Regular Session 2015-2016 House Bill 0316 P.N. 1022

PRINTER'S NO. 1022

THE GENERAL ASSEMBLY OF PENNSYLVANIA

HOUSE BILL

No.

316

Session of

2015

INTRODUCED BY GREINER, GROVE, DAY, CUTLER, MENTZER, ZIMMERMAN,

TURZAI, PHILLIPS-HILL, IRVIN, DIAMOND, MILLARD, WARD, SAYLOR,

KAUFFMAN, TOBASH AND TOOHIL, MARCH 26, 2015

REFERRED TO COMMITTEE ON STATE GOVERNMENT, MARCH 26, 2015

AN ACT

Providing for cash balance pension plans for certain municipal

employees, for administration, for benefits and for

disability.

The General Assembly of the Commonwealth of Pennsylvania

hereby enacts as follows:

CHAPTER 1

PRELIMINARY PROVISIONS

Section 101. Short title.

This act shall be known and may be cited as the Municipal

Sustainability Act.

Section 102. Legislative findings and purposes.

The General Assembly finds and declares that:

(1) Local governments are facing severe challenges that

threaten the financial security and stability of our

communities.

(2) Our public safety employees are foundational in

having a strong and secure community.

(3) Our communities are most viable when our public

safety departments are strong.

(4) This Commonwealth has seen a startling decrease

recently in local public safety employees that has damaged

the security of our communities.

(5) A main reason for the decrease in our public safety

employees is the rising costs our taxpayers are forced to

pay.

(6) The increase in costs for municipalities is largely

driven by growing pension liabilities.

(7) By reforming the costs of pensions, the Commonwealth

can help sustain our municipalities that face difficult

financial choices in the future.

(8) Increasing the sustainability of our municipal

finances in turn would lead to increased hiring of more

public safety employees that make our communities stronger

and safer.

(9) Therefore, by providing pension reform, our

municipalities can grow their middle class and increase their

public safety officials while having sustainable finances.

Section 103. Definitions.

The following words and phrases when used in this act shall

have the meanings given to them in this section unless the

context clearly indicates otherwise:

"Cash balance pension plan." The defined benefit plan

established in this act and effective on and after January 1,

2017, under which a member's benefit is determined on the basis

of the member's savings account.

"Compensation." For purposes of determining member credits

and employer credits under a cash balance pension plan, a

member's base salary or wages paid by an employer, including

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overtime payments to a member up to an amount no greater than

10% of the member's base salary. Overtime paid in the form of

compensatory time is not considered salary, regardless of

whether the 10% cap on the inclusion of overtime, is met. The

term does not include reimbursements, bonuses, overtime,

payments in excess of 10% of base salary, or payouts of accrued

sick or vacation pay, or any other form of used or unused paid

time off. The term includes any disability pay paid by an

employer as a result of a service-based disability. A member's

compensation for a calendar year shall not exceed the limit

prescribed by section 401(a)(17) of the IRC.

"Employer." A borough, town, township, regional police

department or city of the second class, second class A or third

class.

"Employer credit." The product of the employer crediting

rate times the annual compensation of a member, which amount

shall be credited to the member's savings account.

"Employer crediting rate." The employer crediting rate

established by this act.

"Interest credit." The product of the interest crediting

rate times the balance of a member savings account at the end of

the immediately preceding calendar month, which amount shall be

credited to the member's savings account.

"Interest crediting rate." The interest crediting rate

established by this act.

"IRC." The Internal Revenue Code of 1986 (Public Law 99-514,

26 U.S.C. § 1 et seq.).

"Member." A person who is employed by an employer and

eligible to participate in a cash balance pension plan.

"Member accumulated contributions." The sum of the member

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credits together with interest credited thereon, at the interest

crediting rate, until the date of termination of service with

the employer. In the case of a vested member, interest shall be

credited until the later of superannuation age or the

determination date.

"Member contribution rate." The mandatory member

contribution rate established by this act.

"Member credit." The product of the member contribution rate

times the annual compensation of a member, which amount shall be

credited to the member's savings account.

"Member savings account." The individual ledger account

established and maintained for a member solely for purposes of

reflecting the accumulation of his member credits, employer

credits and interest credits.

