THE GENERAL ASSEMBLY OF PENNSYLVANIA

HOUSE BILL

INTRODUCED BY KILLION, MUSTIO, SWANGER AND VULAKOVICH, JANUARY 30, 2009

REFERRED TO COMMITTEE ON LOCAL GOVERNMENT, JANUARY 30, 2009  

AN ACT

Amending the act of December 18, 1984 (P.L.1005, No.205),

entitled "An act mandating actuarial funding standards for

all municipal pension systems; establishing a recovery

program for municipal pension systems determined to be

financially distressed; providing for the distribution of the

tax on the premiums of foreign fire insurance companies; and

making repeals," further providing for definitions, for

contents of actuarial valuation report, for minimum funding

standards and for revision of financing; and providing for

deferred retirement option plans in local governments.

The General Assembly of the Commonwealth of Pennsylvania

hereby enacts as follows:

Section 1.  The title of the act of December 18, 1984 (P.L.

1005, No.205), known as the Municipal Pension Plan Funding

Standard and Recovery Act, is amended to read:

AN ACT

Mandating actuarial funding standards for all municipal pension

  systems; establishing a recovery program for municipal

  pension systems determined to be financially distressed;

  providing for the distribution of the tax on the premiums of

  foreign fire insurance companies; providing for the

  establishment and administration of deferred retirement

  option plans in local governments; and making repeals.

Section 2.  The definition of "municipal employee" in section

102 of the act is amended and the section is amended by adding

definitions to read:

Section 102.  Definitions.

Except as provided in Chapter 7, 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:

* * *

"DROP."  A deferred retirement option plan created and

operated by a local government or the Pennsylvania Municipal

Retirement System under Chapter 11 or any deferred retirement

option plan or similar program established by a local government

that provides for the commencement and accumulation of

retirement benefit payments for active employees with

disbursement of the accumulated payments and interest earnings

as a lump sum upon termination of employment.

"DROP participant."  A retired member of a local government-

defined benefit pension plan who is eligible to participate in a

DROP under section 1112, who has elected to participate in a

DROP under section 1113 and who is not an elected official.

"DROP participant account."  A pension trust fund ledger

account established under section 1121(a).

* * *

"Local government."  A municipality or any county.

* * *

"Municipal employee."  Any person [other than an independent

contractor] who provides regular services for a municipality in

return for compensation from the municipality. The term does not

include an independent contractor or a DROP participant.

* * *

Section 3.  Section 202(b) of the act, amended July 15, 2004

(P.L.715, No.81), is amended to read:

Section 202.  Contents of actuarial valuation report.

* * *

(b)  Contents of actuarial exhibits; defined benefit plans

self-insured in whole or in part.--For any pension plan which is

a defined benefit plan and which is self-insured in whole or in

part, all applicable actuarial exhibits shall be prepared in

accordance with the entry age normal actuarial cost method with

entry age established as the actual entry age for all plan

members unless the municipality applies for and is granted

authorization by the commission to use an alternative actuarial

cost method. Authorization shall be granted if the municipality

demonstrates on an individual pension plan basis that there are

compelling reasons of an actuarial nature for the use of an

alternative actuarial cost method. The commission shall issue

rules and regulations specifying the criteria which the

commission will use to determine the question of the existence

of compelling reasons for the use of an alternative actuarial

cost method, the documentation which a municipality seeking the

authorization will be required to supply and the acceptable

alternative actuarial cost methods which the commission may

authorize. The actuarial cost method shall be used to value all

aspects of the benefit plan or plans of the pension plan unless

the municipality applies for and is granted authorization by the

commission to use approximation techniques other than the

actuarial cost method for aspects of the benefit plan or plans

of the pension plan other than the retirement benefit.

