PRINTER'S NO. 3634
No. 2472 Session of 2008
INTRODUCED BY KILLION, ARGALL, BARRAR, BOYD, CRUZ, DALLY, GALLOWAY, KENNEY, MAHER, MUSTIO, ROSS, RUBLEY, SCHRODER, S. H. SMITH, SWANGER AND TURZAI, APRIL 15, 2008
REFERRED TO COMMITTEE ON LOCAL GOVERNMENT, APRIL 15, 2008
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 definitions, for
8 contents of actuarial valuation report, for minimum funding
9 standards and for revision of financing; and providing for
10 deferred retirement option plans in local governments.
11 The General Assembly of the Commonwealth of Pennsylvania
12 hereby enacts as follows:
13 Section 1. The title of the act of December 18, 1984
14 (P.L.1005, No.205), known as the Municipal Pension Plan Funding
15 Standard and Recovery Act, is amended to read:
16 AN ACT
17 Mandating actuarial funding standards for all municipal pension
18 systems; establishing a recovery program for municipal
19 pension systems determined to be financially distressed;
20 providing for the distribution of the tax on the premiums of
21 foreign fire insurance companies; providing for the
1 establishment and administration of deferred retirement 2 option plans in local governments; and making repeals. 3 Section 2. The definition of "municipal employee" in section 4 102 of the act is amended and the section is amended by adding 5 definitions to read: 6 Section 102. Definitions. 7 Except as provided in Chapter 7, the following words and 8 phrases when used in this act shall have the meanings given to 9 them in this section unless the context clearly indicates 10 otherwise: 11 * * * 12 "DROP." A deferred retirement option plan created and 13 operated by a local government or the Pennsylvania Municipal 14 Retirement System under Chapter 11 or any deferred retirement 15 option plan or similar program established by a local government 16 that provides for the commencement and accumulation of 17 retirement benefit payments for active employees with 18 disbursement of the accumulated payments and interest earnings 19 as a lump sum upon termination of employment. 20 "DROP participant." A retired member of a local government- 21 defined benefit pension plan who is eligible to participate in a 22 DROP under section 1112, who has elected to participate in a 23 DROP under section 1113 and who is not an elected official. 24 "DROP participant account." A pension trust fund ledger 25 account established under section 1121(a). 26 * * * 27 "Local government." A municipality or any county. 28 * * * 29 "Municipal employee." Any person [other than an independent 30 contractor] who provides regular services for a municipality in 20080H2472B3634 - 2 -
1 return for compensation from the municipality. The term does not 2 include an independent contractor or a DROP participant. 3 * * * 4 Section 3. Section 202(b) of the act, amended July 15, 2004 5 (P.L.715, No.81), is amended to read: 6 Section 202. Contents of actuarial valuation report. 7 * * * 8 (b) Contents of actuarial exhibits; defined benefit plans 9 self-insured in whole or in part.--For any pension plan which is 10 a defined benefit plan and which is self-insured in whole or in 11 part, all applicable actuarial exhibits shall be prepared in 12 accordance with the entry age normal actuarial cost method with 13 entry age established as the actual entry age for all plan 14 members unless the municipality applies for and is granted 15 authorization by the commission to use an alternative actuarial 16 cost method. Authorization shall be granted if the municipality 17 demonstrates on an individual pension plan basis that there are 18 compelling reasons of an actuarial nature for the use of an 19 alternative actuarial cost method. The commission shall issue 20 rules and regulations specifying the criteria which the 21 commission will use to determine the question of the existence 22 of compelling reasons for the use of an alternative actuarial 23 cost method, the documentation which a municipality seeking the 24 authorization will be required to supply and the acceptable 25 alternative actuarial cost methods which the commission may 26 authorize. The actuarial cost method shall be used to value all 27 aspects of the benefit plan or plans of the pension plan unless 28 the municipality applies for and is granted authorization by the 29 commission to use approximation techniques other than the 30 actuarial cost method for aspects of the benefit plan or plans 20080H2472B3634 - 3 -
1 of the pension plan other than the retirement benefit. 2 Authorization shall be granted if the municipality demonstrates 3 on an individual pension plan basis that there are compelling 4 reasons of an actuarial nature for the use of these 5 approximation techniques. The commission shall issue rules and 6 regulations specifying the criteria which the commission will 7 use to determine the question of the existence of compelling 8 reasons for the use of approximation techniques, the 9 documentation which a municipality seeking the authorization 10 will be required to supply and the acceptable approximation 11 technique which the commission may authorize. The actuarial 12 exhibits shall use actuarial assumptions which are, in the 13 judgment of the actuary and the governing body of the plan, the 14 best available estimate of future occurrences in the case of 15 each assumption. With respect to economic