THE GENERAL ASSEMBLY OF PENNSYLVANIA

HOUSE BILL

INTRODUCED BY PETRI, JUNE 5, 2009

REFERRED TO COMMITTEE ON FINANCE, JUNE 5, 2009  

AN ACT

Amending Title 24 (Education) of the Pennsylvania Consolidated

Statutes, further providing for definitions and for mandatory

and optional membership; and providing for the Public School

Employees' Optional Retirement Program.

The General Assembly of the Commonwealth of Pennsylvania

hereby enacts as follows:

Section 1.  Section 8102 of Title 24 of the Pennsylvania

Consolidated Statutes is amended by adding a definition to read:

§ 8102.  Definitions.

The following words and phrases when used in this part shall

have, unless the context clearly indicates otherwise, the

meanings given to them in this section:

* * *

"Public School Employees' Optional Retirement Program."  The

alternative defined contribution retirement program established

under Ch. 85 Subch. D (relating to Public School Employees'

Optional Retirement Program).

* * *

Section 2.  Section 8301 of Title 24 is amended to read:

§ 8301.  Mandatory and optional membership.

(a)  Mandatory membership.--Membership in the system shall be

mandatory as of the effective date of employment for all school

employees except the following:

(1)  Any officer or employee of the Department of

Education, State-owned educational institutions, community

colleges, area vocational-technical schools, technical

institutes, or the Pennsylvania State University and who is a

member of the State Employees' Retirement System or a member

of another retirement program approved by the employer.

(2)  Any school employee who is employed on a per diem or

hourly basis for less than 80 full-day sessions or 500 hours

in any fiscal year or annuitant who returns to school service

under the provisions of section 8346(b) (relating to

termination of annuities).

(3)  Any officer or employee of a governmental entity who

subsequent to December 22, 1965 and prior to July 1, 1975

administers, supervises, or teaches classes financed wholly

or in part by the Federal Government so long as he continues

in such service.

(4)  Any part-time school employee who has an individual

retirement account pursuant to the Federal act of September

2, 1974 (Public Law 93-406, 88 Stat. 829), known as the

Employee Retirement Income Security Act of 1974.

(5)  Any person who becomes a school employee on or after

January 1, 2009, and who elects to participate in the Public

School Employees' Optional Retirement Program under Ch. 85

Subch. D (relating to Public School Employees' Optional

Retirement Program).

(b)  Prohibited membership.--The school employees categorized

in subsection (a)(1) [and], (2) and (5) shall not have the right

to elect membership in the system.

(c)  Optional membership.--The school employees categorized

in subsection (a)(3) and, if otherwise eligible, subsection (a)

(4) shall have the right to elect membership in the system. Once

such election is exercised, membership shall commence from the

original date of eligibility and shall continue until the

termination of such service.

Section 3.  Chapter 85 of Title 24 is amended by adding a

subchapter to read:

SUBCHAPTER D

PUBLIC SCHOOL EMPLOYEES' OPTIONAL RETIREMENT PROGRAM

Sec.

8541.  Definitions.

8542.  Public School Employees' Optional Retirement Program.

8543.  Powers and duties of board.

8544.  Taxation.

8545.  Investments and expenses.

8546.  Trust.

8547.  Investments.

8548.  Participant contributions.

8549.  Employer contributions.

8550.  Vesting.

§ 8541.  Definitions.

The following words and phrases when used in this subchapter

shall have the meanings given to them in this section unless the

context clearly indicates otherwise:

"Participant."  A qualified employee who elects to

participate in the Public School Employees' Optional Retirement

Program, in lieu of becoming a member of the system.

"Program."  The Public School Employees' Optional Retirement

Program.

"Qualified employee."  Any individual who becomes a school

employee on or after January 1, 2009, and who is not a member of

the system or a school employee categorized in section

8301(a)(1) or (2) (relating to mandatory and optional

membership).

"Trust fund."  The trust created under section 8546 (relating

to trust) to hold the assets of the program in trust for the

exclusive benefit of the program's participants and

beneficiaries, and for the payment of reasonable expenses of the

program in accordance with section 8545 (relating to investments

and expenses) and IRC § 401.

§ 8542.  Public School Employees' Optional Retirement Program.

The board shall establish and administer an optional defined

contribution retirement program to be known as the Public School

Employees' Optional Retirement Program under which retirement

benefits will be provided for qualified employees who elect to

participate in the program in lieu of membership in the system.

The benefits to be provided for or on behalf of participants in

the program shall be provided through participant-directed

investments, in accordance with IRC § 401(a). Participants and

employers shall contribute to the program in accordance with

sections 8548 (relating to participant contributions) and 8549

(relating to employer contributions).

§ 8543.  Powers and duties of board.

In order to establish and administer the program, the powers

and duties of the board shall include all of the following:

(1)  Entering into written agreements with financial or

other organizations to administer the program for

participants and to invest funds held under the program. The

program and any written agreement shall comply with the IRC,

including the plan qualification requirements imposed on

governmental plans under IRC § 401(a).