Authorization shall be granted if the municipality demonstrates

on an individual pension plan basis that there are compelling

reasons of an actuarial nature for the use of these

approximation techniques. The commission shall issue rules and

regulations specifying the criteria which the commission will

use to determine the question of the existence of compelling

reasons for the use of approximation techniques, the

documentation which a municipality seeking the authorization

will be required to supply and the acceptable approximation

technique which the commission may authorize. The actuarial

exhibits shall use actuarial assumptions which are, in the

judgment of the actuary and the governing body of the plan, the

best available estimate of future occurrences in the case of

each assumption. With respect to economic actuarial assumptions,

the assumptions shall either be within the range specified in

rules and regulations issued by the commission or documentation

explaining and justifying the choice of assumptions outside the

range shall accompany the report. The actuarial exhibits shall

measure all aspects of the benefit plan or plans of the pension

plan in accordance with modifications in the benefit plan or

plans, if any, and salaries which as of the valuation date are

known or can reasonably be expected to be in force during the

ensuing plan year. In preparing the actuarial exhibits or any

actuarial valuation report, the municipality shall exclude the

compensation of all DROP participants from the active member

payroll, all DROP participants from active member data and the

balance in the DROP participant account from the assets of the

pension trust fund. The actuarial valuation report shall contain

the following actuarial exhibits:

(1)  An exhibit of the normal cost of the benefits

provided by the benefit plan as of the date of the actuarial

valuation, expressed as a percentage of the future covered

payroll of the active membership of the pension plan as of

the date of the actuarial valuation.

(2)  An exhibit of the actuarial accrued liability of the

benefit plan as of the date of the actuarial valuation in

total which shall be the actuarial present value of all

projected benefits provided by the benefit plan reduced by

the actuarial present value of future normal costs, and in

particular, which shall include the following required

actuarial present values for pension plan benefits of related

items:

(i)  Required actuarial present values on account of

active members:

(A)  Retirement benefits.

(B)  Disability benefits.

(C)  Survivor benefits.

(D)  Refund liability due to withdrawal from

active service or death.

(E)  Other benefits, specifying the nature of

each type.

This item shall include a footnote indicating the amount

of accumulated member contributions without accrued

interest.

(ii)  Required actuarial present values on account of

former members with a deferred, vested or otherwise

nonforfeitable right to a retirement benefit.

(iii)  Required actuarial present values on account

of former members who do not have a deferred, vested or

otherwise nonforfeitable right to the retirement benefit

and who have not withdrawn any accumulated member

contributions.

(iv)  Required actuarial present values on account of

benefit recipients:

(A)  Retirement benefits.

(B)  Disability benefits.

(C)  Surviving spouse benefits.

(D)  Surviving child benefits.

(E)  Other benefits, specifying the nature of

each type.

(v)  Required actuarial present values for other

benefits provided by the benefit plan, specifying the

nature of each type.

(vi)  Actuarial present value of future normal cost.

(3)  An exhibit of the unfunded actuarial accrued

liability of the pension plan in total, which shall be the

actuarial accrued liability of the pension plan calculated

pursuant to paragraph (2) less the actuarial value of assets

of the pension plan calculated pursuant to subsection (e)(1),

and which, in particular, shall include the following:

(i)  The remaining balance of the unfunded actuarial

accrued liability in existence as of the first actuarial

valuation report required by this section occurring next

following the date of enactment of this section.

(ii)  The remaining balance of each increment of

unfunded actuarial accrued liability attributable to

modifications in the benefit plan governing the pension

plan which were applicable to active members, separately

indicating each and designating each by the plan year in

which the benefit plan modification was made effective.

(iii)  The remaining balance of each increment of

unfunded actuarial accrued liability attributable to

modifications in the benefit plan governing the pension

plan which were applicable to retired members and other

benefit recipients, separately indicating each and

designating each by the plan year in which the benefit

plan modification was made effective.

(iv)  The remaining balance of each increment of net

unfunded actuarial accrued liability attributable to

modifications in the actuarial assumptions used to

calculate the actuarial accrued liability of the pension

plan separately indicating each and designating each by

the plan year in which the actuarial assumption

modification was made effective.

(v)  The remaining balance of each increment or

decrement of net unfunded actuarial accrued liability

attributable to net actuarial experience losses or gains,

separately indicating each and designating each by the

plan year in which the actuarial experience loss or gain

was recognized.

