PRINTER'S NO. 2704

THE GENERAL ASSEMBLY OF PENNSYLVANIA

HOUSE BILL

No.

1962

Session of

2019

INTRODUCED BY KEEFER, TOBASH, EVERETT, B. MILLER, SCHMITT, RYAN,

OWLETT, GREINER, MILLARD, ZIMMERMAN, MOUL AND BERNSTINE,

OCTOBER 18, 2019

REFERRED TO COMMITTEE ON STATE GOVERNMENT, OCTOBER 18, 2019

AN ACT

Amending Titles 24 (Education) and 71 (State Government) of the

Pennsylvania Consolidated Statutes, in administration and

miscellaneous provisions relating to retirement for school

employees, providing for stress test of system; and, in

administration, funds, accounts and general provisions

relating to retirement for State employees and officers,

providing for stress test of system.

The General Assembly of the Commonwealth of Pennsylvania

hereby enacts as follows:

Section 1. Title 24 of the Pennsylvania Consolidated

Statutes is amended by adding a section to read:

§ 8510. Stress test of system.

(a) General rule.--The actuary shall conduct an annual

stress test of the system and the board shall submit the results

of the stress test to the Governor, the General Assembly and the

Independent Fiscal Office no later than January 1 of each year.

The stress test shall include a scenario analysis, simulation

analysis and sensitivity analysis.

(b) Report by Independent Fiscal Office.--No later than

March 1 of each year, the Independent Fiscal Office shall

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produce a report summarizing the results of the stress test,

including a calculation of the ratio of projected employer

pension contributions to projected State revenues under a

scenario analysis.

(c) Definitions.--As used in this section, the following

words and phrases shall have the meanings given to them in this

subsection unless the context clearly indicates otherwise:

"Scenario analysis." Projections of assets, liabilities,

unfunded actuarial accrued liabilities, the change in unfunded

actuarial accrued liabilities, employer contributions, benefit

payments, service costs, payroll and calculations of the ratios

of assets to liabilities, employer contributions to payroll and

operating cash flow to assets for each of the next:

(1) Twenty years, based upon then-current plan

assumptions and statutory funding methodology established

under sections 8326 (relating to contributions by the

Commonwealth), 8327 (relating to payments by employers) and

8328 (relating to actuarial cost method).

(2) Twenty years, assuming that investment returns are

two percentage points lower than the assumed rate of return

and that employer contributions:

(i) are based upon the then-current statutory

funding methodology established under sections 8326, 8327

and 8328; or

(ii) change each year at the projected rate of

annual State revenue growth as determined and provided by

the Independent Fiscal Office.

(3) Ten years, assuming that there is a one-time loss on

plan investments of 20% followed by a subsequent nine-year

period of investment returns at the assumed rate of return

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and that employer contributions:

(i) are based upon the then-current statutory

funding methodology established under sections 8326, 8327

and 8328; or

(ii) change each year at the projected rate of

annual State revenue growth as determined and provided by

the Independent Fiscal Office.

"Sensitivity analysis." The following:

(1) Estimates of the total normal cost and employer

normal cost for new employees, calculated using an investment

return assumption that is:

(i) equal to the annual assumed rate of return;

(ii) one percentage point above the annual assumed

rate of return;

(iii) one percentage point below the annual assumed

rate of return; and

(iv) two percentage points below the annual assumed

rate of return.

(2) Estimates of the unfunded actuarial accrued

liability and unfunded liability, calculated using an annual

assumed rate of return that is:

(i) equal to the annual assumed rate of return;

(ii) one percentage point above the annual assumed

rate of return;

(iii) one percentage point below the annual assumed

rate of return; and

(iv) equal to the 10-year average of the yield of

30-year treasury notes.

"Simulation analysis." Projections of the range of required

employer contributions for each of the next 20 years, based on

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analysis that simulates the volatility of annual investment

returns above and below the assumed rate of return, applying

methodology determined by the actuary.

Section 2. Title 71 is amended by adding a section to read:

§ 5909. Stress test of system.

(a) General rule.--The actuary shall conduct an annual

stress test of the system and the board shall submit the results

of the stress test to the Governor, the General Assembly and the

Independent Fiscal Office no later than July 1 of each year. The

stress test shall include a scenario analysis, simulation

analysis and sensitivity analysis.

(b) Report by Independent Fiscal Office.--No later than

September 1 of each year, the Independent Fiscal Office shall

produce a report summarizing the results of the stress test,

including a calculation of the ratio of projected employer

pension contributions to projected State revenues under a

scenario analysis.

(c) Definitions.--As used in this section, the following

words and phrases shall have the meanings given to them in this

subsection unless the context clearly indicates otherwise:

"Scenario analysis." Projections of assets, liabilities,

unfunded actuarial accrued liabilities, the change in unfunded

actuarial accrued liabilities, employer contributions, benefit

payments, service costs, payroll and calculations of the ratios

of assets to liabilities, employer contributions to payroll and

operating cash flow to assets for each of the next:

(1) Twenty years, based upon then-current plan

assumptions and statutory funding methodology established

under sections 5707 (relating to death benefits) and 5708

(relating to supplemental annuities).

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(2) Twenty years, assuming that investment returns are

two percentage points lower than the annual assumed rate of

return and that employer contributions:

(i) are based upon the then-current statutory

funding methodology established under sections 5707 and

5708; or

(ii) change each year at the projected rate of

annual State revenue growth as determined and provided by

the Independent Fiscal Office.

(3) Ten years, assuming that there is a one-time loss on

plan investments of 20% followed by a subsequent nine-year

period of investment returns at the assumed rate of return

and that employer contributions:

(i) are based upon the then-current statutory

funding methodology established under sections 5707 and

5708; or

(ii) change each year at the projected rate of

annual State revenue growth as determined and provided by

the Independent Fiscal Office.

"Sensitivity analysis." The following:

(1) Estimates of the total normal cost and employer

normal cost for new employees, calculated using an investment

return assumption that is:

(i) equal to the annual assumed rate of return;

(ii) one percentage point above the annual assumed

rate of return;

(iii) one percentage point below the annual assumed

rate of return; and

(iv) two percentage points below the annual assumed

rate of return.

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(2) Estimates of the unfunded actuarial accrued

liability and unfunded liability, calculated using an annual

assumed rate of return that is:

(i) equal to the annual assumed rate of return;

(ii) one percentage point above the annual assumed

rate of return;

(iii) one percentage point below the annual assumed

rate of return; and

(iv) equal to the 10-year average of the yield of

30-year treasury notes.

"Simulation analysis." Projections of the range of required

employer contributions for each of the next 20 years, based on

analysis that simulates the volatility of annual investment

returns above and below the assumed rate of return, applying

methodology determined by the actuary.

Section 3. This act shall apply as follows:

(1) The addition of 24 Pa.C.S. § 8510 shall apply to

fiscal years beginning after June 30, 2020.

(2) The addition of 71 Pa.C.S. § 5909 shall apply to

calendar years beginning after December 31, 2019.

Section 4. This act shall take effect in 60 days.

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