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PRINTER'S NO. 2794
THE GENERAL ASSEMBLY OF PENNSYLVANIA
HOUSE BILL
No.
1960
Session of
2019
INTRODUCED BY TOBASH, EVERETT, SCHMITT, KEEFER, B. MILLER, RYAN,
OWLETT, GREINER, MILLARD, PICKETT, ZIMMERMAN, MOUL, BERNSTINE
AND GLEIM, OCTOBER 25, 2019
REFERRED TO COMMITTEE ON STATE GOVERNMENT, OCTOBER 25, 2019
AN ACT
Amending Titles 24 (Education), 64 (Public Authorities and
Quasi-public Corporations) and 71 (State Government) of the
Pennsylvania Consolidated Statutes, in general provisions,
further providing for definitions; in membership,
contributions and benefits, further providing for
appropriations by the Commonwealth and establishing the
Public School Employees' Contribution Fund; in School
Employees' Defined Contribution Plan, further providing for
powers and duties of board; in administration and
miscellaneous provisions, further providing for Public School
Employees' Retirement Board, for administrative duties of the
board, for health insurance and for duties of board to report
to State Employees' Retirement Board, providing for duties of
the board to report to the investment office, further
providing for management of fund and accounts, for Public
School Employees' Retirement Fund, for State accumulation
account, for health insurance account, for Northern Ireland-
related investments, for fraud and adjustment of errors, for
payments to school entities by Commonwealth commencing with
the 2019-2020 school year and for establishment; in group
health insurance program, further providing for
administration, for Public School Retirees' Health Insurance
Fund and for management of fund; in public authorities,
establishing the Commonwealth Pension Investment Office; in
preliminary provisions, further providing for definitions and
providing for certification by Secretary of the Budget; in
membership, credited service, classes of service and
eligibility for benefits, further providing for mandatory and
optional membership in the system and participation in the
plan; establishing the State Employees' Contribution Fund; in
benefits, further providing for termination of annuities; in
State Employees' Defined Contribution Plan, further providing
for termination of distributions and for powers and duties of
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board; in administration, funds, accounts and general
provisions, further providing for administrative duties of
the board and for duties of the board to report to the Public
School Employees' Retirement Board, providing for duties of
the board to report to the Pension Investment Office, further
providing for management of fund and accounts, for State
Employees' Retirement Fund, for Northern Ireland-related
investments, for benefits completion plan and for fraud and
adjustment of errors.
The General Assembly of the Commonwealth of Pennsylvania
hereby enacts as follows:
Section 1. Section 102 of Title 24 of the Pennsylvania
Consolidated Statutes is amended by adding a definition to read:
* * *
"Investment office." The Commonwealth Pension Investment
Office established under 64 Pa.C.S. Ch. 81 (relating
to Commonwealth Pension Investment Office).
* * *
Section 2. Section 8330(b) of Title 24 is amended to read:
§ 8330. Appropriations by the Commonwealth.
* * *
(b) Appropriation and payment.--The General Assembly shall
make an appropriation sufficient to provide for the separate
obligations of the Commonwealth to the fund and the trust as
certified by the board. Such amount shall be paid in accordance
with section 8535.1 (relating to payments to school entities by
Commonwealth commencing with the 2019-2020 school year) by the
State Treasurer through the Department of Revenue into the fund
or the trust within 30 days of receipt of the requisition
presented each quarter by the board in accordance with
Subchapter B.1 (relating to Public School Employees'
Contribution Fund).
Section 3. Chapter 83 of Title 24 is amended by adding a
subchapter to read:
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SUBCHAPTER B.1
PUBLIC SCHOOL EMPLOYEES' CONTRIBUTION FUND
Sec.
8331. Definitions.
8332. Establishment and use of contribution fund.
8333. Certification of amounts payable from contribution fund.
8334. Payments from contribution fund.
§ 8331. 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:
"Contribution fund." The Public School Employees'
Contribution Fund established under section 8332 (relating to
establishment and use of contribution fund).
§ 8332. Establishment and use of contribution fund.
(a) Establishment.--The Public School Employees'
Contribution Fund is established as a restricted account in the
General Fund.
(b) Use of contribution fund.--Money in the contribution
fund, including interest, income, dividends and other earnings
on money deposited into the contribution fund shall be used for
the payment of the Commonwealth's share of contributions under
sections 8326 (relating to contributions by the Commonwealth)
and 8535.1 (relating to payments to school entities by
Commonwealth commencing with the 2019-2020 school year) and the
unfunded actuarial accrued liability under section 8328
(relating to actuarial cost method) due each fiscal year.
(c) Investments.--The money in the contribution fund shall
be invested by the State Treasurer in securities as provided by
law for the investment in the sinking funds of the Commonwealth.
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§ 8333. Certification of amounts payable from contribution
fund.
(a) Certification.--
(1) (Reserved).
(2) Within 10 days after the board certifies the amount
determined to be due from the Commonwealth to the State
Treasurer in accordance with sections 8330 and 8502(k) and
(l), the State Treasurer shall certify 100% of the amount
determined to be due from the Commonwealth as certified under
section 8502(l) to be transferred to the contribution fund by
the Department of Revenue.
(b) Duties of Department of Revenue.--Within 10 days after
the State Treasurer certifies the amount under subsection (a)
(2), the Department of Revenue shall transfer money in the
amount certified from the tax imposed under section 302 of the
act of March 4, 1971 (P.L.6, No.2), known as the Tax Reform Code
of 1971, into the contribution fund.
§ 8334. Payments from contribution fund.
(a) Appropriation.--
(1) Money transferred by the Department of Revenue into
the contribution fund under section 8333(b) (relating to
certification of amounts payable from contribution fund) is
appropriated to the department for the payment of the
Commonwealth's share of required contributions under sections
8326 (relating to contributions by the Commonwealth) and
8535.1 (relating to payments to school entities by
Commonwealth commencing with the 2019-2020 school year) as
certified by the board under section 8502(k) and (l)
(relating to administrative duties of board).