actuarial assumptions, 16 the assumptions shall either be within the range specified in 17 rules and regulations issued by the commission or documentation 18 explaining and justifying the choice of assumptions outside the 19 range shall accompany the report. The actuarial exhibits shall 20 measure all aspects of the benefit plan or plans of the pension 21 plan in accordance with modifications in the benefit plan or 22 plans, if any, and salaries which as of the valuation date are 23 known or can reasonably be expected to be in force during the 24 ensuing plan year. In preparing the actuarial exhibits or any 25 actuarial valuation report, the municipality shall exclude the 26 compensation of all DROP participants from the active member 27 payroll, all DROP participants from active member data and the 28 balance in the DROP participant account from the assets of the 29 pension trust fund. The actuarial valuation report shall contain 30 the following actuarial exhibits: 20080H2472B3634 - 4 -
1 (1) An exhibit of the normal cost of the benefits 2 provided by the benefit plan as of the date of the actuarial 3 valuation, expressed as a percentage of the future covered 4 payroll of the active membership of the pension plan as of 5 the date of the actuarial valuation. 6 (2) An exhibit of the actuarial accrued liability of the 7 benefit plan as of the date of the actuarial valuation in 8 total which shall be the actuarial present value of all 9 projected benefits provided by the benefit plan reduced by 10 the actuarial present value of future normal costs, and in 11 particular, which shall include the following required 12 actuarial present values for pension plan benefits of related 13 items: 14 (i) Required actuarial present values on account of 15 active members: 16 (A) Retirement benefits. 17 (B) Disability benefits. 18 (C) Survivor benefits. 19 (D) Refund liability due to withdrawal from 20 active service or death. 21 (E) Other benefits, specifying the nature of 22 each type. 23 This item shall include a footnote indicating the amount 24 of accumulated member contributions without accrued 25 interest. 26 (ii) Required actuarial present values on account of 27 former members with a deferred, vested or otherwise 28 nonforfeitable right to a retirement benefit. 29 (iii) Required actuarial present values on account 30 of former members who do not have a deferred, vested or 20080H2472B3634 - 5 -
1 otherwise nonforfeitable right to the retirement benefit 2 and who have not withdrawn any accumulated member 3 contributions. 4 (iv) Required actuarial present values on account of 5 benefit recipients: 6 (A) Retirement benefits. 7 (B) Disability benefits. 8 (C) Surviving spouse benefits. 9 (D) Surviving child benefits. 10 (E) Other benefits, specifying the nature of 11 each type. 12 (v) Required actuarial present values for other 13 benefits provided by the benefit plan, specifying the 14 nature of each type. 15 (vi) Actuarial present value of future normal cost. 16 (3) An exhibit of the unfunded actuarial accrued 17 liability of the pension plan in total, which shall be the 18 actuarial accrued liability of the pension plan calculated 19 pursuant to paragraph (2) less the actuarial value of assets 20 of the pension plan calculated pursuant to subsection (e)(1), 21 and which, in particular, shall include the following: 22 (i) The remaining balance of the unfunded actuarial 23 accrued liability in existence as of the first actuarial 24 valuation report required by this section occurring next 25 following the date of enactment of this section. 26 (ii) The remaining balance of each increment of 27 unfunded actuarial accrued liability attributable to 28 modifications in the benefit plan governing the pension 29 plan which were applicable to active members, separately 30 indicating each and designating each by the plan year in 20080H2472B3634 - 6 -
1 which the benefit plan modification was made effective. 2 (iii) The remaining balance of each increment of 3 unfunded actuarial accrued liability attributable to 4 modifications in the benefit plan governing the pension 5 plan which were applicable to retired members and other 6 benefit recipients, separately indicating each and 7 designating each by the plan year in which the benefit 8 plan modification was made effective. 9 (iv) The remaining balance of each increment of net 10 unfunded actuarial accrued liability attributable to 11 modifications in the actuarial assumptions used to 12 calculate the actuarial accrued liability of the pension 13 plan separately indicating each and designating each by 14 the plan year in which the actuarial assumption 15 modification was made effective. 16 (v) The remaining balance of each increment or 17 decrement of net unfunded actuarial accrued liability 18 attributable to net actuarial experience losses or gains, 19 separately indicating each and designating each by the 20 plan year in which the actuarial experience loss or gain 21 was recognized. 22 (vi) The remaining balance of each increment of 23 unfunded actuarial accrued liability attributable to the 24 provision of survivor benefits payable under section 25 5(e)(2) of the act of May 29, 1956 (1955 P.L.1804, 26 No.600), referred to as the Municipal Police Pension Law, 27 separately indicating each and designating each by the 28 plan year in which the actuarial experience loss was 29 recognized. 30 The initial determination of the unfunded actuarial accrued 20080H2472B3634 - 7 -
