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A07350
THE GENERAL ASSEMBLY OF PENNSYLVANIA
HOUSE BILL
No.
1460
Session of
2017
INTRODUCED BY B. MILLER, GREINER, WARD, MILLARD, MILNE, RADER,
LAWRENCE, WHEELAND, BLOOM, GROVE, ZIMMERMAN, MOUL, BARRAR,
KEEFER, MAHER, CALTAGIRONE, HANNA, IRVIN, GILLEN, RYAN AND
KORTZ, MAY 31, 2017
AS REPORTED FROM COMMITTEE ON APPROPRIATIONS, HOUSE OF
REPRESENTATIVES, AS AMENDED, DECEMBER 11, 2017
AN ACT
Amending Titles 24 (Education) and 71 (State Government) of the
Pennsylvania Consolidated Statutes, in administration and
miscellaneous provisions regarding administration of the
Public School Employees' Retirement Fund, further providing
for administrative duties of board; and, in administration,
funds, accounts and general provisions regarding
administration of the State Employees' Retirement Fund,
further providing for administrative duties of the board.
Amending Titles 24 (Education) and 71 (State Government) of the
Pennsylvania Consolidated Statutes as follows:
In Title 24:
for retirement for school employees, in preliminary
provisions, further providing for definitions; in
membership, contributions and benefits, providing for
nonparticipatory employer withdraw liability and further
providing for actuarial cost method; in School Employees'
Defined Contribution Plan, further providing for vesting;
and, in administration and miscellaneous provisions,
further providing for administrative duties of board, for
payments to school entities by Commonwealth commencing
with the 2019-2020 school year and providing for
delinquent payments.
In Title 71:
for retirement for State employees and officers, in
membership, credited service, classes of service and
eligibility for benefits regarding administration of the
State Employees' Retirement Fund, further providing for
election to become a Class A-6 member or solely a
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participant in the plan and for eligibility for death
benefits; in benefits, further providing for maximum
single life annuity; and, in administration of funds,
accounts and general provisions, further providing for
administrative duties of the board.
The General Assembly of the Commonwealth of Pennsylvania
hereby enacts as follows:
Section 1. Section 8502 of Title 24 of the Pennsylvania
Consolidated Statutes is amended by adding a subsection to read:
Section 1. The definitions of "eligible annuitants" and
"eligibility points" in section 8102 of Title 24 of the
Pennsylvania Consolidated Statutes are amended and the section
is amended by adding a definition to read:
§ 8102. Definitions.
The following words and phrases when used in this part shall
have, unless the context clearly indicates otherwise, the
meanings given to them in this section:
* * *
"Eligible annuitants." All current and prospective
annuitants of the system and Class DC participants receiving
distributions with 24 1/2 or more eligibility points and all
current and prospective disability annuitants. Beginning January
1, 1995, "eligible annuitants" shall include members with 15 or
more eligibility points who terminated or who terminate school
service on or after attaining superannuation retirement age and
who are annuitants with an effective date of retirement after
superannuation age.
"Eligibility points." Points which are accrued by an active
member, a participant, a multiple service member who is an
active member of the State Employees' Retirement System for
credited service or by a member or participant who has been
reemployed from USERRA leave or dies while performing USERRA
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leave and are used in the determination of eligibility for
benefits as provided in section 8306 (relating to eligibility
points). A participant shall earn one eligibility point for each
fiscal year in which the participant contributes to the trust.
Eligibility points earned by Class T-G or Class T-H participants
shall apply only for purposes of determining vesting of employer
defined contributions under section 8409(b) (relating to
vesting).
* * *
"Employer defined contribution rate." For Class T-G service,
the rate of 2.25% applied to Class T-G compensation. For Class
T-H service, the rate of 2.0% applied to Class T-H compensation.
For Class DC participants, the rate of 2.0% applied to Class DC
compensation.
* * *
Section 2. Title 24 is amended by adding a section to read:
§ 8327.1. Nonparticipating employer withdrawal liability.