(2) Any money remaining in the contribution fund,
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including earned interest, at the end of a calendar quarter
is appropriated to the board as an additional contribution to
the Public School Employees' Retirement Fund in excess of the
actuarially required contribution for the quarter. Money
appropriated under this paragraph shall be transferred to the
board within 30 days of the end of the calendar quarter.
(b) Treatment of transfers.--Amounts transferred to the
Public School Employees' Retirement Fund under subsection (a)(2)
must be in addition to employer contributions required under
sections 8326, 8327 (relating to payments by employers) and
8535.1 and may not be used to replace any portion of the
employer contributions certified by the board under section 8328
(relating to actuarial cost method). The board shall accept the
transferred money and apply the money to offset the current
unfunded actuarial accrued liability of the Public School
Employees' Retirement Fund. Amounts received by the board under
this subchapter shall be recognized over a specific period of
time as determined by the board in consultation with the board's
actuary.
(c) Commonwealth contributions.--The Commonwealth shall make
the full amount of the required contributions into the
contribution fund under sections 8326 and 8535.1 as certified by
the board under sections 8502(k) and (l) and 8330 (relating to
appropriations by Commonwealth) without regard to whether
sufficient amounts have been transferred to the contribution
fund or appropriated from the contribution fund to the
department under this subchapter.
Section 4. Section 8411(15) of Title 24 is amended and the
section is amended by adding a paragraph to read:
§ 8411. Powers and duties of board.
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The board, in addition to its powers and duties set forth in
Chapter 85 (relating to administration and miscellaneous
provisions), shall have the following powers and duties to
establish the plan and trust and to administer the provisions of
this part:
* * *
(15) The board may contract any services and duties in
lieu of staff except final adjudications and as prohibited by
law. Any duties or responsibilities of the board not required
by law to be performed by the board may be delegated to a
third-party provider or the investment office subject to
appeal to the board.
* * *
(19) The board may elect to invest moneys of the plan
and trust with the investment office.
Section 5. Sections 8501(f) and 8502(a)(3), (b)(1), (c)(1),
(d), (f), (i) and (o) of Title 24 are amended and the sections
are amended by adding subsections to read:
§ 8501. Public School Employees' Retirement Board.
* * *
(b.1) Trustees of investment office .--An individual who is a
trustee of the investment office may not be appointed as member
of the board or named as a designee unless the individual first
resigns as a trustee of the investment office.
* * *
(f) Board training.--Each member of the board will be
required to obtain eight hours of mandatory training in asset
allocation and investment strategies, investment risk, risk
management, setting return assumptions, actuarial cost analysis
and retirement portfolio management on an annual basis.
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§ 8502. Administrative duties of board.
(a) Employees.--
* * *
(3) The board may utilize the staff of employees
provided for under this subsection for both the system and
the plan, but shall allocate the fees, costs and expenses
incurred under this subsection between the system and the
plan as appropriate. The board may designate board employees
to work on the integration management team established under
64 Pa.C.S. § 8111 (relating to integration management team)
to assist in the performance of the team's duties. Work
completed by designated employees shall be considered a part
of the designated employees' duties as officers and employees
of the board.
(b) Professional personnel.--
(1) The board shall contract for the services of a chief
medical examiner, an actuary, investment advisors,
counselors, an investment coordinator, and such other
professional personnel as it deems advisable. The board's
authority to contract for the services of investment advisors
and counselors includes the authority to enter into
agreements with the investment office to provide services.
* * *
(c) Expenses.--
(1) The board shall, through the Governor, submit to the
General Assembly annually a budget covering the
administrative expenses of the system and a separate budget
covering the administrative expenses of the plan. The
separate budgets shall include those expenses necessary to
establish the plan and trust. The budgets prepared under this
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subsection shall not include the expenses of the investment
office budgeted under 64 Pa.C.S. § 8104(o) (relating to
Commonwealth Pension Investment Office).
* * *
(d) Meetings.--The board shall hold at least [six] four
regular meetings annually and such other meetings as it may deem
necessary.
* * *
(f) Functions.--The board shall perform such other functions
as are required for the execution of this part and 64 Pa.C.S.
Ch. 81 (relating to Commonwealth Pension Investment Office) and
shall have the right to inspect the employment records of
employers.
* * *
(i) Data.--The board and the investment office shall keep in
convenient form such data as are stipulated by the actuary in
order that an annual actuarial valuation of the various accounts
of the fund can be completed within six months of the close of
each fiscal year. The board shall have final authority over the
means by which data is collected, maintained and stored and in
so doing shall protect the rights of its membership as to
privacy and confidentiality.
* * *
(o) Independent audits.--The board shall provide for annual
audits of the system and the plan by an independent certified
public accounting firm. The audits shall include the board's
accrual and expenditure of directed commissions. The board may
use the same independent certified public accounting firm for
the audits of [both] the system [and the plan.], the plan and
the investment office. The board's audits under this subsection
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shall include the portion of the fund managed and invested by
the investment office. In preparing audits of the fund managed
and investment by the investment office, the board may accept
and rely on the certifications by the independent auditors
retained by the investment office under 64 Pa.C.S. § 8105(a)(4)
(relating to powers and duties) of audits performed under 64
Pa.C.S. § 8105 (e)(24).
* * *
(s) Appointment of trustees to investment office.--The board
shall appoint trustees as authorized under 64 Pa.C.S. Ch. 81
(relating to Commonwealth Pension Investment Office) and may
take actions required and authorized relating to the
establishment of the investment office and the management and
investment of the fund under this part and 64 Pa.C.S. Ch. 81.
Section 5.1. Section 8502.2(b) of Title 24 is amended to
read:
§ 8502.2. Health insurance.
* * *
(b) Separate account.--All funds related to the health
insurance program shall be maintained and accounted for
separately from the Public School Employees' Retirement Fund.
The board may elect to invest any or all of the moneys of the
program with the investment office.