(vi)  The remaining balance of each increment of

unfunded actuarial accrued liability attributable to the

provision of survivor benefits payable under section 5(e)

(2) of the act of May 29, 1956 (1955 P.L.1804, No.600),

referred to as the Municipal Police Pension Law,

separately indicating each and designating each by the

plan year in which the actuarial experience loss was

recognized.

The initial determination of the unfunded actuarial accrued

liability attributable to a modification in the benefit plan

governing the pension plan or to a modification in the

actuarial assumptions used to calculate the actuarial accrued

liability of the pension plan shall be made by calculating

the unfunded actuarial accrued liability of the pension plan

in accordance with the benefit plan provisions and actuarial

assumptions which were in effect prior to the modification

and by calculating the unfunded actuarial accrued liability

of the pension plan in accordance with the modification in

the provisions of the benefit plan governing the pension plan

or the actuarial assumptions used to calculate the actuarial

accrued liability of the pension plan, whichever is

applicable, and the remaining benefit plan provisions and

actuarial assumptions. The initial determination of the

unfunded actuarial accrued liability attributable to an

actuarial loss shall be made in conjunction with the analysis

of increases or decreases in the unfunded actuarial accrued

liability of the pension plan required pursuant to paragraph

(6).

(4)  An exhibit of any additional funding costs

associated with the amortization of any unfunded actuarial

accrued liability of the pension plan, indicating for each

increment of unfunded actuarial accrued liability specified

in paragraph (3), the level annual dollar contribution

required to pay an amount equal to the actuarial assumption

as to investment earnings applied to the principal amount of

the remaining balance of the increment of unfunded actuarial

accrued liability and to retire by the applicable

amortization target date specified in this paragraph the

principal amount of the remaining balance of the increment of

unfunded actuarial accrued liability. The amortization target

date applicable for each type of increment of unfunded

actuarial accrued liability shall be as follows:

(i)  (A)  In the case of a pension plan established

on or prior to January 1, 1985 for the unfunded

actuarial accrued liability in existence as of the

beginning of the plan year occurring in calendar year

1985, at the end of the plan year occurring in

calendar year 2015; or

(B)  In the case of a pension plan established

after January 1, 1985, for the unfunded actuarial

accrued liability then or subsequently determined to

be or to have been in existence as of the date of the

establishment of the plan, at the end of the plan

year occurring 30 years after the calendar year in

which the pension plan was established.

(ii)  Increment or decrement of net unfunded

actuarial accrued liability attributable to a change in

actuarial assumptions, at the end of the plan year

occurring 20 years after the calendar year in which

actuarial assumption modification was effective.

(iii)  Increment of net unfunded actuarial accrued

liability attributable to a modification in the benefit

plan applicable to active members, at the end of the plan

year occurring 20 years after the calendar year in which

the benefit plan modification was effective.

(iv)  Increment of unfunded actuarial accrued

liability attributable to a modification in the benefit

plan applicable to retired members and other benefit

recipients, at the end of the plan year occurring 10

years after the calendar year in which the benefit plan

modification was effective.

(v)  (A)  Increment or decrement of net unfunded

actuarial accrued liability attributable to an

actuarial experience loss or gain, at the end of plan

year occurring 15 years after the calendar year in

which the actuarial experience loss or gain was

recognized.

(B)  Notwithstanding any other provision of this

act or other law, as of the beginning of the plan

year occurring in calendar year 2003, the outstanding

balance of the increment of unfunded actuarial

accrued liability attributable to the net actuarial

investment losses incurred in calendar years 2001 and

2002 may, at the sole discretion of the municipality,

be amortized with the amortization target date being

the end of the plan year occurring 30 years after

January 1, 2003. In order for a municipality to

extend the applicable amortization period pursuant to

this clause, the municipality must file a revised

actuarial valuation report reflecting the

amortization period extension provided for under this

clause with the executive director of the commission

no later than September 30, 2004. Any such revised

actuarial valuation report may not be filed in lieu

of the actuarial valuation report prepared in

compliance with clause (A) and required to be filed

on or before March 31, 2004, and may be used only for

the purposes of recalculating the 2004 minimum

municipal obligation of the municipality and

calculating the 2005 minimum municipal obligation of

the municipality to reflect the amortization period

extension. Any such revised actuarial valuation

report shall not affect distributions under the

General Municipal Pension System State Aid Program

under Chapter 4.