"Pension fund." The entity which is the repository for the

assets of a cash balance pension plan and as reserved for

present and future retirement payments and benefits of active

and retired members of the cash balance pension plan.

"Pension plan." The various aspects of the relationship

between an employer and its employees with respect to the

retirement coverage provided by a municipality to its employees.

"Plan document." The law, ordinance, resolution or related

document or documents which governs the retirement coverage

provided by an employer to its employees, including retirement

payments and benefits, administration and funding.

"Superannuation age." The date on which a member with a

vested benefit under a cash balance pension plan attains age 55

and has or would have completed 25 years of service with the

employer.

CHAPTER 3

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ADMINISTRATION

Section 301. Establishment of cash balance pension plan.

An employer shall amend its plan document to establish and

effectuate a cash balance pension plan in accordance with the

provisions of this act. The cash balance pension plan shall be

administered as an additional benefit tier within the existing

defined benefit plan structure.

Section 302. Eligibility to participate in cash balance pension

plan.

The following employees shall be eligible for and shall

participate in the cash balance pension plan administered by the

pension fund:

(1) Each regular, full-time police officer who is

employed by a borough, town, township or regional police

department maintaining a police force of three or more full-

time members who was hired on or after January 1, 2015.

(2) Each regular, full-time police officer who is

employed by a city of the second class, second class A or

third class or regional police department and who was hired

on or after January 1, 2015.

(3) Each regular, full-time firefighter who is employed

by a city of the second class, second class A or third class

and who was hired on or after January 1, 2015.

Section 303. Applicable crediting rates.

(a) Member contribution rate.--The mandatory member

contribution rate shall be 6% for a member who participates in

Social Security and 9% for a member who does not participate in

Social Security.

(b) Employer crediting rate.--The employer crediting rate

shall be 4.5%.

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(1) The interest crediting rate for any calendar month

within a given calendar year shall be one-twelfth of the 30-

year yield on United States Treasury Securities for the last

business day of the preceding calendar year.

(2) The minimum interest crediting rate for any calendar

month shall be 0%, and the maximum interest crediting rate

for any calendar month shall be 0.375%.

(3) Interest credits continue until benefits commence to

be paid from the cash balance pension plan.

Section 304. Member savings account.

(a) Credits to account.--

(1) The member savings account shall be the ledger

account to which shall be credited member credits, employer

credits and interest credits.

(2) Member credits and employer credits shall be

allocated to the member savings accounts each payroll period,

or on such other frequency as the employer shall determine

with the approval of the pension fund, but not less

frequently than annually.

(3) Interest credits shall be allocated to member

savings accounts on a monthly basis.

(b) Charges to account.--

(1) Upon the payment to a member, or his designated

beneficiary, of a benefit from the cash balance pension plan,

the payment shall be charged to the member's savings account.

(2) Upon the election of a member to withdraw his member

accumulated contributions in lieu of receiving a pension from

the cash balance pension plan, the entire balance of the

member's savings account shall be deemed forfeited and

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charged to the member's savings account.

Section 305. Return of member accumulated contributions.

(a) General rule.--A member whose employment terminates with

less than eight years of credited service shall receive his

member accumulated contributions in a lump sum.

(b) Members who may elect.--A member may elect to receive

his member accumulated contributions upon termination of service

in lieu of any benefit to which the member is entitled under the

cash balance pension plan.

CHAPTER 5

BENEFITS

Section 501. Vesting.

(a) General rule.--A member with 12 or more years of

credited service shall have a 100% vested interest in his member

savings account.

(b) Partial vesting.--A member with 8 or more, but less than

12, years of credited service shall have a 50% vested interest

in his member savings account.

subsections (a) and (b), a member shall always be 100% vested in

his member accumulated contributions.

Section 502. Benefit options.

(a) General rule.--Vested benefits under the cash balance

pension plan shall be payable to a member who has terminated

service with the employer as of the first day of the month

coincident with or next following the member's attainment of

superannuation age or, if later, the date of his termination of

service with the employer, in an annuity which is actuarially

equivalent to the balance of the member's savings account.