* * *
Section 6. Section 8504 of Title 24 is amended by adding
subsections to read:
§ 8504. Duties of board to report to State Employees'
Retirement Board.
* * *
(d) Duty to cooperate.--The board must cooperate with the
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State Employees' Retirement Board in effectuating all
requirements and obligations of the board under 64 Pa.C.S. Ch.
81 (relating to Commonwealth Pension Investment Office).
(e) Investment office.--The following apply:
(1) The board shall notify the State Employees'
Retirement Board when the board names individuals as trustees
of the investment office. The board shall enter into joint
agreements with the State Employees' Retirement Board to
contract with a third-party consultant to establish and
maintain a pool of candidates to be trustees of the
investment office under 64 Pa.C.S. § 8104(c) (relating to
Commonwealth Pension Investment Office).
(2) If the board initiates and approves a proposed joint
resolution of the board and the State Employees' Retirement
Board to remove a trustee of the investment office under 64
Pa.C.S. § 8104(d), the board shall transmit a certified copy
of the proposed joint resolution to the secretary of the
State Employees' Retirement Board for consideration and
action by the State Employees' Retirement Board.
(3) If the secretary of the board receives a certified
copy of a proposed joint resolution to remove a trustee of
the investment office under 64 Pa.C.S. § 8104(d) which was
initiated by the State Employees' Retirement Board or a
resolution approved by the trustees of the investment office
to remove a trustee of the office, the board shall
expeditiously consider and act on the proposed joint
resolution or the resolution of the trustees of the
investment office, and the board's secretary shall notify the
secretary of the State Employees' Retirement Board and the
chief executive officer of the investment office of the
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board's action.
(4) Upon the approval of a joint resolution under this
subsection, the board's secretary shall inform the Governor,
the General Assembly and the chief executive officer of the
investment office of the action.
Section 7. Title 24 is amended by adding a section to read:
§ 8504.1. Duties of the board to report to the investment
office.
(a) Projection of contributions and disbursements.--
Periodically, but not less than annually, the board shall report
to the investment office the expected future annual
contributions to the fund by members and employers, benefit
payments from the fund and other disbursements from the fund,
including, but not limited to, the administrative expenses,
projected for a period of not less than 10 years.
(b) Expected fund transfers.--Periodically, but not less
than annually, the board shall report to the investment office
the expected amounts to be transferred on a monthly basis from
the restricted account for the board established under 64
Pa.C.S. § 8106(h) (relating to relationship to SERB and PSERB)
to the account or funds held by the State Treasurer under
section 8521(g) (relating to management of fund and accounts).
(c) Required fund transfers.--The board shall determine and
communicate to the investment office the transfers required
under 64 Pa.C.S. § 8106(h)(3).
Section 8. Section 8521(a), (d), (e), (f) and (g) of Title
24 are amended and the section is amended by adding a subsection
to read:
§ 8521. Management of fund and accounts.
(a) Control and management of fund.--The members of the
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board shall be the [trustees] co-trustees of the fund with the
trustees of the investment office. Regardless of any other
provision of law governing the investments of funds under the
control of an administrative board of the State government, but
subject to the provisions of this part and 64 Pa.C.S. Ch 81
(relating to Commonwealth Pension Investment Office)
transferring certain authority to manage and invest the fund
from the board to the investment office and retaining certain
other authority with the board, the trustees of the board shall
have exclusive control and management of the said fund and full
power to invest the same, in accordance with the provisions of
this section, subject, however, to the exercise of that degree
of judgment, skill and care under the circumstances then
prevailing which persons of prudence, discretion and
intelligence who are familiar with such matters exercise in the
management of their own affairs not in regard to speculation,
but in regard to the permanent disposition of the fund,
considering the probable income to be derived therefrom as well
as the probable safety of their capital. The trustees shall have
the power to hold, purchase, sell, lend, assign, transfer, or
dispose of any of the securities and investments in which any of
the moneys in the fund shall have been invested as well as of
the proceeds of said investments, including any directed
commissions which have accrued to the benefit of the fund as a
consequence of the investments, and of any moneys belonging to
said fund, subject in every case to meeting the standard of
prudence set forth in this subsection.
(a.1) Investment through investment office required.--
Notwithstanding any other provision of law, the trustees shall
invest all moneys in the fund exclusively through the investment
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office.
* * *
(d) Payments from fund.--[All payments from the fund shall
be made by the State Treasurer in accordance with requisitions
signed by the secretary of the board, or his designee, and
ratified by resolution of the board.]
(1) All payments made after the effective date of this
paragraph as a disbursement for benefits, administrative
expenses of the board or related to investments by the board
or expenses in the performance of the board's duties related
to the management and investment of the fund shall be made by
the State Treasurer in accordance with requisitions signed by
the secretary of the board, or the secretary's designee, and
ratified by resolution of the board.
(2) All payments from the fund being made as a result of
the management and investment of the fund by the investment
office under 64 Pa.C.S. Ch. 81 shall be made by the State
Treasurer in accordance with requisitions signed by the chief
executive officer of the investment office or designee as
authorized by resolution of the trustees of the investment
office.
(e) Fiduciary status of board.--The members of the board,
employees of the board, and agents thereof shall stand in a
fiduciary relationship to the members of the system regarding
the investments and disbursements of any of the moneys of the
fund, to the extent the administration of benefits under this
part and the management and investment of the fund have been
retained by the board and have not been granted to the
investment office, and shall not profit either directly or
indirectly with respect thereto. The board may, when possible
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and consistent with its fiduciary duties imposed by this
subsection or other law, including its obligation to invest and
manage the fund for the exclusive benefit of the members of the
system, consider whether an investment in any project or
business enhances and promotes the general welfare of this
Commonwealth and its citizens, including, but not limited to,
investments that increase and enhance the employment of
Commonwealth residents, encourage the construction and retention
of adequate housing and stimulate further investment and
economic activity in this Commonwealth. The board shall, through
the Governor, submit to the General Assembly annually, at the
same time the board submits its budget covering administrative
expenses, a report identifying the nature and amount of all
existing investments made pursuant to this subsection.