(vi)  Increment of unfunded actuarial accrued

liability attributable to the provision of survivor

benefits payable under section 5(e)(2) of the Municipal

Police Pension Law at the end of the plan year occurring

40 years after the calendar year in which the survivor

benefits were first payable.

With respect to any applicable pension plan other than a plan

which comprises all or part of a moderately distressed or a

severely distressed municipal pension system, if the

remaining average period between the current average attained

age of active members as of the valuation date and the later

of their earliest average normal retirement age or their

average assumed retirement age is less than the applicable

period or periods ending with the amortization target date or

dates specified in subparagraph (i), (ii), (iii) or (v)(A),

the appropriate amortization target date for the applicable

subparagraph determined with reference to the longest

applicable remaining average period rounded to the next

largest whole number shall be used. With respect to any plan

year beginning after December 31, 1997, if, as of the

beginning of the plan year, the ratio of the actuarial value

of assets to the actuarial accrued liability exceeds 0.70 and

the governing body of the municipality has passed a

resolution to irrevocably commit the municipality to apply

the limit on the additional funding costs, as provided

herein, in the preparation of the current and all future

exhibits under this paragraph, then the sum of the additional

funding costs for subparagraphs (i), (ii), (iii), (iv) and

(v) above shall not exceed the amount required to amortize

the remaining unfunded actuarial accrued liability as of the

beginning of the plan year over 10 years in level annual

dollar contributions. The exhibit shall indicate the total

dollar amount of additional funding costs associated with the

amortization of any unfunded actuarial accrued liability of

the pension plan applicable for that plan year and any

subsequent plan year occurring prior to the preparation of

the next required actuarial valuation report, which shall be

the total of the additional funding costs associated with the

amortization of each increment of unfunded actuarial accrued

liability. The exhibit shall also indicate the plan year in

which any unfunded actuarial accrued liability of the pension

plan would be fully amortized if the total annual additional

funding cost calculated pursuant to this paragraph were met

continuously without increase or decrease in amount until the

total unfunded actuarial accrued liability currently existing

was fully amortized. In calculating the additional funding

costs associated with the amortization of any unfunded

actuarial accrued liability of the pension plan in any plan

year, any amortization contribution made in the interval

since the last actuarial valuation report shall be allocated

to each type of increment of unfunded actuarial accrued

liability in proportion to the remaining dollar amount of

each type.

(5)  An exhibit of the total administrative cost of the

pension plan for the plan year occurring immediately prior to

the plan year for which the actuarial valuation report is

made.

(6)  An exhibit containing an analysis of the increase or

decrease in the unfunded actuarial accrued liability of the

pension plan since the most recent prior actuarial valuation

report, including specifically an indication of increases or

decreases due to the following:

(i)  Modifications in the benefit plan or plans of

the pension plan.

(ii)  Changes in actuarial assumptions.

(iii)  Deviations in the actual experience of the

pension plan from the experience expected by virtue of

the actuarial assumptions.

(iv)  Presence or absence of payments to amortize the

unfunded accrued liability of the pension plan.

(v)  Other reasons.

The analysis shall be based on the best professional

judgment of the approved actuary reached after preparing

the various applicable actuarial exhibits of the

actuarial valuation report. If, in the opinion of the

approved actuary, the inclusion of any portion of this

information is not appropriate, that portion of the

analysis may be omitted with the provision of adequate

explanation or justification of the appropriateness of

the omission.

(7)  An exhibit summarizing the economic and demographic

actuarial assumptions used in the preparation of the

actuarial exhibits.

(8)  A summary of the principal provisions of the benefit

plan of the pension plan upon which the actuarial exhibits

are based.

* * *

Section 4.  Section 302(b)(2) of the act, amended December

18, 1990 (P.L.753, No.189), is amended to read:

Section 302.  Minimum funding standard; defined benefit plans

self-insured in whole or in part.