(b) Annuity options.--Annuity options shall be established

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by the cash balance pension plan and shall include single and

joint and survivor life annuity forms.

be used to convert accrued benefits under the cash balance

pension plan into annuity and other optional forms of benefits

shall be published by the pension fund.

(d) Lump sum payments.--In lieu of an annuity form of

benefit, a member may elect to receive his benefit under the

cash balance pension plan as a lump sum payment equal to the

balance of the member's savings account.

Section 503. Election upon termination of service.

(a) General rule.--A member who terminates service with the

employer prior to attainment of superannuation age may elect, on

the form prescribed by the pension fund and duly attested by the

member or the member's legally constituted representative, to:

(1) withdraw his member accumulated contributions in

accordance with section 305; or

(2) if vested, receive a benefit in the form of a lump

sum payment or an annuity.

(b) Timing of payment.--The withdrawal, lump sum benefit or

annuity shall be paid, or commence to be paid, as soon as

practicable after the pension fund's receipt of the election,

but in no event later than the first day of the month coincident

with or next following the member's attainment of superannuation

age.

accumulated contributions or receives a benefit in the form of a

lump sum payment, the member shall be permitted to directly

rollover the amount distributed to an eligible retirement plan,

including another cash balance pension plan as defined in

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section 103. Direct rollovers shall be in conformance with

section 901 of this act and the applicable provisions of the

IRC.

Section 504. Preretirement surviving spouse benefits.

(a) General rule.--In the event that a member who is married

and has a vested benefit under the cash balance plan dies prior

to receiving, or commencing to receive, his benefit or his

member accumulated contributions, the vested portion of the

member's savings account shall be paid to the member's surviving

spouse in an actuarially equivalent annuity for the life of the

surviving spouse or, at the spouse's election on a form

prescribed by the pension fund, in a lump sum.

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

benefit shall be paid, or commence to be paid, at the spouse's

election on the first day of the month following the member's

death or the first day of any month thereafter, but not later

than the first day of the month coincident with or next

following the member's superannuation age, unless the member

dies after superannuation age.

Section 505. Ineligibility for other defined benefit pension

plan benefits.

(a) General rule.--A member of a cash balance pension plan

shall be ineligible for the pension benefits provided to

employees of the employer who were hired before January 1, 2015,

under any other defined benefit pension plan maintained by the

employer.

(b) Construction.--Nothing in this section shall be

construed as preventing or limiting an employer's ability to

establish or participate in programs that provide long-term

disability benefits.

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Section 506. Eligibility for other benefits.

(a) General rule.--A member shall be eligible for all

preretirement benefits for employees as otherwise provided by

law, including, but not limited to, benefits under:

(1) the act of June 2, 1915 (P.L.736, No.338), known as

the Workers' Compensation Act;

(2) the act of June 28, 1935 (P.L.477, No.193), referred

to as the Enforcement Officer Disability Benefits Law;

(3) the act of December 5, 1936 (2nd Sp.Sess., 1937

P.L.2897, No.1), known as the Unemployment Compensation Law;

(4) the act of June 24, 1976 (P.L.424, No.101), referred

to as the Emergency and Law Enforcement Personnel Death

Benefits Act; and

(5) the Public Safety Officers' Benefit Act of 1976

(Public Law 94-430, 42 U.S.C. § 3796).

(b) Supplemental deferred compensation plans.--Each employer

authorized to establish a cash balance pension plan described in

this act may establish a supplemental deferred compensation plan

that satisfies the requirements of section 457(b) of the IRC,

provided that the employer shall not be required to make

employer contributions to the supplemental deferred compensation

plan.

Section 507. No increase or diminishment in benefits under

existing defined benefit plans.

(a) Employees covered.--The following employees shall

maintain their existing rights and benefits pursuant to defined

benefit pension plans:

(1) Each regular, full-time police officer who is

employed by a borough, town, township or regional police

department maintaining a police force of three or more full-

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time members and who was hired on or before December 31,

2014.

(2) Each regular, full-time police officer who is

employed by a city of the second class, second class A or

third class or regional police department and who was hired

on or before December 31, 2014.