(f) Name for transacting business.--By the name of "The
Public School Employees' Retirement System" or "The Public
School Employes' Retirement System" all of the business of the
system shall be transacted, its fund invested by the board, all
requisitions for money drawn and payments made, and all of its
cash and securities and other property shall be held, except to
the extent that business transactions, fund investments,
requisitions for money drawn and payments made and cash,
securities and property are held by the name of "The
Commonwealth Pension Investment Office" under 64 Pa.C.S. §
8105(d) (relating to powers and duties), and except that, any
other law to the contrary notwithstanding, the board may
establish a nominee registration procedure for the purpose of
registering securities in order to facilitate the purchase,
sale, or other disposition of securities pursuant to the
provisions of this part.
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(g) Deposits in banks and trust companies.--For the purpose
of receiving contributions from members and employers and
meeting disbursements for annuities and other payments in excess
of the receipts, there shall be kept available by the State
Treasurer an amount, not exceeding 10% of the total amount in
the fund, which may not be transferred to the investment office
under the authority to manage and invest the fund granted to the
investment office under 64 Pa.C.S. Ch. 81 on deposit in any
bank, savings bank or savings and loan association in this
Commonwealth organized under the laws thereof or under the laws
of the United States or with any trust company or companies
incorporated by any law of this Commonwealth, provided any of
such banks, trust companies, savings banks or savings and loan
associations shall furnish adequate security for said deposit.
The sum deposited in any one bank or trust company shall not
exceed 25% of the paid-up capital and surplus of said bank or
trust company or, in the case of savings banks or savings and
loan associations, shall not exceed 25% of the unappropriated
surplus. Any amount in excess of the needs of the board shall be
transferred to the restricted account for the board established
under 64 Pa.C.S. § 8106(h) (relating to relationship to SERB and
PSERB).
* * *
Section 9. Section 8522(a), 8524 and 8526 of Title 24 are
amended to read:
§ 8522. Public School Employees' Retirement Fund.
(a) General rule.--The fund shall consist of all moneys in
the several separate funds in the State Treasury set apart to be
used under the direction of the board for the benefit of members
of the system, without regard to whether any portion of the fund
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is invested and managed by the board or the investment office,
severally or jointly as co-trustees; and the Treasury Department
shall credit to the fund all moneys received from the Department
of Revenue arising from the contributions relating to or on
behalf of the members of the system required under the
provisions of Chapter 83 (relating to membership, contributions
and benefits) and all earnings from investments or moneys of
said fund. There shall be established and maintained by the
board the several ledger accounts specified in sections 8523
(relating to members' savings account), 8524 (relating to State
accumulation account), 8525 (relating to annuity reserve
account) and 8526 (relating to health insurance account). The
board may also establish additional ledger accounts to account
for earnings generated by the investment office.
* * *
§ 8524. State accumulation account.
The State accumulation account shall be the ledger account to
which shall be credited all contributions of the Commonwealth
and other employers as well as the earnings of the fund,
including earnings generated by the investment office, except
the premium assistance contributions and earnings thereon in the
health insurance account. Valuation interest shall be allowed on
the total amount of such account less any earnings of the fund
credited during the year. The reserves necessary for the payment
of annuities and death benefits resulting from membership in the
system as approved by the board and as provided in Chapter 83
(relating to membership, contributions and benefits) shall be
transferred from the State accumulation account to the annuity
reserve account. At the end of each year the required interest
shall be transferred from the State accumulation account to the
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credit of the members' savings account and the annuity reserve
account. The administrative expenses of the board shall be
charged to the State accumulation account. Employer defined
contributions, mandatory pickup contributions and a
participant's voluntary contributions, together with any income
or interest earned thereon, may be temporarily placed into the
State accumulation account pending allocation or distribution to
the participant's individual investment account.
§ 8526. Health insurance account.
The health insurance account shall be the ledger account to
which shall be credited the contributions from the Commonwealth
and other employers as determined in accordance with section
8328(f) (relating to actuarial cost method) for the payment of
health insurance premium assistance for participating eligible
annuitants as provided in section 8509 (relating to health
insurance premium assistance program). All earnings derived from
investment of the assets of the health insurance account shall
be credited to this account. The board is authorized to
separately invest the amounts in the health insurance account in
a prudent manner intended to maximize the safety of the capital
contained in the health insurance account. The direct
administrative expenses of the board related to the
administration of the health insurance program, as provided in
section 8509, shall be charged to this account. The board may
elect to invest moneys of the program with the investment
office.
Section 10. Section 8527 of Title 24 is amended by adding a
subsection to read:
§ 8527. Northern Ireland-related investments.
* * *
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(d) Duties transferred.--After the transfer of the assets
and investments of the fund to the investment office, the duties
and responsibilities of the board under this section shall be
transferred to the trustees of the investment office.
Section 11. Sections 8534(b) and 8535.1(3) of Title 24 are
amended to read:
§ 8534. Fraud and adjustment of errors.
* * *
(b) Adjustment of errors.--Should any change or mistake in
records of the board or the investment office result in any
member, participant, beneficiary, survivor annuitant or
successor payee receiving from the system or plan more or less
than he would have been entitled to receive had the records been
correct, then regardless of the intentional or unintentional
nature of the error and upon the discovery of such error, the
board shall correct the error and if the error affects
contributions to or payments from the system, then so far as
practicable shall adjust the payments which may be made for and
to such person in such a manner that the actuarial equivalent of
the benefit to which he was correctly entitled shall be paid. If
the error affects contributions to or payments from the plan,
the board shall take such action as shall be provided for in the
plan document.
§ 8535.1. Payments to school entities by Commonwealth
commencing with the 2019-2020 school year.
