of benefits

1shall be published by the pension fund.

2(d) Lump sum payments.--In lieu of an annuity form of
3benefit, a member may elect to receive his benefit under the
4cash balance pension plan as a lump sum payment equal to the
5balance of the member's savings account.

6Section 503. Election upon termination of service.

7(a) General rule.--A member who terminates service with the
8employer prior to attainment of superannuation age may elect, on
9the form prescribed by the pension fund and duly attested by the
10member or the member's legally constituted representative, to:

11(1) withdraw his member accumulated contributions in
12accordance with section 305; or

13(2) if vested, receive a benefit in the form of a lump
14sum payment or an annuity.

15(b) Timing of payment.--The withdrawal, lump sum benefit or
16annuity shall be paid, or commence to be paid, as soon as
17practicable after the pension fund's receipt of the election,
18but in no event later than the first day of the month coincident
19with or next following the member's attainment of superannuation
20age.

21Section 504. Preretirement surviving spouse benefits.

22(a) General rule.--In the event that a member who is married
23and has a vested benefit under the cash balance plan dies prior
24to receiving, or commencing to receive, his benefit or his
25member accumulated contributions, the vested portion of the
26member's savings account shall be paid to the member's surviving
27spouse in an actuarially equivalent annuity for the life of the
28surviving spouse or, at the spouse's election on a form
29prescribed by the pension fund, in a lump sum.

30(b) Timing of payment.--The preretirement surviving spouse

1benefit shall be paid, or commence to be paid, at the spouse's
2election on the first day of the month following the member's
3death or the first day of any month thereafter, but not later
4than the first day of the month coincident with or next
5following the member's superannuation age, unless the member
6dies after superannuation age.

7Section 505. Ineligibility for other defined benefit pension
8plan benefits.

9(a) General rule.--A member of a cash balance pension plan
10shall be ineligible for the pension benefits provided to
11employees of the employer who were hired before January 1, 2013,
12under any other defined benefit pension plan maintained by the
13employer.

14(b) Construction.--Nothing in this section shall be
15construed as preventing or limiting an employer's ability to
16establish or participate in programs that provide long-term
17disability benefits.

18Section 506. Eligibility for other benefits.

19(a) General rule.--A member shall be eligible for all
20preretirement benefits for employees as otherwise provided by
21law, including, but not limited to, benefits under:

22(1) the act of June 2, 1915 (P.L.736, No.338), known as
23the Workers' Compensation Act;

24(2) the act of June 28, 1935 (P.L.477, No.193), referred
25to as the Enforcement Officer Disability Benefits Law;

26(3) the act of December 5, 1936 (2nd Sp.Sess., 1937
27P.L.2897, No.1), known as the Unemployment Compensation Law;

28(4) the act of June 24, 1976 (P.L. 424, No.101),
29referred to as the Emergency and Law Enforcement Personnel
30Death Benefits Act; and

1(5) the Public Safety Officers' Benefit of 1976 (Public
2Law 94-430, 42 U.S.C. § 90 Stat. 1347).

3(b) Supplemental deferred compensation plans.--Each employer
4authorized to establish a cash balance pension plan described in
5this act may establish a supplemental deferred compensation plan
6that satisfies the requirements of section 457(b) of the IRC,
7provided that the employer shall not be required to make
8employer contributions to the supplemental deferred compensation
9plan.

10Section 507. No increase or diminishment in benefits under
11existing defined benefit plans.

12(a) Employees covered.--The following employees shall
13maintain their existing rights and benefits pursuant to defined
14benefit pension plans:

15(1) Each regular, full-time police officer who is
16employed by a borough, town, township or regional police
17department maintaining a police force of three or more full-
18time members and who was hired on or before December 31,
192012.

20(2) Each regular, full-time police officer who is
21employed by a city of the second class, second class A or
22third class or regional police department and who was hired
23on or before December 31, 2012.

24(3) Each regular, full-time firefighter who is employed
25by a city of the second class, second class A or third class
26and who was hired on or before December 31, 2012.

27(b) Increased benefits prohibited.--The benefits established
28through the existing defined benefit pension plans applicable to
29employees identified in subsection (a) shall not be increased on
30or after the effective date of this section.

