See other bills
under the
same topic
SENATE AMENDED
PRIOR PRINTER'S NOS. 2704, 2896, 4477
PRINTER'S NO. 4575
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, BERNSTINE, GLEIM,
BROOKS, SCHEMEL, RADER, THOMAS, JONES, TOOHIL, FRITZ, GILLEN
AND DUSH, OCTOBER 18, 2019
AS AMENDED ON SECOND CONSIDERATION, IN SENATE, OCTOBER 20, 2020
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, FURTHER providing for PUBLIC SCHOOL EMPLOYEES'
RETIREMENT BOARD AND FOR ADMINISTRATIVE DUTIES OF BOARD AND
PROVIDING FOR stress test of system; and, in administration,
funds, accounts and general provisions relating to retirement
for State employees and officers, FURTHER providing for THE
STATE EMPLOYEES' RETIREMENT BOARD AND FOR ADMINISTRATIVE
DUTIES OF THE BOARD AND 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:
SECTION 1. SECTION 8501(F) OF TITLE 24 OF THE PENNSYLVANIA
CONSOLIDATED STATUTES, IS AMENDED AND THE SECTION IS AMENDED BY
ADDING A SUBSECTION TO READ:
§ 8501. PUBLIC SCHOOL EMPLOYEES' RETIREMENT BOARD.
* * *
(F) BOARD TRAINING.--EACH MEMBER OF THE BOARD WILL BE
<--
<--
<--
<--
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
REQUIRED TO OBTAIN [EIGHT] 10 HOURS OF MANDATORY TRAINING IN
INVESTMENT STRATEGIES, ACTUARIAL COST ANALYSIS, ASSET
ALLOCATION, RISK ASSESSMENT AND RETIREMENT PORTFOLIO MANAGEMENT
ON AN ANNUAL BASIS.
(G) COMMITTEES.--
(1) IN ORDER TO BE APPOINTED TO THE AUDIT/COMPLIANCE
COMMITTEE AS A VOTING MEMBER, A BOARD MEMBER MUST FIRST
COMPLETE AT LEAST 16 HOURS OF TRAINING IN RISK ASSESSMENTS,
INTERNAL CONTROLS AND AUDITING STANDARDS . WITHIN 90 DAYS OF
APPOINTMENT TO THE COMMITTEE. THE 16 HOURS OF TRAINING ARE
INCLUSIVE OF THE HOURS INDICATED FOR BOARD TRAINING. THE
COMMITTEE ON SPONSORING ORGANIZATIONS ENTERPRISE RISK
MANAGEMENT GUIDELINES MAY BE CONSIDERED AS A GUIDE TO THE
TRAINING. INDIVIDUALS WHO ARE MEMBERS OF THE AUDIT/COMPLIANCE
COMMITTEE ON THE EFFECTIVE DATE OF THIS PARAGRAPH SHALL BE
EXEMPT FROM THE INITIAL 16-HOUR REQUIREMENT. IN ORDER TO
CONTINUE SERVING AS A VOTING MEMBER OF THE AUDIT/COMPLIANCE
COMMITTEE FOLLOWING INITIAL APPOINTMENT, A BOARD MEMBER MUST
COMPLETE AT LEAST EIGHT HOURS OF CONTINUING EDUCATION IN RISK
ASSESSMENTS, INTERNAL CONTROLS AND AUDITING STANDARDS EACH
CALENDAR YEAR THEREAFTER.
(2) THE BOARD SHALL ESTABLISH MAY ESTABLISH AN EXECUTIVE
COMMITTEE, WHICH SHALL CONSIST OF THE BOARD CHAIR, THE BOARD
VICE CHAIR, IF ONE HAS BEEN APPOINTED, THE CHAIR OF THE
AUDIT/COMPLIANCE COMMITTEE, THE CHAIR OF THE BYLAWS/POLICY
COMMITTEE , THE CHAIR OF THE INVESTMENT COMMITTEE AND THE
CHAIR OF THE BUDGET/FINANCE COMMITTEE OR OTHER MEMBERS OF THE
BOARD AS DETERMINED BY THE BOARD .