For each school year, beginning with the 2019-2020 school
year, each school entity shall be paid by the Commonwealth for
contributions based upon school service of active members of the
system and active participants of the plan after June 30, 2018,
as follows:
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* * *
(3) School entities shall have up to [five] three days
after receipt of the Commonwealth's portion of the employer's
liability to forward the payment to the fund or the trust.
School entities are expected to make the full payment to the
fund or the trust in accordance with section 8327 (relating
to payments by employers) in the event the receipt of the
Commonwealth's portion of the employer's liability is delayed
because of delinquent salary reporting or other conduct by
the school entities.
* * *
Section 12. Section 8542 of Title 24, added July 2, 2019
(P.L.434, No.72), is amended by adding a subsection to read:
§ 8542. Establishment.
* * *
(e) Delegation to investment office.--The board shall
delegate the board's responsibilities and obligations to
establish and administer the program to the investment office,
which shall independently comply with the provisions of this
subchapter.
Section 13. Section 8901 of Title 24 is amended by adding a
paragraph to read:
§ 8901. Administration.
The board may sponsor a group health insurance program to be
funded by and for eligible persons. The board may administer the
program itself or through any legal entity authorized by law to
do so. The program may also be administered in whole or in part
on a fully insured or self-funded basis at the board's sole
discretion. In addition to the powers granted by other
provisions of this part, the board shall have the powers
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necessary or convenient to carry out this part, including, but
not limited to, the power to:
* * *
(12) Elect to invest moneys of the Health Insurance Fund
with the investment office.
Section 14. Sections 8902(a) and (b)(2) and 8903(a) of Title
24 are amended to read:
§ 8902. Public School Retirees' Health Insurance Fund.
(a) Establishment of fund.--The Public School Retirees'
Health Insurance Fund is established in the State Treasury. The
moneys of the fund are appropriated on a continuing basis and
shall be used exclusively for the purposes set forth in this
part. All of the assets of the fund shall be maintained and
accounted for, separate from all other funds and moneys of the
Commonwealth and the Public School Employees' Retirement Fund
identified in section 8522 (relating to Public School Employees'
Retirement Fund). The board may elect to invest moneys of the
fund with the investment office.
(b) Reserve account.--
* * *
(2) The moneys in the reserve account may be invested by
the board separate from other moneys of the fund. All
earnings derived from investment of the assets of the reserve
account shall be credited to the reserve account. The board
may elect to invest moneys of the reserve account with the
investment office.
* * *
§ 8903. Management of fund.
(a) Control and management of fund.--The members of the
board shall be the trustees of the fund. Regardless of any other
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provisions of law governing the investment of funds under the
control of an administrative board of the State government, the
trustees shall have exclusive control and management of the fund
and full power to invest the fund in accordance with the
provisions of this section, subject, however, to the exercise of
that degree of judgment, skill and care under the circumstances
then prevailing which persons of prudence, discretion and
intelligence who are familiar with such matters exercise in the
management of their own affairs, not in regard to speculation
but in regard to the permanent disposition of the fund,
considering the probable income to be derived therefrom as well
as the probable safety of their capital. The trustees shall have
the power to hold, purchase, sell, lend, assign, transfer or
dispose of any of the securities and investments in which any of
the moneys in the fund shall have been invested as well as of
the proceeds of the investments, including, but not limited to,
directed commissions which have accrued to the benefit of the
fund as a consequence of the investments and of the moneys
belonging to the fund, subject in every case to meeting the
standard of prudence set forth in this section. The board may
elect to invest moneys the fund with the investment office.
* * *
Section 15. Part III of Title 64 is amended by adding a
chapter to read:
CHAPTER 81
COMMONWEALTH PENSION INVESTMENT OFFICE
Sec.
8101. Scope of chapter.
8102. Legislative intent.
8103. Definitions.
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8104. Commonwealth Pension Investment Office.
8105. Powers and duties.
8106. Relationship to SERB and PSERB.
8107. Agreements with other client boards.
8108. Penalty for fraud.
8109. Applicability of other statutes.
8110. Publication and access to meetings and records.
8111. Integration management team.
8112. Application and construction.
§ 8101. Scope of chapter.
This chapter relates to the Commonwealth Pension Investment
Office.
§ 8102. Legislative intent.
The General Assembly recognizes the following public policy
purposes and declares that the following objectives of the
Commonwealth are to be served by this chapter:
(1) The primary objective of this chapter to which all
other objectives and purposes are secondary is to establish a
highly professional and expert investment office to serve in
a fiduciary capacity the investment needs of SERS and PSERS.
(2) The establishment of the Commonwealth Pension
Investment Office to prudently and expertly invest funds of
the public retirement systems is consistent with the
Commonwealth's commitment to ensure a secure retirement for
public school employees and State public servants throughout
this Commonwealth.
(3) The establishment of a Commonwealth Pension
Investment Office is intended to attract and retain high-
quality financial professionals to manage and invest the
funds of the retirement systems in a cost-efficient manner.
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(4) It is essential to the members of the public
retirement systems that their fiduciaries are held to a high
ethical standard, free of conflicts and political influence,
operating with discipline and consistency in its investment
strategy and administration.
(5) Establishment of a Commonwealth Pension Investment
Office will strengthen fiduciary investment management and
modernize oversight to enhance accountability and
transparency.
§ 8103. 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:
"Actuary." A consultant to the investment office who shall
be:
(1) a member of the American Academy of Actuaries;
(2) an individual who has demonstrated to the
satisfaction of the Insurance Commissioner of Pennsylvania
that the individual has the educational background necessary
for the practice of actuarial science and has had at least
seven years of actuarial experience; or
(3) a firm, partnership or corporation of which at least
one member meets the requirements of paragraph (1) or (2).
"Client board." SERB, PSERB and any public pension board in
this Commonwealth that enters into an agreement with the
investment office to entrust pension assets and money to the
investment office for investment.
"Client funds." The retirement funds and any pension assets
and money of a public pension board in this Commonwealth
entrusted to the investment office for investment.