* * *

(b)  Financial requirements of the pension plan.--

* * *

(2)  The normal cost and administrative expense

requirements for the following plan year shall be expressed

as a dollar amount and shall be determined by applying the

normal cost of the benefit plan and the administrative

expense payable from the assets attributable to the benefit

plan, as reported in the actuarial valuation report of the

pension plan and expressed as a percentage of payroll, to the

payroll of the active membership of the pension plan as of

the date the financial requirements of the pension plan are

determined. In expressing the normal cost and administrative

expense requirements as a dollar amount, the municipality

shall exclude the compensation of all DROP participants from

the payroll of the active membership of the pension plan.

* * *

Section 5.  Section 402(e)(2) of the act is amended to read:

Section 402.  Revision of financing from State revenue sources;

General Municipal Pension System State Aid Program.

* * *

(e)  Allocation of general municipal pension system State

aid.--

* * *

(2)  The applicable number of units shall be attributable

to each active employee who was employed on a full-time basis

for a minimum of six consecutive months prior to December 31

preceding the date of certification and who was participating

in a pension plan maintained by that municipality, provided

that the municipality maintains a generally applicable

pension plan for that type of employee which was either

established on or prior to December 31, 1984, or, if

established after December 31, 1984, has been maintained by

that municipality for at least three plan years. For the

purpose of computing and reporting the applicable number of

units, a DROP participant shall not be reported to the

Auditor General as an active employee. The applicable number

of units per employee attributable to each eligible recipient

county of the second class shall be two units for each police

officer. The applicable number of units attributable to each

eligible recipient city, borough, incorporated town and

township shall be as follows:

(i)  Police officer - two units.

(ii)  Firefighter - two units.

(iii)  Employee other than police officer or

firefighter - one unit.

* * *

Section 6.  The act is amended by adding a chapter to read:

CHAPTER 11

DEFERRED RETIREMENT OPTION PLANS LAW

SUBCHAPTER A

PRELIMINARY PROVISIONS

Section 1101.  Short title.

This chapter shall be known and may be cited as the Deferred

Retirement Option Plans Law.

Section 1102.  Declaration of purpose.

It is the purpose of this chapter to provide for a deferred

retirement option plan under which an eligible member of the

local government's retirement system may elect to participate in

a DROP, defer receipt of retirement system benefits and continue

employment with the local government.

Section 1103.  Definitions.

The following words and phrases when used in this chapter

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

context clearly indicates otherwise:

"Normal retirement benefit."  The retirement benefit payable

to a member of a defined benefit pension plan on or after the

date on which the member first satisfies the age and service

requirements for full, unreduced retirement benefits, including

supplemental amounts provided to the member after retirement as

cost-of-living increases.

"Subsidiary DROP participant account."  The separate,

interest-bearing, subsidiary DROP participant account

established for a DROP participant under section 1121.

Section 1104.  Employment status.

Participation in a DROP does not guarantee the DROP

participant's employment by the local government during the

specified period of the DROP.

SUBCHAPTER B

GENERAL PROVISIONS

Section 1111.  Establishment of DROP.

(a)  Local governments.--A local government that has

established or maintains a defined benefit pension plan for a

group of its employees which is self-insured in whole or in part

under section 202(b), except for a local government that has

joined the Pennsylvania Municipal Retirement System, may

establish by ordinance a DROP for those employees as part of the

pension plan. The ordinance establishing the DROP shall specify

a uniform participation period for the DROP that is not more

than five years in duration.

(b)  Pennsylvania Municipal Retirement System participants.--

A local government that has established or maintains a defined

benefit plan for a group of its employees which is self-insured

in whole or in part under section 202(b) and has joined the

Pennsylvania Municipal Retirement System may establish a DROP

for those employees as a part of the pension plan only through

participation in the DROP established and administered by the

Pennsylvania Municipal Retirement System.

(c)  Pennsylvania Municipal Retirement System standards.--The

Pennsylvania Municipal Retirement Board shall establish a DROP

for local government-defined benefit pension plans that have

joined the Pennsylvania Municipal Retirement System. The DROP so

established shall be uniform, in compliance with the provisions

of this chapter, open to any local government and applicable to

any of the defined benefit pension plans administered by the

Pennsylvania Municipal Retirement System.

Section 1112.  Eligibility of member to participate in DROP.