1 liability attributable to a modification in the benefit plan 2 governing the pension plan or to a modification in the 3 actuarial assumptions used to calculate the actuarial accrued 4 liability of the pension plan shall be made by calculating 5 the unfunded actuarial accrued liability of the pension plan 6 in accordance with the benefit plan provisions and actuarial 7 assumptions which were in effect prior to the modification 8 and by calculating the unfunded actuarial accrued liability 9 of the pension plan in accordance with the modification in 10 the provisions of the benefit plan governing the pension plan 11 or the actuarial assumptions used to calculate the actuarial 12 accrued liability of the pension plan, whichever is 13 applicable, and the remaining benefit plan provisions and 14 actuarial assumptions. The initial determination of the 15 unfunded actuarial accrued liability attributable to an 16 actuarial loss shall be made in conjunction with the analysis 17 of increases or decreases in the unfunded actuarial accrued 18 liability of the pension plan required pursuant to paragraph 19 (6). 20 (4) An exhibit of any additional funding costs 21 associated with the amortization of any unfunded actuarial 22 accrued liability of the pension plan, indicating for each 23 increment of unfunded actuarial accrued liability specified 24 in paragraph (3), the level annual dollar contribution 25 required to pay an amount equal to the actuarial assumption 26 as to investment earnings applied to the principal amount of 27 the remaining balance of the increment of unfunded actuarial 28 accrued liability and to retire by the applicable 29 amortization target date specified in this paragraph the 30 principal amount of the remaining balance of the increment of 20080H2472B3634 - 8 -
1 unfunded actuarial accrued liability. The amortization target 2 date applicable for each type of increment of unfunded 3 actuarial accrued liability shall be as follows: 4 (i) (A) In the case of a pension plan established 5 on or prior to January 1, 1985 for the unfunded 6 actuarial accrued liability in existence as of the 7 beginning of the plan year occurring in calendar year 8 1985, at the end of the plan year occurring in 9 calendar year 2015; or 10 (B) In the case of a pension plan established 11 after January 1, 1985, for the unfunded actuarial 12 accrued liability then or subsequently determined to 13 be or to have been in existence as of the date of the 14 establishment of the plan, at the end of the plan 15 year occurring 30 years after the calendar year in 16 which the pension plan was established. 17 (ii) Increment or decrement of net unfunded 18 actuarial accrued liability attributable to a change in 19 actuarial assumptions, at the end of the plan year 20 occurring 20 years after the calendar year in which 21 actuarial assumption modification was effective. 22 (iii) Increment of net unfunded actuarial accrued 23 liability attributable to a modification in the benefit 24 plan applicable to active members, at the end of the plan 25 year occurring 20 years after the calendar year in which 26 the benefit plan modification was effective. 27 (iv) Increment of unfunded actuarial accrued 28 liability attributable to a modification in the benefit 29 plan applicable to retired members and other benefit 30 recipients, at the end of the plan year occurring 10 20080H2472B3634 - 9 -
1 years after the calendar year in which the benefit plan 2 modification was effective. 3 (v) (A) Increment or decrement of net unfunded 4 actuarial accrued liability attributable to an 5 actuarial experience loss or gain, at the end of plan 6 year occurring 15 years after the calendar year in 7 which the actuarial experience loss or gain was 8 recognized. 9 (B) Notwithstanding any other provision of this 10 act or other law, as of the beginning of the plan 11 year occurring in calendar year 2003, the outstanding 12 balance of the increment of unfunded actuarial 13 accrued liability attributable to the net actuarial 14 investment losses incurred in calendar years 2001 and 15 2002 may, at the sole discretion of the municipality, 16 be amortized with the amortization target date being 17 the end of the plan year occurring 30 years after 18 January 1, 2003. In order for a municipality to 19 extend the applicable amortization period pursuant to 20 this clause, the municipality must file a revised 21 actuarial valuation report reflecting the 22 amortization period extension provided for under this 23 clause with the executive director of the commission 24 no later than September 30, 2004. Any such revised 25 actuarial valuation report may not be filed in lieu 26 of the actuarial valuation report prepared in 27 compliance with clause (A) and required to be filed 28 on or before March 31, 2004, and may be used only for 29 the purposes of recalculating the 2004 minimum 30 municipal obligation of the municipality and 20080H2472B3634 - 10 -