(a) General rule.--A nonparticipating employer is liable to
the system for withdrawal liability in the amount determined
under subsection (c). A nonparticipating employer is an employer
that is determined by the board to have ceased:
(1) covered operations under the system; or
(2) to have an obligation to contribute under the system
for all or any of the employer's school employees but
continues covered operations.
(b) Determination.--An employer shall, within the time
prescribed by the board in a written request, furnish such
information as the board deems necessary to administer this
section and to determine whether an employer is a
nonparticipating employer. If the board determines that an
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employer is a nonparticipating employer, the board shall:
(1) Determine the nonparticipation date.
(2) Determine the amount of the employer's withdrawal
liability.
(3) Notify the employer of the amount of the withdrawal
liability.
(4) Collect the amount of the withdrawal liability.
(c) Calculation of withdrawal liability.--A nonparticipating
employer's withdrawal liability shall be determined as of the
employer's nonparticipation date and shall be calculated as
follows:
(1) For a nonparticipating employer under subsection (a)
(1), the excess of the actuarial present value of the vested
accrued benefits of the system's members over the market
value of assets, both as of the date of the last actuarial
valuation adopted by the board prior to the employer's
nonparticipation date shall be multiplied by a withdrawal
fraction calculated as follows:
(i) The numerator of the withdrawal fraction shall
be the total present value of accrued benefits of all
active members of the employer.
(ii) The denominator of the withdrawal fraction
shall be the total present value of accrued benefits of
all active members of the system.
(2) For a nonparticipating employer under subsection (a)
(2), the excess of the actuarial accrued liability of the
system's members over the market value of assets, both as of
the date of the last actuarial valuation adopted by the board
prior to the employer's nonparticipation date shall be
multiplied by a withdrawal fraction calculated as follows:
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(i) The numerator of the withdrawal fraction shall
be the total present value of accrued benefits of all
active members of the employer.
(ii) The denominator of the withdrawal fraction
shall be the total present value of accrued benefits of
all active members of the system.
(d) Value of benefits.--The actuarial present value of the
vested accrued benefits and total present value of accrued
benefits shall be determined based on the unit credit actuarial
cost method, applying the system's provisions and actuarial
assumptions used in the last actuarial valuation adopted by the
board prior to the nonparticipation date. The actuarial accrued
liability shall be determined based on the same actuarial cost
method used to determine the actuarially required contribution
rate in section 8328(i) (relating to actuarial cost method),
applying the system's provisions and actuarial assumptions used
in the last actuarial valuation adopted by the board prior to
the nonparticipation date.
(e) Interest rate assumption.--For purposes of calculating
the withdrawal liability in subsection (c)(1):
(1) For a nonparticipating employer under subsection (a)
(l), the interest rate assumption shall be reduced by an
amount determined by the actuary to reflect the increased
investment, mortality and other actuarial risk associated
with the accrued benefit of the members of the
nonparticipating employer on a basis approved by the board.
(2) For a nonparticipating employer under subsection (a)
(2), the interest rate assumption shall be the same annual
interest rate used to determine the annual normal
contribution rate under section 8328(b) as of the date of the
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last actuarial valuation adopted by the board prior to the
employer's nonparticipation date.
(f) Payment.--A nonparticipating employer shall pay the
withdrawal liability as follows:
(1) The withdrawal liability for a nonparticipating
employer under subsection (a)(1) shall be paid in a lump sum
no later than the time prescribed by the board in the notice
of the amount of the withdrawal liability.
(2) The withdrawal liability for a nonparticipating
employer under subsection (a)(2) shall be paid based on the
schedule and method of payment determined by the board. In
addition, the obligations of such nonparticipating employer
under this section shall not impair the obligation of the
nonparticipating employer to continue to pay the employer
contribution rate under section 8328 as adjusted for the
withdrawal liability. For purposes of this section, the board
may determine whether a member should be treated as being
employed by a single employer, regardless of whether the
employer is a nonparticipating employer. In making such
determination, the board may rely on the provisions of
section 414(b), (c) and (m) of the Internal Revenue Code of
1986 (Public Law 99-514, 26 U.S.C. § 414(b), (c) and (m)) and
corresponding regulations or may establish other relevant
factors the board deems necessary.