An active member of a local government retirement system that

has a DROP as a part of its defined benefit pension plan who is

eligible for a normal retirement benefit under the pension plan

or will be eligible for a normal retirement benefit under the

pension plan prior to participation in the DROP and who is not

an elected official is eligible to participate in the DROP by

filing a written application with the retirement system at least

30 days before the member's effective date of retirement.

Section 1113.  Participation in DROP.

(a)  Election by an active member.--An eligible active member

may elect to participate in a DROP for the period specified in

the ordinance establishing the DROP.

(b)  DROP participation election.--Upon deciding to

participate in a DROP, a member shall submit on forms provided

and required by the retirement system:

(1)  A binding and irrevocable letter of resignation from

regular employment with the local government that discloses

the member's intent to retire and specifies the member's

retirement date.

(2)  An irrevocable written election to participate in

the DROP that:

(i)  Details a DROP participant's rights and

obligations under the DROP.

(ii)  Includes an agreement to forgo:

(A)  Active membership in the retirement system.

(B)  Any growth in the salary base used for

calculating the regular retirement benefit.

(C)  Any additional benefit accrual for

retirement purposes, including length-of-service

increments.

(iii)  Specifies the effective date of DROP

participation that shall be the day after the specified

retirement date.

(iv)  Specifies the DROP termination date that

satisfies the limitation in subsection (a).

(3)  Any other information required by the retirement

system.

(c)  DROP termination.--

(1)  A DROP participant may change the DROP termination

date to an earlier date within the limitations of subsection

(a). No penalty shall be imposed for early termination of

DROP participation.

(2)  Upon either early or regular termination of DROP

participation:

(i)  The DROP participant shall be separated from

employment by the local government.

(ii)  The retirement system shall pay the balance in

the DROP participant's subsidiary DROP participant

account to the terminating DROP participant as provided

in section 1114(d).

(iii)  The DROP participant shall be ineligible to

reenroll in the DROP thereafter even if the former DROP

participant is reemployed by the local government with

renewed active membership in the retirement system.

Section 1114.  Benefits payable under DROP.

(a)  Fixing retirement benefit, retirement date, retirement

benefits and DROP dates.-- Effective with the date of

retirement, which shall be the day before the effective date of

DROP participation, the member's monthly, normal retirement

benefit under the pension plan, the member's effective date of

retirement and the member's effective dates of beginning and

terminating employment as a DROP participant shall be fixed.

(b)  Effective dates of DROP participation.--

(1)  A retired member's effective date of participation

in a DROP shall begin the day following the effective date of

the member's regular retirement.

(2)  A retired member's participation in a DROP shall end

on the last day of the participation period specified in the

ordinance establishing the DROP that is in effect on the

effective date of the retired member's participation in the

DROP.

(c)  Treatment of normal retirement benefit payments and

accruals.--All of the retired member's monthly, normal

retirement benefit and interest thereon at the assigned rate

shall be credited to the DROP participant's subsidiary DROP

participant account in the pension trust fund and a separate

accounting of the DROP participant's accrued benefit

accumulation under the DROP shall be calculated annually and

provided to the DROP participant.

(d)  Payment of DROP benefits.--On the effective date of a

DROP participant's termination of employment with the local

government as a DROP participant, participation in the DROP

shall cease and the retirement system shall calculate and pay to

the participant the participant's total accumulated DROP

benefits in the DROP participant's subsidiary DROP participant

account subject to the following provisions:

(1)  Except as provided in paragraph (2), the terminating

DROP participant or, if deceased, the participant's survivor

as provided by the enabling pension statute applicable to the

appropriate class of employees of the municipality or, in

lieu thereof, the participant's named beneficiary, shall

elect on a form provided by the retirement system to receive

payment of the DROP benefits in accordance with one of the

following options:

(i)  The balance in the DROP participant's subsidiary

DROP participant account less withholding taxes, if any,

remitted to the Internal Revenue Service shall be paid

within 45 days by the retirement system from the account

to the DROP participant or surviving beneficiary.