1 calculating the 2005 minimum municipal obligation of 2 the municipality to reflect the amortization period 3 extension. Any such revised actuarial valuation 4 report shall not affect distributions under the 5 General Municipal Pension System State Aid Program 6 under Chapter 4. 7 (vi) Increment of unfunded actuarial accrued 8 liability attributable to the provision of survivor 9 benefits payable under section 5(e)(2) of the Municipal 10 Police Pension Law at the end of the plan year occurring 11 40 years after the calendar year in which the survivor 12 benefits were first payable. 13 With respect to any applicable pension plan other than a plan 14 which comprises all or part of a moderately distressed or a 15 severely distressed municipal pension system, if the 16 remaining average period between the current average attained 17 age of active members as of the valuation date and the later 18 of their earliest average normal retirement age or their 19 average assumed retirement age is less than the applicable 20 period or periods ending with the amortization target date or 21 dates specified in subparagraph (i), (ii), (iii) or (v)(A), 22 the appropriate amortization target date for the applicable 23 subparagraph determined with reference to the longest 24 applicable remaining average period rounded to the next 25 largest whole number shall be used. With respect to any plan 26 year beginning after December 31, 1997, if, as of the 27 beginning of the plan year, the ratio of the actuarial value 28 of assets to the actuarial accrued liability exceeds 0.70 and 29 the governing body of the municipality has passed a 30 resolution to irrevocably commit the municipality to apply 20080H2472B3634 - 11 -
1 the limit on the additional funding costs, as provided 2 herein, in the preparation of the current and all future 3 exhibits under this paragraph, then the sum of the additional 4 funding costs for subparagraphs (i), (ii), (iii), (iv) and 5 (v) above shall not exceed the amount required to amortize 6 the remaining unfunded actuarial accrued liability as of the 7 beginning of the plan year over 10 years in level annual 8 dollar contributions. The exhibit shall indicate the total 9 dollar amount of additional funding costs associated with the 10 amortization of any unfunded actuarial accrued liability of 11 the pension plan applicable for that plan year and any 12 subsequent plan year occurring prior to the preparation of 13 the next required actuarial valuation report, which shall be 14 the total of the additional funding costs associated with the 15 amortization of each increment of unfunded actuarial accrued 16 liability. The exhibit shall also indicate the plan year in 17 which any unfunded actuarial accrued liability of the pension 18 plan would be fully amortized if the total annual additional 19 funding cost calculated pursuant to this paragraph were met 20 continuously without increase or decrease in amount until the 21 total unfunded actuarial accrued liability currently existing 22 was fully amortized. In calculating the additional funding 23 costs associated with the amortization of any unfunded 24 actuarial accrued liability of the pension plan in any plan 25 year, any amortization contribution made in the interval 26 since the last actuarial valuation report shall be allocated 27 to each type of increment of unfunded actuarial accrued 28 liability in proportion to the remaining dollar amount of 29 each type. 30 (5) An exhibit of the total administrative cost of the 20080H2472B3634 - 12 -
1 pension plan for the plan year occurring immediately prior to 2 the plan year for which the actuarial valuation report is 3 made. 4 (6) An exhibit containing an analysis of the increase or 5 decrease in the unfunded actuarial accrued liability of the 6 pension plan since the most recent prior actuarial valuation 7 report, including specifically an indication of increases or 8 decreases due to the following: 9 (i) Modifications in the benefit plan or plans of 10 the pension plan. 11 (ii) Changes in actuarial assumptions. 12 (iii) Deviations in the actual experience of the 13 pension plan from the experience expected by virtue of 14 the actuarial assumptions. 15 (iv) Presence or absence of payments to amortize the 16 unfunded accrued liability of the pension plan. 17 (v) Other reasons. 18 The analysis shall be based on the best professional judgment 19 of the approved actuary reached after preparing the various 20 applicable actuarial exhibits of the actuarial valuation 21 report. If, in the opinion of the approved actuary, the 22 inclusion of any portion of this information is not 23 appropriate, that portion of the analysis may be omitted with 24 the provision of adequate explanation or justification of the 25 appropriateness of the omission. 26 (7) An exhibit summarizing the economic and demographic 27 actuarial assumptions used in the preparation of the 28 actuarial exhibits. 29 (8) A summary of the principal provisions of the benefit 30 plan of the pension plan upon which the actuarial exhibits 20080H2472B3634 - 13 -