(3) The board is authorized to pursue all causes of
action and collection remedies as permitted under applicable
law to collect the withdrawal liability and to seek relief
under section 8327(b) (relating to payments by employers)
each without regard to whether the nonparticipating employer
has ceased all operations.
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Section 3. Sections 8328(a), 8409(b)(3) and 8501(a) of Title
24 are amended to read:
§ 8328. Actuarial cost method.
(a) Employer contribution rate.--The amount of the total
employer contributions shall be computed by the actuary as a
percentage of the total compensation of all active members and
active participants, as applicable, during the period for which
the amount is determined and shall be so certified by the board.
The total employer contribution rate shall be the sum of
paragraphs (1), (2) and (3) divided by the total compensation of
all active members and active participants:
(1) the final contribution [rate as] amount computed by
multiplying the final contribution rate calculated in
subsection (h) [plus] by the total compensation of all active
members;
(2) the premium assistance contribution [rate as
computed in subsection (f). The actuarially required
contribution rate shall consist of the normal contribution
rate as defined in subsection (b), the accrued liability
contribution rate as defined in subsection (c) and the
supplemental annuity contribution rate as defined in
subsection (d). Beginning July 1, 2004, the actuarially
required contribution rate shall be modified by the
experience adjustment factors as calculated in subsection
(e).] amount computed by multiplying the premium assistance
contribution rate calculated in subsection (f) by the total
compensation of all active members and active participants;
and
(3) the employer defined contribution amount computed by
multiplying the employer defined contribution rate by the
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compensation of the corresponding active participants. The
actuarially required contribution shall be no less than the
normal cost plus the cost to fully amortize the unfunded
actuarial accrued liability calculated using actuarial
methods and assumptions that are consistent with generally
accepted actuarial standards and generally accepted
accounting principles, including professional actuarial
standards of practice.
* * *
§ 8409. Vesting.
* * *
(b) Employer defined contributions.--
* * *
(3) Nonvested employer defined contributions, including
interest and investment gains and losses that are forfeited
by a participant, shall be [applied to the participant's most
recent employer's obligations assessed in future years]
retained by the board and used for the payment of expenses of
the plan.
* * *
§ 8501. Public School Employees' Retirement Board.
(a) Status and membership.--The board shall be an
independent administrative board and shall consist of 15
members: the Secretary of Education, ex officio; the State
Treasurer, ex officio; the Secretary of Banking and Securities,
ex officio; two Senators; two members of the House of
Representatives; the executive secretary of the Pennsylvania
School Boards Association, ex officio; one to be appointed by
the Governor; three to be elected by the active professional
members of the system and active professional participants in
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the plan from among their number; one to be elected by
annuitants or Class DC participants in the plan who have
terminated school service and are receiving [or are eligible to
receive] distributions from among their number; one to be
elected by the active nonprofessional members of the system or
active nonprofessional participants in the plan from among their
number; and one to be elected by members of Pennsylvania public
school boards from among their number. The appointments made by
the Governor shall be confirmed by the Senate and each election
shall be conducted in a manner approved by the board. The terms
of the appointed and nonlegislative elected members shall be
three years. The members from the Senate shall be appointed by
the President pro tempore of the Senate and shall consist of one
member from the majority and one member from the minority. The
members from the House of Representatives shall be appointed by
the Speaker of the House of Representatives and shall consist of
one member from the majority and one member from the minority.
The legislative members shall serve on the board for the
duration of their legislative terms and shall continue to serve
until 30 days after the convening of the next regular session of
the General Assembly after the expiration of their respective
legislative terms or until a successor is appointed for the new
term, whichever occurs first. The chairman of the board shall be
elected by the board members. Each ex officio member of the
board and each legislative member of the board may appoint a
duly authorized designee to act in his stead. In the event that
a board member, who is designated as an active participant or as
the participant in the plan who is receiving or is eligible to
receive distributions, receives a total distribution of the
board member's interest in the plan, that board member may
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continue to serve on the board for the remainder of his term.