(3) THE BOARD SHALL ESTABLISH A FUNCTION WITHIN THE
INVESTMENT COMMITTEE OF AN ASSET LIABILITY CONTINGENCY
20190HB1962PN4575 - 2 -
<--
<--
<--
<--
<--
<--
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
OPERATING COMMITTEE CAPABILITY , WHICH SHALL BE CHARGED WITH
EVALUATING THE RISK ASSOCIATED WITH THE SYSTEM'S ASSETS AND
LIABILITIES.
SECTION 2. SECTION 8502(O) OF TITLE 24 IS AMENDED TO READ:
§ 8502. ADMINISTRATIVE DUTIES OF BOARD.
* * *
(O) INDEPENDENT AUDITS.--
(1) 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.
(2) THE FOLLOWING SHALL APPLY:
(I) EXCEPT AS PROVIDED UNDER SUBPARAGRAPH (II), THE
BOARD SHALL PROVIDE FOR AN INTERNAL CONTROL AUDIT OF THE
SYSTEM AND THE PLAN AT LEAST EVERY FIVE YEARS.
(II) IF AN ANNUAL FINANCIAL REPORT PREPARED UNDER
SUBSECTION (N) IDENTIFIES A MATERIAL WEAKNESS OR
SIGNIFICANT DEFICIENCY OR AN INTERNAL CONTROL AUDIT
IDENTIFIES A MATERIAL WEAKNESS OR SIGNIFICANT DEFICIENCY,
THE BOARD SHALL PROVIDE FOR AN ADDITIONAL INTERNAL
CONTROL AUDIT OF THE SYSTEM AND THE PLAN FOR THE YEAR
SUBSEQUENT TO THE REPORT OR AUDIT IN WHICH THE WEAKNESS
OR DEFICIENCY WAS IDENTIFIED.
* * *
SECTION 3. TITLE 24 IS AMENDED BY ADDING A SECTION TO READ:
§ 8510. Stress test of system.
(a) General rule.--The actuary BOARD shall conduct an annual
stress test of the system and the board shall submit the results
20190HB1962PN4575 - 3 -
<--
<--
<--
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
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. THE BOARD SHALL DISCLOSE IN
THE REPORT OF THE STRESS TEST RESULTS WHICH INDUSTRY STANDARDS
WERE USED AND WHETHER ANY CHANGES TO INDUSTRY STANDARDS HAVE
BEEN MADE.
(b) Report by Independent Fiscal Office.--No later than
March 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 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:
20190HB1962PN4575 - 4 -
<--
<--
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
(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
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. IN SUFFICIENT NUMBER AS
DETERMINED PRUDENT BY THE BOARD AS INFORMED BY RECOGNIZED
INDUSTRY STANDARDS.
"Sensitivity analysis." The following:
(1) Estimates of the total normal cost and employer
normal cost for new employees, calculated using an VARIOUS
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. ASSUMPTIONS IN SUFFICIENT NUMBER AS
DETERMINED PRUDENT BY THE BOARD AS INFORMED BY RECOGNIZED
20190HB1962PN4575 - 5 -
<--
<--
<--
<--
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
INDUSTRY STANDARDS.
(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 VARIOU S ANNUAL ASSUMED RATES OF
RETURN IN SUFFICIENT NUMBER AS DETERMINED PRUDENT BY THE
BOARD AS INFORMED BY RECOGNIZED INDUSTRY STANDARDS.
"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 PRUDENT BY THE BOARD AS
INFORMED BY RECOGNIZED INDUSTRY STANDARDS .
SECTION 4. SECTION 5901(F) OF TITLE 71 IS AMENDED AND THE
SECTION IS AMENDED BY ADDING A SUBSECTION TO READ:
§ 5901. THE STATE EMPLOYEES' RETIREMENT BOARD.