1 are based. 2 * * * 3 Section 4. Section 302(b)(2) of the act, amended December 4 18, 1990 (P.L.753, No.189), is amended to read: 5 Section 302. Minimum funding standard; defined benefit plans 6 self-insured in whole or in part. 7 * * * 8 (b) Financial requirements of the pension plan.-- 9 * * * 10 (2) The normal cost and administrative expense 11 requirements for the following plan year shall be expressed 12 as a dollar amount and shall be determined by applying the 13 normal cost of the benefit plan and the administrative 14 expense payable from the assets attributable to the benefit 15 plan, as reported in the actuarial valuation report of the 16 pension plan and expressed as a percentage of payroll, to the 17 payroll of the active membership of the pension plan as of 18 the date the financial requirements of the pension plan are 19 determined. In expressing the normal cost and administrative 20 expense requirements as a dollar amount, the municipality 21 shall exclude the compensation of all DROP participants from 22 the payroll of the active membership of the pension plan. 23 * * * 24 Section 5. Section 402(e)(2) of the act is amended to read: 25 Section 402. Revision of financing from State revenue sources; 26 General Municipal Pension System State Aid 27 Program. 28 * * * 29 (e) Allocation of general municipal pension system State 30 aid.-- 20080H2472B3634 - 14 -
1 * * * 2 (2) The applicable number of units shall be attributable 3 to each active employee who was employed on a full-time basis 4 for a minimum of six consecutive months prior to December 31 5 preceding the date of certification and who was participating 6 in a pension plan maintained by that municipality, provided 7 that the municipality maintains a generally applicable 8 pension plan for that type of employee which was either 9 established on or prior to December 31, 1984, or, if 10 established after December 31, 1984, has been maintained by 11 that municipality for at least three plan years. For the 12 purpose of computing and reporting the applicable number of 13 units, a DROP participant shall not be reported to the 14 Auditor General as an active employee. The applicable number 15 of units per employee attributable to each eligible recipient 16 county of the second class shall be two units for each police 17 officer. The applicable number of units attributable to each 18 eligible recipient city, borough, incorporated town and 19 township shall be as follows: 20 (i) Police officer - two units. 21 (ii) Firefighter - two units. 22 (iii) Employee other than police officer or 23 firefighter - one unit. 24 * * * 25 Section 6. The act is amended by adding a chapter to read: 26 CHAPTER 11 27 DEFERRED RETIREMENT OPTION PLANS LAW 28 SUBCHAPTER A 29 PRELIMINARY PROVISIONS 30 Section 1101. Short title. 20080H2472B3634 - 15 -
1 This chapter shall be known and may be cited as the Deferred 2 Retirement Option Plans Law. 3 Section 1102. Declaration of purpose. 4 It is the purpose of this chapter to provide for a deferred 5 retirement option plan under which an eligible member of the 6 local government's retirement system may elect to participate in 7 a DROP, defer receipt of retirement system benefits and continue 8 employment with the local government. 9 Section 1103. Definitions. 10 The following words and phrases when used in this chapter 11 shall have the meanings given to them in this section unless the 12 context clearly indicates otherwise: 13 "Normal retirement benefit." The retirement benefit payable 14 to a member of a defined benefit pension plan on or after the 15 date on which the member first satisfies the age and service 16 requirements for full, unreduced retirement benefits, including 17 supplemental amounts provided to the member after retirement as 18 cost-of-living increases. 19 "Subsidiary DROP participant account." The separate, 20 interest-bearing, subsidiary DROP participant account 21 established for a DROP participant under section 1121. 22 Section 1104. Employment status. 23 Participation in a DROP does not guarantee the DROP 24 participant's employment by the local government during the 25 specified period of the DROP. 26 SUBCHAPTER B 27 GENERAL PROVISIONS 28 Section 1111. Establishment of DROP. 29 (a) Local governments.--A local government that has 30 established or maintains a defined benefit pension plan for a 20080H2472B3634 - 16 -
1 group of its employees which is self-insured in whole or in part 2 under section 202(b), except for a local government that has 3 joined the Pennsylvania Municipal Retirement System, may 4 establish by ordinance a DROP for those employees as part of the 5 pension plan. The ordinance establishing the DROP shall specify 6 a uniform participation period for the DROP that is not more 7 than five years in duration. 8 (b) Pennsylvania Municipal Retirement System participants.-- 9 A local government that has established or maintains a defined 10 benefit plan for a group of its employees which is self-insured 11 in whole or in part under section 202(b) and has joined the 12 Pennsylvania Municipal Retirement System may establish a DROP 13 for those employees as a part of the pension plan only through 14 participation in the DROP established and administered by the 15 Pennsylvania Municipal Retirement System. 16 (c) Pennsylvania Municipal Retirement System standards.--The 17 Pennsylvania Municipal Retirement Board shall establish a DROP 18 for local government-defined benefit pension plans that have 19 joined the Pennsylvania Municipal Retirement System. The DROP so 20 established shall be uniform, in compliance with the provisions 21 of this chapter, open to any local government and applicable to 22 any of the defined benefit pension plans administered by the 23 Pennsylvania Municipal Retirement System. 24 Section 1112. Eligibility of member to participate in DROP. 25 An active member of a local government retirement system that 26 has a DROP as a part of its defined benefit pension plan who is 27 eligible for a normal retirement benefit under the pension plan 28 or will be eligible for a normal retirement benefit under the 29 pension plan prior to participation in the DROP and who is not 30 an elected official is eligible to participate in the DROP by 20080H2472B3634 - 17 -