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"Institutional investor." An entity which pools money to
purchase securities, real property and other investment assets
or originates loans. The term includes:
(1) A bank, insurance company pension, hedge fund, Real
Estate Investment Trust, investment advisor, endowment and
mutual fund.
(2) An operating company which invests excess capital in
securities, real property and other investment assets.
"Investment office." The Commonwealth Pension Investment
Office.
"PSERB." The Public School Employees' Retirement Board.
"PSERS." The Public School Employees' Retirement System.
"Retirement funds." The State Employees' Retirement Fund and
the Public School Employees' Retirement Fund.
"Senior investment professional." An individual performing
investment functions as determined by the investment office
trustees based on the level of responsibility, experience and
education required for the position.
"SERB." The State Employees' Retirement Board.
"SERS." The State Employees' Retirement System.
§ 8104. Commonwealth Pension Investment Office.
(a) Establishment.--The Commonwealth Pension Investment
Office is established as an independent administrative board
which shall be a body corporate and politic.
(b) Membership.--
(1) The investment office shall consist of the following
trustees appointed from the pool of candidates identified
under subsection (c), each of whom shall be subject to the
qualification criteria under paragraph (2) and subsections
(g), (h), (i) and (j):
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(i) Three trustees appointed by PSERB.
(ii) Three trustees appointed by SERB.
(iii) Three trustees appointed by a majority of the
trustees appointed under subparagraphs (i) and (ii).
(2) Two trustees appointed by SERB, two trustees
appointed by PSERB and two trustees appointed by the trustees
appointed by SERB and PSERB, must have at least five years of
institutional investment experience.
(c) Pool of candidates.--SERB and PSERB shall jointly
contract with a third-party consultant to establish and maintain
a pool of candidates for trustees of the investment office. The
pool of candidates shall consist of individuals who meet the
requirements under subsection (g).
(d) Removal.--A trustee of the investment office shall only
be removed from the trustee's position by a resolution adopted
by a majority of the other trustees and a joint resolution of
SERB and PSERB for:
(1) Misconduct in office, including a violation of the
restrictions under subsections (i), (j) and (k), willful
neglect of duty or conduct evidencing unfitness for office or
incompetence.
(2) Conviction of an offense graded as a felony, an
infamous crime or offense under the laws of this Commonwealth
or an equivalent offense under Federal law or the law of
another jurisdiction.
(3) Abandonment of office under subsection (m).
(e) Initial appointments.--
(1) The terms of the three initial investment office
trustees appointed by SERB shall, as designated by SERB at
the time of appointment, expire:
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(i) one on the fourth June 30 after the effective
date of this subsection;
(ii) one on the fifth June 30 after the effective
date of this subsection; and
(iii) one on the sixth June 30 after the effective
date of this subsection.
(2) The terms of the three initial investment office
trustees appointed by PSERB shall, as designated by PSERB at
the time of appointment, expire:
(i) one on the fourth June 30 after the effective
date of this subsection;
(ii) one on the fifth June 30 after the effective
date of this subsection; and
(iii) one on the sixth June 30 after the effective
date of this subsection .
(3) The terms of the three initial investment office
trustees appointed by the six trustees appointed by SERB and
PSERB shall, as designated by the six trustees appointed by
SERB and PSERB at the time of appointment, expire:
(i) one on the fourth June 30 after the effective
date of this subsection;
(ii) one on the fifth June 30 after the effective
date of this subsection; and
(iii) one on the sixth June 30 after the effective
date of this subsection.
(f) Terms of office.--Upon the expiration of a term under
subsection (e) of a trustee appointed under subsection (b), the
following shall apply:
(1) The term of office of a trustee shall be four years.
(2) An appointment to fill a vacancy shall be for the
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remainder of the unexpired or holdover term and shall be made
by the appointing authority of the trustee being replaced.
(3) A trustee shall serve no more than two full or
partial terms.
(g) Qualifications.--A person shall not be eligible to be
appointed as a trustee of the investment office unless the
person has been determined by the third-party consultant under
subsection (c) that the person possesses at least one of the
following qualifications:
(1) An earned Ph.D. in economics or finance from a
nationally or internationally accredited doctorate-granting
institution.
(2) At least 12 years of professional experience in the
financial management of public pensions or at least 12 years
of professional experience as a certified public accountant
or chartered management global accountant with financial
management or pension expertise.
(3) At least 12 years of professional experience in
financial risk management with public pensions.
(4) At least 12 years of senior professional management,
financial, information technology, legal or human resource
experience relevant to the business of the investment office.
(5) The Chartered Financial Analyst credential of the
CFA Institute with at least 10 years of institutional
investing experience.
(6) The Chartered Alternative Investment Analyst
credential of the Chartered Alternative Investment Analyst
Association with at least 10 years of institutional investing
experience.
(7) The Certified Financial Risk Manager credential of
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the Global Association of Risk Professionals with at least 10
years of institutional investing experience.
(8) A Professional Risk Manager Designation of the
Professional Risk Managers' International Association with at
least ten years of institutional investing experience.
(9) Twenty years of institutional investing or risk
management experience with:
(i) public pension plans, corporate pension plans,
family offices, sovereign wealth funds, endowments and
foundations, each with assets in excess of $500,000,000;
(ii) money management firms with assets in excess of
$2,000,000,000; and
(iii) consulting firms to large pools of capital in
excess of $5,000,000,000.
(10) Twenty years of teaching experience in economics or
finance, 10 of which must have occurred at a nationally or
internationally accredited doctorate-granting university,
master-granting college or university or a baccalaureate
college.
(11) The Certified Public Accountant credential or
Certified Internal Auditor credential from the Institute of
Internal Auditors with at least 10 years of experience with
entities under paragraph (9) or federally chartered banking
entities.
(h) Additional qualifications.--In addition to the
qualifications under subsection (g), a person appointed as
trustees of the investment office under subsection (b)(2) shall
possess demonstrated professional experience and competencies in
at least one of the following:
(1) Highly sophisticated risk management and related
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decision-making experience.