1(c) Construction.--Nothing in this section shall be
2construed to diminish the rights or benefits established and
3provided through the existing defined benefit pension plans
4applicable to employees identified in subsection (a).

5CHAPTER 7

6MISCELLANEOUS PROVISIONS

7Section 701. Tax qualification requirements.

8(a) Legislative intent.--The provisions of this section are
9intended to comply with the qualification requirements of
10section 401(a) of the IRC.

11(b) Exclusive benefit rule.--

12(1) The amounts deposited under the terms of a cash
13balance pension plan shall constitute the fund held for the
14benefit of members and their eligible survivors under and in
15accordance with the cash balance pension plan.

16(2) No part of the corpus or income of a pension fund
17shall be used for or diverted to purposes other than
18exclusively for the benefit of members and their eligible
19survivors and for necessary administrative costs.

20(3) In the case of a contribution made by an employer as
21a mistake of fact, the contribution shall be refunded to the
22employer within one year after payment of the contribution.

23(c) Forfeitures.--A forfeiture shall not be applied to
24increase the benefits of a member, but shall be used to reduce
25the employer's contributions to the employer's cash balance
26pension plan.

27(d) Latest commencement of benefits.--

28(1) Distribution of a member's benefits under a cash
29balance pension plan shall commence not later than the April
301 that follows the end of the calendar year in which the

1member attains 70 1/2 years of age.

2(2) Notwithstanding any other provision of a cash
3balance pension plan to the contrary, the form and timing of
4distributions under the plan shall be made in accordance with
5section 401(a)(9) of the IRC, including the incidental death
6benefit requirements of section 401(a)(9)(G) of the IRC.

7(3) The cash balance pension plan shall apply the
8minimum distribution requirements of section 401(a)(9) of the
9IRC in accordance with Treasury Regulation sections
101.401(a)(9)-1 through 1.401(a)(9)-9, and any other provisions
11reflecting section 401(a)(9) of the IRC that are prescribed
12by the Internal Revenue Service in revenue rulings, notices
13and other guidance.

14(e) Benefit limitations.--

15(1) Notwithstanding any provision of a cash balance
16pension plan to the contrary, in no event shall benefits
17under the pension plan violate the limitations specified in
18section 415 of the IRC, which are incorporated into the cash
19balance pension plan.

20(2) For purposes of the limitations, "compensation"
21shall mean compensation within the meaning of Treasury
22Regulation sections 1.415(c)-2(b) and (c).

23(3) The compensation shall be subject to the timing
24rules specified in Treasury Regulation section 1.415(c)-2(e)
25and the limitations of section 401(a)(17) of the IRC.

26(f) Vesting.--

27(1) A participant who is employed by an employer when
28the participant attains his superannuation age shall
29immediately become fully vested in his accrued benefit and
30shall be eligible for retirement benefits on his

1superannuation date, provided the participant retires on such
2date.

3(2) Upon termination of the cash balance pension plan,
4the rights of employees to benefits accrued to the date of
5such termination, to the extent funded, shall be
6nonforfeitable.

7(g) Military service.--

8(1) Notwithstanding any provision of a cash balance
9pension plan to the contrary, contributions, credits,
10benefits and service credit with respect to qualified
11military service shall be applied in accordance with section
12414(u) of the IRC and guidance issued under the IRC.

13(2) (i) Notwithstanding any provision of a cash balance
14pension plan to the contrary, in the case of a member who
15dies while performing qualified military service, the
16survivors of the member shall be entitled to any
17additional benefits, other than benefit accruals relating
18to the period of qualified military service, provided
19under the cash balance pension plan had the member
20resumed then terminated employment on account of death.

21(ii) This paragraph shall be applied in accordance
22with guidance issued under section 401(a)(37) of the IRC.

23(h) Direct rollovers.--

24(1) Notwithstanding any provision of a cash balance
25pension plan to the contrary that would otherwise limit a
26member's election, a member may elect, at the time and in the
27manner prescribed by the pension fund, to have any portion of
28an eligible rollover distribution paid directly to an
29eligible retirement plan specified by the member in a direct
30rollover.

1(2) This subsection shall be construed in accordance
2with section 401(a)(31) of the IRC and the regulations under
3the IRC.

4Section 702. Effective date.

5This act shall take effect in 60 days.