1 filing a written application with the retirement system at least 2 30 days before the member's effective date of retirement. 3 Section 1113. Participation in DROP. 4 (a) Election by an active member.--An eligible active member 5 may elect to participate in a DROP for the period specified in 6 the ordinance establishing the DROP. 7 (b) DROP participation election.--Upon deciding to 8 participate in a DROP, a member shall submit on forms provided 9 and required by the retirement system: 10 (1) A binding and irrevocable letter of resignation from 11 regular employment with the local government that discloses 12 the member's intent to retire and specifies the member's 13 retirement date. 14 (2) An irrevocable written election to participate in 15 the DROP that: 16 (i) Details a DROP participant's rights and 17 obligations under the DROP. 18 (ii) Includes an agreement to forgo: 19 (A) Active membership in the retirement system. 20 (B) Any growth in the salary base used for 21 calculating the regular retirement benefit. 22 (C) Any additional benefit accrual for 23 retirement purposes, including length-of-service 24 increments. 25 (iii) Specifies the effective date of DROP 26 participation that shall be the day after the specified 27 retirement date. 28 (iv) Specifies the DROP termination date that 29 satisfies the limitation in subsection (a). 30 (3) Any other information required by the retirement 20080H2472B3634 - 18 -
1 system. 2 (c) DROP termination.-- 3 (1) A DROP participant may change the DROP termination 4 date to an earlier date within the limitations of subsection 5 (a). No penalty shall be imposed for early termination of 6 DROP participation. 7 (2) Upon either early or regular termination of DROP 8 participation: 9 (i) The DROP participant shall be separated from 10 employment by the local government. 11 (ii) The retirement system shall pay the balance in 12 the DROP participant's subsidiary DROP participant 13 account to the terminating DROP participant as provided 14 in section 1114(d). 15 (iii) The DROP participant shall be ineligible to 16 reenroll in the DROP thereafter even if the former DROP 17 participant is reemployed by the local government with 18 renewed active membership in the retirement system. 19 Section 1114. Benefits payable under DROP. 20 (a) Fixing retirement benefit, retirement date, retirement 21 benefits and DROP dates.-- Effective with the date of 22 retirement, which shall be the day before the effective date of 23 DROP participation, the member's monthly, normal retirement 24 benefit under the pension plan, the member's effective date of 25 retirement and the member's effective dates of beginning and 26 terminating employment as a DROP participant shall be fixed. 27 (b) Effective dates of DROP participation.-- 28 (1) A retired member's effective date of participation 29 in a DROP shall begin the day following the effective date of 30 the member's regular retirement. 20080H2472B3634 - 19 -
1 (2) A retired member's participation in a DROP shall end 2 on the last day of the participation period specified in the 3 ordinance establishing the DROP that is in effect on the 4 effective date of the retired member's participation in the 5 DROP. 6 (c) Treatment of normal retirement benefit payments and 7 accruals.--All of the retired member's monthly, normal 8 retirement benefit and interest thereon at the assigned rate 9 shall be credited to the DROP participant's subsidiary DROP 10 participant account in the pension trust fund and a separate 11 accounting of the DROP participant's accrued benefit 12 accumulation under the DROP shall be calculated annually and 13 provided to the DROP participant. 14 (d) Payment of DROP benefits.--On the effective date of a 15 DROP participant's termination of employment with the local 16 government as a DROP participant, participation in the DROP 17 shall cease and the retirement system shall calculate and pay to 18 the participant the participant's total accumulated DROP 19 benefits in the DROP participant's subsidiary DROP participant 20 account subject to the following provisions: 21 (1) Except as provided in paragraph (2), the terminating 22 DROP participant or, if deceased, the participant's survivor 23 as provided by the enabling pension statute applicable to the 24 appropriate class of employees of the municipality or, in 25 lieu thereof, the participant's named beneficiary, shall 26 elect on a form provided by the retirement system to receive 27 payment of the DROP benefits in accordance with one of the 28 following options: 29 (i) The balance in the DROP participant's subsidiary 30 DROP participant account less withholding taxes, if any, 20080H2472B3634 - 20 -