(2) Highly sophisticated investment decision-making
experience.
(3) Direct investment or operating experience in large
capital-intensive infrastructure, real estate, public market
indexing or private market investments or assets.
(4) Significant executive leadership relevant to the
business of the investment office, including experience
developing vision and strategy, achieving operational
effectiveness and fostering an ethical and performance-based
culture.
(i) Restrictions.--An individual shall not be eligible to be
appointed or to serve as a trustee of the investment office or
to be employed or continued to be employed as a senior
investment professional of the investment office if any of the
following apply to the individual:
(1) The individual has been indicted or charged with,
convicted of, pleaded guilty or nolo contendere to or
forfeited bail concerning:
(i) a felony; or
(ii) a misdemeanor involving fraud, theft or
dishonesty under the laws of any jurisdiction in the
United States.
(2) The individual has been dismissed from other
employment for gross misconduct or has intentionally made a
false statement concerning a material fact in connection with
the application to be employed by or to serve as a trustee of
the investment office.
(3) The individual has had a judgment entered against
the individual by a court of competent jurisdiction in a
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civil matter involving a breach of fiduciary duties.
(4) The individual has been the subject of an adverse
action by a law enforcement agency or a regulatory or
oversight body, including the Securities and Exchange
Commission, Financial Industry Regulatory Authority, United
States Department of Labor, United States Department of
Justice or a state regulator, which resulted in a settlement,
sanction, payment of a fine, injunction or other negative
finding, whether individually, or as a partner, principal
member, managing director or other position of leadership of
any entity subject to such penalty or finding.
(5) The individual is a member of SERB or PSERB, an
elected public official or a candidate for an elected public
office. A trustee or employee of the investment office who is
appointed or elected a member of a client board, or who
assumes a position, employment or office that makes the
individual an ex officio member of a client board shall
immediately resign as trustee or employee of the investment
office.
(6) The individual currently holds or has held an
elected office in this Commonwealth in the past five years.
(7) The individual has been a board member of SERB or
PSERB in the past five years.
(8) The individual currently holds or has held office in
a political party or political committee in the past five
years.
(9) The individual currently is or has been a staff
member of an elected official for the past five years.
(10) The individual has been an employee of or an
investment manager or investment consultant for the
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investment office, PSERS or SERS, in the past five years.
(11) The individual holds any other Commonwealth board
position.
(12) The individual has an actual or perceived conflict
of interest.
(13) The individual has been convicted of a felony or
has lost a professional accreditation for misconduct.
(i.1) Additional restrictions.--An individual shall not be
eligible to be appointed or to serve as a trustee of the
investment office if the individual is an annuitant of SERS or
PSERS or a participant receiving distributions from the State
Employees' Defined Contribution Plan or the Public School
Employees' Defined Contribution Plan who is not over normal
retirement age as defined in the State Employees' Retirement
Code or the Public School Employees' Retirement Code and who has
not been an annuitant or a participant receiving distributions
for more than one year.
(j) Additional prohibitions.--In addition to the other
prohibitions contained under this chapter, trustees and
employees of the investment office shall:
(1) not accept any discount, gift, gratuity,
compensation, travel, lodging or other thing of value
directly or indirectly from a person or entity seeking or
doing business with the investment office or a client board;
(2) not hold or campaign for public office;
(3) not solicit funds for a charitable, educational,
religious, health, fraternal, civic or other nonprofit entity
from a person or entity doing business with or seeking to do
business with the investment office or a client board;
(4) avoid impropriety and the appearance of impropriety
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and observe standards and conduct that promote public
confidence;
(5) not accept employment with or be retained by any
person or nongovernmental entity doing business with the
investment office or a client board for a period of two years
following their termination of employment as a senior
investment professional with the investment office or as a
trustee of the investment office;
(6) not directly or indirectly solicit, request, suggest
or recommend to a person or nongovernmental entity doing
business with the investment office, SERB or PSERB, the
appointment or employment of a person in any capacity;
(7) disclose if the individual, or their spouse or an
immediate family member, is or becomes employed by a service
provider to the investment office, SERB or PSERB;
(8) not engage in:
(i) insider trading, which is the buying or selling
of a security, in breach of a fiduciary duty or other
relationship of trust and confidence, on the basis of
material, nonpublic information about the security as
prohibited by judicial opinions interpreting section
10(b) of the Securities Exchange Act of 1934 and
Securities and Exchange Commission Rule 10b-5;
(ii) front running, which is the trading of a
security with knowledge that an investment office
decision or trading order to buy or sell a security is
pending; and
(iii) any other conduct in violation of antifraud
provisions of policies adopted by the investment office.
The investment office shall adopt policies and procedures
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providing a fair and reasonable process for resolving
complaints of violations of this subsection, which shall
provide that a trustee or employee who is a subject of a
complaint is provided full and fair opportunity to be
heard throughout the process.
(k) Oath of office.--Each trustee of the investment office
shall take an oath of office that the trustee will, so far as it
devolves upon the trustee, diligently and honestly, administer
the affairs of the investment office and that the trustee will
not knowingly violate or willfully permit to be violated any of
the provisions of law applicable to this chapter. The oath shall
be subscribed by the trustee taking the oath and certified by
the officer before whom the oath is taken and shall be
immediately filed in the Office of the Secretary of the
Commonwealth.
(l) Meetings.--Regular meetings of the trustees shall be
held at least six times each year until a single chief
investment officer is appointed under section 8104(s), after
which the trustees may schedule fewer, but not less than four,
regular meetings each year. The trustees may hold other meetings
as deemed necessary. The time and place of the meetings shall be
fixed by the trustees. A majority of the appointed trustees of
the investment office shall constitute a quorum for the
transaction of business.
(m) Abandonment.--A trustee of the investment office shall
be deemed to have abandoned office upon failure to attend any
regular or special meeting of the investment office without
excuse approved by resolution of the investment office for two
consecutive meetings.