(ii)  The balance in the DROP participant's

subsidiary DROP participant account shall be paid within

45 days by the retirement system from the account

directly to the custodian of an eligible retirement plan

as defined in section 402(c)(8)(b) of the Internal

Revenue Code of 1986 (Public Law 99-514, 26 U.S.C. §

402(c)(8)(b)), or, in the case of an eligible rollover

distribution to the surviving spouse of a deceased DROP

participant, an eligible retirement plan that is an

individual retirement account or an individual retirement

annuity as described in section 402(c)(9) of the Internal

Revenue Code of 1986 (26 U.S.C. § 402(c)(9)).

(2)  If the DROP participant or beneficiary fails to

elect a method of payment within 60 days after the

participant's termination date, the retirement system shall

pay the balance as a lump sum as provided in paragraph (1).

(3)  The form of payment selected by the DROP participant

or surviving beneficiary shall comply with the minimum

distribution requirements of the Internal Revenue Code.

(e)  Taxation, attachment and assignment of DROP

participant's account.--

(1)  Except as provided in paragraphs (2), (3) and (4),

the right of a DROP participant to any benefit or right

accrued or accruing under the provisions of this chapter and

the moneys in the DROP participant's subsidiary DROP

participant account are exempt from any State or municipal

tax, levy and sale, garnishment, attachment, spouse's

election or any other process whatsoever.

(2)  Rights under this chapter shall be subject to

forfeiture as provided by the act of July 8, 1978 (P.L.752,

No.140), known as the Public Employee Pension Forfeiture Act.

Forfeitures under this subsection or under any other

provision of law may not be applied to increase the benefits

that any DROP participant otherwise would receive under this

chapter.

(3)  Rights under this chapter shall be subject to

attachment in favor of an alternate payee as set forth in a

qualified domestic relations order.

(4)  (i)  Under subsection (d)(1)(ii), a distributee may

elect to have an eligible rollover distribution paid

directly to an eligible retirement plan by way of a

direct rollover.

(ii)  For purposes of this paragraph, a "distributee"

includes a DROP participant, a DROP participant's

survivor as provided by the enabling pension statute

applicable to the appropriate class of employees of the

municipality or, in lieu thereof, the participant's

designated beneficiary and a DROP participant's former

spouse who is an alternate payee under a qualified

domestic relations order.

(iii)  For purposes of this paragraph, "eligible

rollover distribution" has the meaning given the term by

section 402(f)(2)(A) of the Internal Revenue Code of 1986

(26 U.S.C. § 402(f)(2)(A)), except that a qualified trust

shall be considered an eligible retirement plan only if

it accepts the distributee's eligible rollover

distribution and, in the case of an eligible rollover

distribution to a surviving spouse, an eligible

retirement plan is an "individual retirement account" or

an "individual retirement annuity" as those terms are

defined in section 408(a) and (b) of the Internal Revenue

Code of 1986 (26 U.S.C. § 408(a) and (b)).

(f)  Effect of disability pension benefits.--If a DROP

participant becomes eligible for a disability pension benefit

and terminates employment, the monthly normal retirement benefit

of the DROP participant shall terminate.

(g)  Eligibility for active member benefits.--Except for

those benefits specified under section 1113(b)(2)(ii) as forgone

by the member, a DROP participant shall be eligible for any

employee benefits provided to active employees before retirement

as set forth in the ordinance instituting the DROP.

(h)  Eligibility for benefits otherwise provided by law.--A

DROP participant shall be eligible for all preretirement

benefits for employees 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. § 90 Stat. 1347).

Section 1115.  Death benefits under DROP.

(a)  DROP benefits for named beneficiary.--If a DROP

participant dies, the DROP participant's named beneficiary shall

be entitled to apply for and receive the benefits accrued in the

DROP participant's subsidiary DROP participant account as

provided in section 1114(d).

(b)  Final credited monthly retirement benefit.--The monthly

retirement system benefit accrued in the DROP participant's

subsidiary DROP participant account during the month of a DROP

participant's death shall be the final monthly retirement system

benefit credited for DROP participation.