1 remitted to the Internal Revenue Service shall be paid 2 within 45 days by the retirement system from the account 3 to the DROP participant or surviving beneficiary. 4 (ii) The balance in the DROP participant's 5 subsidiary DROP participant account shall be paid within 6 45 days by the retirement system from the account 7 directly to the custodian of an eligible retirement plan 8 as defined in section 402(c)(8)(b) of the Internal 9 Revenue Code of 1986 (Public Law 99-514, 26 U.S.C. § 10 402(c)(8)(b)), or, in the case of an eligible rollover 11 distribution to the surviving spouse of a deceased DROP 12 participant, an eligible retirement plan that is an 13 individual retirement account or an individual retirement 14 annuity as described in section 402(c)(9) of the Internal 15 Revenue Code of 1986 (26 U.S.C. § 402(c)(9)). 16 (2) If the DROP participant or beneficiary fails to 17 elect a method of payment within 60 days after the 18 participant's termination date, the retirement system shall 19 pay the balance as a lump sum as provided in paragraph (1). 20 (3) The form of payment selected by the DROP participant 21 or surviving beneficiary shall comply with the minimum 22 distribution requirements of the Internal Revenue Code. 23 (e) Taxation, attachment and assignment of DROP 24 participant's account.-- 25 (1) Except as provided in paragraphs (2), (3) and (4), 26 the right of a DROP participant to any benefit or right 27 accrued or accruing under the provisions of this chapter and 28 the moneys in the DROP participant's subsidiary DROP 29 participant account are exempt from any State or municipal 30 tax, levy and sale, garnishment, attachment, spouse's 20080H2472B3634 - 21 -
1 election or any other process whatsoever. 2 (2) Rights under this chapter shall be subject to 3 forfeiture as provided by the act of July 8, 1978 (P.L.752, 4 No.140), known as the Public Employee Pension Forfeiture Act. 5 Forfeitures under this subsection or under any other 6 provision of law may not be applied to increase the benefits 7 that any DROP participant otherwise would receive under this 8 chapter. 9 (3) Rights under this chapter shall be subject to 10 attachment in favor of an alternate payee as set forth in a 11 qualified domestic relations order. 12 (4) (i) Under subsection (d)(1)(ii), a distributee may 13 elect to have an eligible rollover distribution paid 14 directly to an eligible retirement plan by way of a 15 direct rollover. 16 (ii) For purposes of this paragraph, a "distributee" 17 includes a DROP participant, a DROP participant's 18 survivor as provided by the enabling pension statute 19 applicable to the appropriate class of employees of the 20 municipality or, in lieu thereof, the participant's 21 designated beneficiary and a DROP participant's former 22 spouse who is an alternate payee under a qualified 23 domestic relations order. 24 (iii) For purposes of this paragraph, "eligible 25 rollover distribution" has the meaning given the term by 26 section 402(f)(2)(A) of the Internal Revenue Code of 1986 27 (26 U.S.C. § 402(f)(2)(A)), except that a qualified trust 28 shall be considered an eligible retirement plan only if 29 it accepts the distributee's eligible rollover 30 distribution and, in the case of an eligible rollover 20080H2472B3634 - 22 -
1 distribution to a surviving spouse, an eligible 2 retirement plan is an "individual retirement account" or 3 an "individual retirement annuity" as those terms are 4 defined in section 408(a) and (b) of the Internal Revenue 5 Code of 1986 (26 U.S.C. § 408(a) and (b)). 6 (f) Effect of disability pension benefits.--If a DROP 7 participant becomes eligible for a disability pension benefit 8 and terminates employment, the monthly normal retirement benefit 9 of the DROP participant shall terminate. 10 (g) Eligibility for active member benefits.--Except for 11 those benefits specified under section 1113(b)(2)(ii) as forgone 12 by the member, a DROP participant shall be eligible for any 13 employee benefits provided to active employees before retirement 14 as set forth in the ordinance instituting the DROP. 15 (h) Eligibility for benefits otherwise provided by law.--A 16 DROP participant shall be eligible for all preretirement 17 benefits for employees otherwise provided by law, including, but 18 not limited to, benefits under: 19 (1) the act of June 2, 1915 (P.L.736, No.338), known as 20 the Workers' Compensation Act; 21 (2) the act of June 28, 1935 (P.L.477, No.193), referred 22 to as the Enforcement Officer Disability Benefits Law; 23 (3) the act of December 5, 1936 (2nd Sp.Sess., 1937 24 P.L.2897, No.1), known as the Unemployment Compensation Law; 25 (4) the act of June 24, 1976 (P.L.424, No.101), referred 26 to as the Emergency and Law Enforcement Personnel Death 27 Benefits Act; and 28 (5) the Public Safety Officers' Benefit Act of 1976 29 (Public Law 94-430, 42 U.S.C. § 90 Stat. 1347). 30 Section 1115. Death benefits under DROP. 20080H2472B3634 - 23 -