* * *
(F) BOARD TRAINING.--EACH MEMBER OF THE BOARD WILL BE
REQUIRED TO OBTAIN [EIGHT] 10 HOURS OF MANDATORY TRAINING IN
INVESTMENT STRATEGIES, ACTUARIAL COST ANALYSIS, ASSET
ALLOCATION, RISK ASSESSMENT AND RETIREMENT PORTFOLIO MANAGEMENT
ON AN ANNUAL BASIS.
(G) COMMITTEES.--
(1) IN ORDER TO BE APPOINTED TO THE AUDIT RISK AND
COMPLIANCE COMMITTEE AS A VOTING MEMBER, A BOARD MEMBER MUST
FIRST COMPLETE AT LEAST 16 HOURS OF TRAINING IN RISK
20190HB1962PN4575 - 6 -
<--
<--
<--
<--
<--
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
ASSESSMENTS, INTERNAL CONTROLS AND AUDITING STANDARDS . WITHIN
90 DAYS OF APPOINTMENT TO THE COMMITTEE. THE 16 HOURS OF
TRAINING ARE INCLUSIVE OF THE HOURS INDICATED FOR BOARD
TRAINING. THE C OMMITTEE ON SPONSORING ORGANIZATIONS
ENTERPRISE RISK MANAGEMENT GUIDELINES MAY BE CONSIDERED AS A
GUIDE TO THE TRAINING. INDIVIDUALS WHO ARE MEMBERS OF THE
AUDIT RISK AND COMPLIANCE COMMITTEE ON THE EFFECTIVE DATE OF
THIS PARAGRAPH SHALL BE EXEMPT FROM THE INITIAL 16-HOUR
REQUIREMENT. IN ORDER TO CONTINUE SERVING AS A VOTING MEMBER
OF THE AUDIT RISK AND COMPLIANCE COMMITTEE FOLLOWING INITIAL
APPOINTMENT, A BOARD MEMBER MUST COMPLETE AT LEAST EIGHT
HOURS OF CONTINUING EDUCATION IN RISK ASSESSMENTS, INTERNAL
CONTROLS AND AUDITING STANDARDS EACH CALENDAR YEAR
THEREAFTER.
(2) THE BOARD SHALL MAY ESTABLISH AN EXECUTIVE
COMMITTEE, WHICH SHALL CONSIST OF THE BOARD CHAIR, THE BOARD
VICE CHAIR, IF ONE HAS BEEN APPOINTED, THE CHAIR OF THE AUDIT
RISK AND COMPLIANCE COMMITTEE , THE CHAIR OF THE INVESTMENT
COMMITTEE AND THE CHAIR OF THE FINANCE AND MEMBER SERVICES
COMMITTEE OR OTHER MEMBERS OF THE BOARD AS DETERMINED BY THE
BOARD .
(3) THE BOARD SHALL ESTABLISH A FUNCTION WITHIN THE
INVESTMENT COMMITTEE OF AN ASSET LIABILITY CONTINGENCY
OPERATING COMMITTEE CAPABILITY , WHICH SHALL BE CHARGED WITH
EVALUATING THE RISK ASSOCIATED WITH THE SYSTEM'S ASSETS AND
LIABILITIES.
SECTION 5. SECTION 5902(N) OF TITLE 71 IS AMENDED TO READ:
§ 5902. ADMINISTRATIVE DUTIES OF THE BOARD.
* * *
(N) INDEPENDENT AUDITS.--
20190HB1962PN4575 - 7 -
<--
<--
<--
<--
<--
<--
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
(1) THE BOARD SHALL PROVIDE FOR ANNUAL AUDITS OF THE
SYSTEM AND THE PLAN BY INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS. THE AUDITS SHALL INCLUDE THE BOARD'S ACCRUAL AND
EXPENDITURE OF DIRECTED COMMISSIONS. THE BOARD MAY USE THE
SAME INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT FOR THE AUDITS
OF BOTH THE SYSTEM AND THE PLAN.
(2) THE FOLLOWING SHALL APPLY:
(I) EXCEPT AS PROVIDED UNDER SUBPARAGRAPH (II), THE
BOARD SHALL PROVIDE FOR AN INTERNAL CONTROL AUDIT OF THE
SYSTEM AND THE PLAN AT LEAST EVERY FIVE YEARS.