(n) Fiduciary relationship.--The trustees of the investment
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office, employees of the investment office and agents of the
investment office shall be co-trustees with the client boards of
the respective retirement fund s or other client fund s to the
extent assigned to the investment office or agreed on under this
chapter and shall stand in a fiduciary relationship to the
client boards and the members and beneficiaries of the systems
and plans that the investment office administers under section
8105(b).
(o) Administrative and investment expenses.--
(1) The trustees of the investment office shall:
(i) annually prepare and approve a budget, which
shall include expenses necessary for the administration
of the investment office;
(ii) the following apply:
(A) A llocate the administrative expenses of the
investment office to client funds that are not the
retirement funds, as the office determines
appropriate.
(B) sixty percent of the administrative expenses
remaining after allocation under clause (A) shall be
allocated to the Public School Employees' Retirement
Fund and 40% shall be allocated to the State
Employees' Retirement Fund;
(iii) allocate the investment expenses related to
the investment and management of the client funds to each
of the client funds as they determine is just and proper
based on the amount of each client fund in each
investment and the expenses related to each investment;
(iv) administrative expenses approved by the
trustees shall be paid from the investment earnings of
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the client funds;
(v) concurrently with the budget, the investment
office shall prepare annually a list of proposed
expenditures which the investment office intends to pay
through the use of directed commissions and a list of the
actual expenditures from the past year paid by the
investment office through the use of directed
commissions. Directed commission expenditures shall be
made by the investment office for the exclusive benefit
of the client boards and client board members and
beneficiaries;
(vi) at least 30 days before the approval of the
budget, provide a proposed budget and the lists under
subparagraph (v) to SERB and PSERB for review and
comment;
(vii) consider comments received from SERB and PSERB
and make amendments to the budget as a result of the
comments;
(viii) approve a budget covering the administrative
expenses of the investment office; and
(ix) by November 1 of the calendar year preceding
that for which the budget is being prepared, provide a
copy of the final approved budget and the list of
proposed and actual expenditures of directed commissions
to SERB and PSERB.
(2) Notwithstanding any other provision of law, the
investment office's budget and approved expenditures shall be
regarded as final and not subject to review, modification,
alteration, revision, reduction, approval or disapproval by
the Governor or the Secretary of the Budget and shall not be
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subject to section 610 or 615 of the act of April 9, 1929
(P.L.177, No.175), known as The Administrative Code of 1929.
(p) Liability.--A trustee shall not be personally liable
for:
(1) obligations of the investment office; and
(2) actions within the scope of the investment office
made in good faith.
(q) Compensation and expenses.--
(1) Trustees of the investment office shall receive
salary established initially by the transitional integration
management team in consultation with the third-party
consultant selected under subsection (c). After the initial
appointment of trustees to the office, salaries shall be
reviewed by the third-party consultant selected under
subsection (c) at the end of every trustee's four-year term.
The third-party consultant shall take into consideration
benchmarking criteria and salaries of other trustees in the
industry. In no case shall the annual salary of a trustee be
reduced during the trustee's term of office.
(2) In addition to the salary under paragraph (1) and
subject to an aggregate per annum limitation and any other
rules and regulations as the investment office shall
determine, a trustee of the investment office shall be
entitled to necessary expenses, including travel expenses,
incurred in the discharge of duties.
(3) Trustees of the investment office are not eligible
for membership in SERS or participation in the State
Employees' Defined Contribution Plan and may not receive
service credit or eligibility points or make contributions
based on service or compensation as a trustee of the
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investment office. This paragraph shall not prevent a trustee
who concurrently is employed in another position as a State
employee as defined in 71 Pa.C.S. § 5102 (relating to
definitions) from making contributions or earning service
credit or eligibility points in SERS or the State Employees'
Defined Contribution Plan as otherwise provided for under the
71 Pa.C.S. (relating to State government) based only on the
position as a State employee.
(4) Trustees of the investment office are not eligible
for enrollment or coverage in medical or health insurance
provided by the Commonwealth or the investment office as a
result of service as a trustee of the investment office.
(r) Chair.--The chair of the investment office shall be
elected by the trustees of the investment office from the
membership of the investment office.
(s) Appointments.--Appointments to the investment office
shall be made and a majority of the appointed trustees of the
investment office shall take the oath of office within one year
of the effective date of this subsection. Transfer of the
retirement funds, except money retained by SERB and PSERB and
held by the State Treasurer under 71 Pa.C.S. § 5931(g) (relating
to management of fund and accounts) and 24 Pa.C.S. § 8521(g)
(relating to management of fund and accounts) to the investment
office shall take place, and the management and investment by
the investment office of the portions of the retirement funds
transferred to the investment office shall begin the second July
1 following a majority of the appointed trustees of the
investment office taking the oath of office. Notwithstanding
section 8105(a)(4) (relating to powers and duties), the trustees
of the investment office shall select a single chief investment
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officer by the July 1 following a majority of the appointed
trustees of the investment office taking the oath of office.
§ 8105. Powers and duties.
(a) General powers.--The investment office shall have all
the powers necessary or convenient for investing client funds in
accordance with the directives or policies provided by the
client boards, including the following rights and powers:
(1) The investment office shall employ individuals as
necessary to carry out the powers and duties of the
investment office. Investment office employees shall:
(i) be considered State employees for purposes of 71
Pa.C.S. Pt. XXV (relating to retirement for State
employees and officers);
(ii) serve at the pleasure of the investment office;
and
(iii) retain status in the classified service.
(2) The investment office shall establish a system of
classification and compensation of the employees of the
investment office. The investment office shall have the sole
authority to establish the number, classification and
compensation of investment office employees who are not
covered by a collective bargaining agreement, including the
discretion to:
(i) revise or establish new standards for the hiring
and qualifications for employment and may take into
consideration the location of the work and the conditions
under which the service is rendered;
(ii) revise or set new titles, salaries and wages of
individuals employed under this paragraph;
(iii) establish different standards for different
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