1 (a) DROP benefits for named beneficiary.--If a DROP 2 participant dies, the DROP participant's named beneficiary shall 3 be entitled to apply for and receive the benefits accrued in the 4 DROP participant's subsidiary DROP participant account as 5 provided in section 1114(d). 6 (b) Final credited monthly retirement benefit.--The monthly 7 retirement system benefit accrued in the DROP participant's 8 subsidiary DROP participant account during the month of a DROP 9 participant's death shall be the final monthly retirement system 10 benefit credited for DROP participation. 11 (c) DROP eligibility terminates upon participant's death.--A 12 DROP participant's eligibility to participate in the DROP 13 terminates upon the death of the DROP participant. If a DROP 14 participant dies on or after the effective date of participation 15 in the DROP but before the monthly retirement system benefit of 16 the participant accruable for the month has accrued in the DROP 17 participant's subsidiary DROP participant account, the local 18 government shall pay the monthly retirement system benefits as 19 though the participant had not elected DROP participation and 20 had died after the member's effective date of retirement but 21 before receipt of the retired member's first regular retirement 22 benefit. 23 (d) Survivors ineligible for active member's death 24 benefit.--Except for those benefits specifically payable as a 25 result of death incurred in the course of performing a hazardous 26 public duty, the survivors of a DROP participant who dies shall 27 not be eligible to receive retirement system death benefits 28 payable in the event of the death of an active member. 29 (e) Survivors eligible for retired member's death benefit.-- 30 The DROP participant's survivor shall be eligible to receive 20080H2472B3634 - 24 -
1 retirement system death benefits normally payable in the event 2 of the death of a retired employee. 3 Section 1116. Subsequent employment and renewal of active 4 membership. 5 After both the termination of a DROP participant's employment 6 as a DROP participant by the local government and the expiration 7 of the DROP participation period, a former DROP participant 8 shall be subject to such reemployment limitations as other 9 retired members and shall be eligible for renewed membership as 10 an active member in the local government employees' retirement 11 system. 12 SUBCHAPTER C 13 ADMINISTRATIVE PROVISIONS 14 Section 1121. DROP participant account. 15 (a) General rule.--If a local government creates a DROP, it 16 shall establish a DROP participant account as an interest- 17 bearing ledger account in its pension trust fund. The account 18 balance shall be accounted for separately but need not be 19 physically segregated from other pension trust fund assets. 20 (b) Subsidiary DROP participant accounts.--A separate 21 interest-bearing subsidiary DROP participant account shall be 22 established for each DROP participant. While a retired member is 23 employed as a DROP participant, the member's monthly, normal 24 retirement benefit and interest thereon shall be credited to the 25 DROP participant's subsidiary DROP participant account under 26 section 1114(c). The interest shall be compounded and credited 27 monthly at an annual rate specified in the ordinance 28 establishing the DROP that shall be not less than 1% nor more 29 than 4 1/2%. 30 (c) Termination of employment.-- 20080H2472B3634 - 25 -
1 (1) When a DROP participant terminates employment with 2 the local government as a DROP participant, the DROP 3 participant's total accumulated benefits shall be calculated, 4 charged to the DROP participant account and paid out of the 5 pension trust fund under section 1114(d)(2). 6 (2) Under section 202(b), the balance in the DROP 7 participant account shall be excluded from actuarial 8 valuation reports of the retirement system prepared and filed 9 under this act. 10 (d) Account held in trust.--A DROP participant account shall 11 be held in trust for the exclusive benefit of DROP retired 12 members who are or were DROP participants and for the 13 beneficiaries of the members. 14 Section 1122. Audit of Pennsylvania Municipal Retirement 15 System. 16 The DROP established by the Pennsylvania Municipal Retirement 17 Board shall be subject to financial and compliance audits 18 conducted by the Auditor General with the initial audit 19 conducted within one year of establishment of the DROP. 20 Section 1123. Existing DROPs. 21 A local government that established a DROP prior to or on the 22 effective date of this section that does not conform to the 23 provisions of this chapter shall amend its plan within 180 days 24 of the effective date of this section or when the current labor- 25 management contract creating the plan expires, whichever is 26 later, to conform with the provisions of this chapter with 27 respect to future DROP participants. 28 Section 1124. Noncompliance. 29 (a) General rule.--If a local government that established a 30 DROP under section 1111(a) or the Pennsylvania Municipal 20080H2472B3634 - 26 -
1 Retirement Board that established a DROP under section 1111(c) 2 fails to comply within 90 days with a finding by the Auditor 3 General of noncompliance with this chapter or if the finding is 4 appealed within 90 days of conclusion of the appeal process, the 5 failure to comply shall be deemed sufficient refusal by the 6 local government or the Pennsylvania Municipal Retirement Board 7 to comply with its duty antecedent to the commencement of a 8 mandamus action and the Auditor General shall refer the finding 9 to the Attorney General. 10 (b) Mandamus action.--Upon receipt of the finding from the 11 Auditor General, the Attorney General, following an 12 administrative proceeding in accordance with 2 Pa.C.S. (relating 13 to administrative law and procedure), shall proceed in the name 14 of the Commonwealth to institute a legal proceeding for mandamus 15 and no other remedy at law shall be deemed to be sufficiently 16 adequate and appropriate to bar the commencement of this action. 17 Section 7. This act shall take effect in 60 days. D18L72DMS/20080H2472B3634 - 27 -