(II) IF AN ANNUAL FINANCIAL REPORT PREPARED UNDER
THIS SECTION IDENTIFIES A MATERIAL WEAKNESS OR
SIGNIFICANT DEFICIENCY OR AN INTERNAL CONTROL AUDIT
IDENTIFIES A MATERIAL WEAKNESS OR SIGNIFICANT DEFICIENCY,
THE BOARD SHALL PROVIDE FOR AN ADDITIONAL INTERNAL
CONTROL AUDIT OF THE SYSTEM AND THE PLAN FOR THE YEAR
SUBSEQUENT TO THE REPORT OR AUDIT IN WHICH THE WEAKNESS
OR DEFICIENCY WAS IDENTIFIED.
* * *
Section 2 6. Title 71 is amended by adding a section to
read:
§ 5909. Stress test of system.
(a) General rule.--The actuary BOARD 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. THE BOARD SHALL DISCLOSE IN
THE REPORT OF THE STRESS TEST RESULTS WHICH INDUSTRY STANDARDS
WERE USED AND WHETHER ANY CHANGES TO INDUSTRY STANDARDS HAVE
20190HB1962PN4575 - 8 -
<--
<--
<--
<--
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
BEEN MADE.
(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 5507 (relating to contributions to the system
by the Commonwealth and other employers) and 5508 (relating
to actuarial cost method).
(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 5507 and
5508 ; or
(ii) change each year at the projected rate of
annual State revenue growth as determined and provided by
the Independent Fiscal Office.
20190HB1962PN4575 - 9 -
<--
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
(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 5507 and
5508 ; or
(ii) change each year at the projected rate of
annual State revenue growth as determined and provided by
the Independent Fiscal Office. IN SUFFICIENT NUMBER AS
DETERMINED PRUDENT BY THE BOARD AS INFORMED BY RECOGNIZED
INDUSTRY STANDARDS.
"Sensitivity analysis." The following:
(1) Estimates of the total normal cost and employer
normal cost for new employees, calculated using an VARIOUS
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. ASSUMPTIONS IN SUFFICIENT NUMBER AS
DETERMINED PRUDENT BY THE BOARD AS INFORMED BY RECOGNIZED
INDUSTRY STANDARDS.
(2) Estimates of the unfunded actuarial accrued
liability and unfunded liability, calculated using an VARIOUS
annual assumed rate RATES of return that is:
(i) equal to the annual assumed rate of return;
(ii) one percentage point above the annual assumed
20190HB1962PN4575 - 10 -
<--
<--
<--
<--
<--
<--
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
rate of return;
(iii) one percentage point below the annual assumed
rate of return; and IN SUFFICIENT NUMBER AS DETERMINED
PRUDENT BY THE BOARD AS INFORMED BY RECOGNIZED INDUSTRY
STANDARDS.
"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 PRUDENT BY THE BOARD AS
INFORMED BY RECOGNIZED INDUSTRY STANDARDS .
Section 3 7. 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 2022.
(2) The addition of 71 Pa.C.S. § 5909 shall apply to
calendar years beginning after December 31, 2019 2021.
Section 4. This act shall take effect in 60 days.
(3) THE AMENDMENT OF 24 PA.C.S. § 8501(F) AND 71 PA.C.S.
§ 5901(F) SHALL APPLY AFTER DECEMBER 31, 2020 2021.
SECTION 8. THIS ACT SHALL TAKE EFFECT AS FOLLOWS:
(1) THE FOLLOWING SHALL TAKE EFFECT IN 60 DAYS:
(I) THE ADDITION OF 24 PA.C.S. § 8510.
(II) THE ADDITION OF 71 PA.C.S. § 5909.
(2) THIS SECTION SHALL TAKE EFFECT IMMEDIATELY.
(3) THE REMAINDER OF THIS ACT SHALL TAKE EFFECT IN 90
DAYS.
20190HB1962PN4575 - 11 -
<--
<--
<--
<--
<--
<--
<--
<--
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26