(3) Each regular, full-time firefighter who is employed

by a city of the second class, second class A or third class

and who was hired on or before December 31, 2014.

(b) Increased benefits prohibited.--The benefits established

through the existing defined benefit pension plans applicable to

employees identified in subsection (a) shall not be increased on

or after the effective date of this section.

(1) Nothing in this section shall be construed to

diminish the rights or benefits established and provided

through the existing defined benefit pension plans applicable

to employees identified in subsection (a).

(2) A provision in a defined benefit plan or cash

balance plan or an enabling statute for either plan may not

be construed as implying an obligation by the employing city

of the third class, city of the second class A, city of the

second class, regional police department, township, town or

borough to maintain or provide the killed in service benefits

required under the act of June 24, 1976 (P.L.424, No.101),

referred to as the Emergency and Law Enforcement Personnel

Death Benefits Act.

CHAPTER 7

DISABILITY

Section 701. Work-related disability.

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(a) Benefits.--A vested member who terminates service with

the employer prior to attaining superannuation age due to

becoming unable to perform the duties of a police officer or

firefighter as a direct result of an injury suffered while

performing the duties prior to the member's superannuation date

shall elect to receive a benefit under the cash balance pension

plan in accordance with section 502, except that the disability

benefit shall become payable on the first day of the month next

following the determination of the member's permanent disability

status.

(b) Offsets.--The disability benefit under subsection (a)

shall be offset by a workers' compensation or Social Security

disability benefit for which the member may be eligible for the

same injury and by another disability benefit or income

replacement benefit for which the member is eligible that was

funded, in whole or in part, by the employer that is paid for

the same injury. If the other disability benefit or income

replacement benefit is paid for only in part by the employer,

the offset taken by the employer shall be prorated according to

the employer's contribution. The offset shall continue until the

member reaches the member's superannuation date, at which point

the disability benefit shall cease and the member shall be

entitled to receive a vested benefit in accordance with section

502 in an annuity which is actuarially equivalent to the

remaining balance of the member's savings account at the time

without the offsets under this subsection.

Section 702. Disability insurance.

An employer may provide disability insurance for a member who

terminates service with the employer prior to vesting or the

attainment of superannuation age due to becoming unable to

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perform the duties of a police officer or firefighter as a

direct result of an injury suffered while performing the

member's duties as a police officer or firefighter that

permanently preclude the member from working as a police officer

or firefighter. If provided, the benefit shall be provided

through the disability insurance carrier. If the benefit is

provided by the employer, the definition of disability shall be

provided by the insurance carrier. The benefit may be paid by

the insurance carrier and under the policy until the member is

able to be gainfully employed in another occupation or, if the

member is not able to be employed in other gainful employment,

until the member's superannuation date. The benefit may only be

provided by the employer subject to the following conditions:

(1) The income provided by the insurance is not greater

than 66.6% of the member's base wage as a police officer or

firefighter at the time of the injury.

(2) The work-related disability insurance benefit shall

be subject to the following conditions and offsets that shall

be noted in the applicable policy:

(i) An offset negotiated into the disability

insurance policy.

(ii) Another disability benefit or income

replacement benefit received by the disabled member that

was paid for, in whole or in part, by the employer or

that the member received without a financial contribution

as a result of the member's employment or due to the

injury occurring in the performance of the member's

duties as a police officer or firefighter, including, but

not limited to, Social Security disability benefits,

workers' compensation benefits and a benefit to which the

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disabled member may be eligible to receive in accordance

with section 702 regardless of whether the disabled

member is receiving the benefit. The offsets shall be

required regardless of whether set forth in the

disability insurance policy. If the other disability

benefit or income replacement benefit is paid for only in

part by the employer, the offset taken by the employer or

insurance carrier shall be prorated according to the

employer's contribution.

(iii) There shall be an elimination period of 180

days that commences the day following the member

terminating employment due to the disability.

CHAPTER 9

MISCELLANEOUS PROVISIONS

Section 901. Tax qualification requirements.

The additional benefit tier of the plan, as provided under

section 301, shall be administered to maintain the tax qualified

status of the plan with respect to government plans under the

IRC.

Section 902. Effective date.

This act shall take effect in 60 days.

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