(2)  Establishing procedures whereby qualified employees

may elect to participate in the program and participants may

change their investment choices on a periodic basis, as

determined by the board, which shall not be less frequently

than quarterly.

(3)  Arranging for a deduction from the compensation of

participants of employee contributions to the program.

(4)  Establishing standards or criteria for selection by

the board of the financial institutions, insurance companies

or other organizations that may be qualified as managers, on

behalf of the board, of funds accumulated under the program

on behalf of any participant.

(5)  Establishing standards and criteria for the

providing of options to qualified employees and participants

concerning the method of investing amounts accumulated under

the program if the options include a diversified mix of low-

cost investment products that span the risk-return spectrum.

(6)  Establishing standards and criteria for informing

qualified employees and participants of specific options

offered by qualified managers.

(7)  Designing a comprehensive, balanced and impartial

educational program to assist qualified employees and

participants in their choice of investment options under the

program, which shall include retirement planning education

and financial planning guidance on matters such as investment

diversification, investment risks, investment costs and asset

allocation.

(8)  Establishing standards and criteria for the

disclosure to qualified employees and participants of the

anticipated and actual income attributable to the amounts,

property and rights and all fees, costs and charges to be

made against the amounts accumulated to cover the costs of

administering and managing the funds.

(9)  Establishing processes for election to participate

in the program. The election period shall begin on the date

that an individual becomes a qualified employee and shall end

90 days from that date.

(10)  Performing an annual review of any qualified fund

manager for the purpose of making certain it continues to

meet all standards and criteria established.

(11)  Establishing procedures whereby any participant may

do one of the following:

(i)  Withdraw accumulated amounts in cases of

financial hardship or separation of a participant from

school service or as otherwise permitted under the IRC.

(ii)  Dispose of a participant's account under a

domestic relations order unless in conflict with the IRC.

(12)  Administering the program in compliance with the

IRC.

(13)  Promulgating regulations necessary to administer

this subchapter.

§ 8544.  Taxation.

All amounts deferred under the program shall constitute

taxable income for purposes of the act of March 4, 1971 (P.L.6,

No.2), known as the Tax Reform Code of 1971, and shall

constitute taxable income for State and local earned income

taxes.

§ 8545.  Investments and expenses.

The board shall not be responsible for any investment loss

incurred in the program or for failure of any investment to earn

any specific or expected return or to earn as much as any other

investment opportunity, whether or not the other investment

opportunity was offered to participants in the program. The

expenses arising from allowing qualified employees to elect to

participate in the program and participants to choose a fund

manager, deduct from compensation amounts contributed under the

program and transfer to the fund manager amounts so deducted

shall be borne by the board. All other expenses arising from the

administration of the program shall be assessed against the

accounts created on behalf of participants either by the fund

managers or by the board.

§ 8546.  Trust.

(a)  Establishment.--All assets and income that have been or

shall be withheld by the employer in accordance with this

subchapter shall be held in trust in any funding vehicle

permitted by applicable provisions of the IRC for the exclusive

benefit of the program's participants and their beneficiaries

until the time when the funds are distributed to the participant

or the participant's beneficiary in accordance with the terms of

the agreement between the participant and the board. All such

assets and income withheld by the employer shall be held in

trust as set forth in this subsection in a special fund created

within the State Treasury of which the State Treasurer shall be

custodian.

(b)  Members.--The members of the board shall be the trustees

of the trust established under this subchapter.

(c)  Attachment.--Notwithstanding any other provision of law,

any benefit or interest available under the program, any right

to receive or direct payments under the program or any

distribution of payment made under the program shall not, except

as expressly specified by the program, be subject to assignment,

alienation, garnishment, attachment, transfer, anticipation,

sale, mortgage, pledge, hypothecation, commutation, execution or

levy, whether by voluntary or involuntary act of any interested

person.

§ 8547.  Investments.

Investment of contributions by any corporation, institution,

insurance company or custodial bank that the board has approved

shall not be unreasonably delayed and in no case shall the

investment of contributions be delayed more than 30 days from

the date of payroll deduction to the date that funds are

invested. Any interest earned on the funds pending investment

shall be allocated to the Commonwealth and credited to the

accounts of participants who are then participating in the

program unless the interest is used to defray administrative

costs and fees that would otherwise be required to be borne by

participants who are then participating in the program.

§ 8548.  Participant contributions.

Regular participant contributions shall be made to the

program on behalf of each active member for current service in

an amount equal to 6% of the participant's compensation. The

employer shall cause required participant contributions for

current service to be made and deducted from each payroll.

§ 8549.  Employer contributions.

Each employer of a participant shall make payments to the

trust fund on behalf of the participant in an amount equal to 3%

of the participant's total compensation. The Commonwealth shall

make payments to the trust fund on behalf of each participant in

an amount equal to 3% of the participant's compensation.

§ 8550.  Vesting.

A participant shall be vested after completing one year of

school service during which he or she is a participant in the

program with respect to employer contributions paid on behalf of

the participant to the program plus interest and earnings on the

employer contributions but minus investment fees and

administrative charges.

Section 4.  This act shall take effect immediately.