(c)  DROP eligibility terminates upon participant's death.--A

DROP participant's eligibility to participate in the DROP

terminates upon the death of the DROP participant. If a DROP

participant dies on or after the effective date of participation

in the DROP but before the monthly retirement system benefit of

the participant accruable for the month has accrued in the DROP

participant's subsidiary DROP participant account, the local

government shall pay the monthly retirement system benefits as

though the participant had not elected DROP participation and

had died after the member's effective date of retirement but

before receipt of the retired member's first regular retirement

benefit.

(d)  Survivors ineligible for active member's death

benefit.--Except for those benefits specifically payable as a

result of death incurred in the course of performing a hazardous

public duty, the survivors of a DROP participant who dies shall

not be eligible to receive retirement system death benefits

payable in the event of the death of an active member.

(e)  Survivors eligible for retired member's death benefit.--

The DROP participant's survivor shall be eligible to receive

retirement system death benefits normally payable in the event

of the death of a retired employee.

Section 1116.  Subsequent employment and renewal of active

membership.

After both the termination of a DROP participant's employment

as a DROP participant by the local government and the expiration

of the DROP participation period, a former DROP participant

shall be subject to such reemployment limitations as other

retired members and shall be eligible for renewed membership as

an active member in the local government employees' retirement

system.

SUBCHAPTER C

ADMINISTRATIVE PROVISIONS

Section 1121.  DROP participant account.

(a)  General rule.--If a local government creates a DROP, it

shall establish a DROP participant account as an interest-

bearing ledger account in its pension trust fund. The account

balance shall be accounted for separately but need not be

physically segregated from other pension trust fund assets.

(b)  Subsidiary DROP participant accounts.--A separate

interest-bearing subsidiary DROP participant account shall be

established for each DROP participant. While a retired member is

employed as a DROP participant, the member's monthly, normal

retirement benefit and interest thereon shall be credited to the

DROP participant's subsidiary DROP participant account under

section 1114(c). The interest shall be compounded and credited

monthly at an annual rate specified in the ordinance

establishing the DROP that shall be not less than 1% nor more

than 4 1/2%.

(c)  Termination of employment.--

(1)  When a DROP participant terminates employment with

the local government as a DROP participant, the DROP

participant's total accumulated benefits shall be calculated,

charged to the DROP participant account and paid out of the

pension trust fund under section 1114(d)(2).

(2)  Under section 202(b), the balance in the DROP

participant account shall be excluded from actuarial

valuation reports of the retirement system prepared and filed

under this act.

(d)  Account held in trust.--A DROP participant account shall

be held in trust for the exclusive benefit of DROP retired

members who are or were DROP participants and for the

beneficiaries of the members.

Section 1122.  Audit of Pennsylvania Municipal Retirement

System.

The DROP established by the Pennsylvania Municipal Retirement

Board shall be subject to financial and compliance audits

conducted by the Auditor General with the initial audit

conducted within one year of establishment of the DROP.

Section 1123.  Existing DROPs.

A local government that established a DROP prior to or on the

effective date of this section that does not conform to the

provisions of this chapter shall amend its plan within 180 days

of the effective date of this section or when the current labor-

management contract creating the plan expires, whichever is

later, to conform with the provisions of this chapter with

respect to future DROP participants.

Section 1124.  Noncompliance.

(a)  General rule.--If a local government that established a

DROP under section 1111(a) or the Pennsylvania Municipal

Retirement Board that established a DROP under section 1111(c)

fails to comply within 90 days with a finding by the Auditor

General of noncompliance with this chapter or if the finding is

appealed within 90 days of conclusion of the appeal process, the

failure to comply shall be deemed sufficient refusal by the

local government or the Pennsylvania Municipal Retirement Board

to comply with its duty antecedent to the commencement of a

mandamus action and the Auditor General shall refer the finding

to the Attorney General.

(b)  Mandamus action.--Upon receipt of the finding from the

Auditor General, the Attorney General, following an

administrative proceeding in accordance with 2 Pa.C.S. (relating

to administrative law and procedure), shall proceed in the name

of the Commonwealth to institute a legal proceeding for mandamus

and no other remedy at law shall be deemed to be sufficiently

adequate and appropriate to bar the commencement of this action.

Section 7.  This act shall take effect in 60 days.