* * *
Section 4. Section 8502 of Title 24 is amended by adding a
subsection to read:
§ 8502. Administrative duties of board.
* * *
(s) Additional reporting requirements.--The following shall
apply:
(1) In addition to the requirements set forth in this
section, the board shall prepare and have published on its
publicly accessible Internet website, and electronically
submit copies to all members of the General Assembly, the
following information within six months after the end of the
system's fiscal year:
(i) The performance of all investments over the most
recent 1-, 3-, 5-, 10- and 20-year periods.
(ii) The performance of all investments by asset
class over each time horizon, both gross and net of fees
being reported commencing prospectively from the
effective date of this subsection and WITH THE GROSS FEES
retroactively for the 5-year period and, to the extent
the information is available, retroactively for the 10-
year period REASONABLY AVAILABLE .
(iii) An itemized listing of the fees paid to all
investment managers for the applicable reporting years,
separated by base management fee and profit share,
including performance fees, carried interest and
incentive fees, including the basis of valuation, and
informed by the best practices as recommended by
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recognized industry standards, including, but not limited
to, the Institutional Limited Partnership Association Fee
Transparency Initiative. The board shall disclose in the
report which industry standards were used and whether any
changes to industry standards have been made.
(iv) Management letters prepared by:
(A) any independent certified public accounting
firm authorized to conduct an audit of the system or
the plan by the General Assembly;
(B) the Office of the Auditor General;
(C) auditors hired by the board and referenced
in the board's financial statements filed in
accordance with subsection (n); and
(D) (B) an independent certified public
accounting firm specified in subsection (o).
(2) As used in this subsection, the following words and
phrases shall have the meanings given to them in this
paragraph unless the context clearly indicates otherwise:
"Carried interest." Any share of profits from an
alternative investment vehicle that is distributed to a fund
manager, general partner or related party, including
allocations of alternative investment vehicle profits
received by a fund manager in consideration of having waived
fees that the fund manager might otherwise have been entitled
to receive.
"Institutional Limited Partnership Association Fee
Transparency Initiative." An initiative created by the
Institutional Limited Partnership Association to establish
guidelines for reporting fees, expenses and compliance
disclosures regarding investments.
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Section 5. Section 8535.1 of Title 24 is amended to read:
§ 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:
* * *
[(4) Employers whose payments to the Public School
Employees' Retirement Fund are delinquent shall be charged
interest by the Public School Employees' Retirement Fund at
the annual interest rate adopted by the board under section
8328 in effect in the fiscal year in which the payments are
required to be paid.]
Section 6. Title 24 is amended by adding a section to read:
§ 8535.2. Delinquent payments.
Employers whose payments to the Public School Employees'
Retirement Fund are delinquent shall be charged interest by the
Public School Employees' Retirement Fund at the annual interest
rate adopted by the board under section 8328 (relating to
actuarial cost method) in effect in the fiscal year in which the
payments are required to be paid.
Section 7. Sections 5306.4(c) and (d), 5310 and 5702(a)(1)
of Title 71, amended or added June 12, 2017 (P.L.11, No.5), are
amended to read:
§ 5306.4. Election to become a Class A-6 member or solely a
participant in the plan.
* * *
(c) Effect of election to be a Class A-6 member.--An
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election to become a Class A-6 member shall be irrevocable and
shall become effective on the effective date of membership in
the system and shall remain in effect for all future creditable
State service, other than service performed as a Class A-5
exempt employee. Payment and adjustment of regular member
contributions and mandatory pickup participant contributions for
Class A-5 State service and for Class A-6 State service
performed prior to the election of Class A-6 membership shall be
made in a form, manner and time determined by the board. Upon
termination and subsequent reemployment, a member who elected
Class A-6 membership shall be credited as a Class A-6 member for
creditable State service performed after reemployment, except as
a Class A-5 exempt employee, regardless of termination of
employment, termination of membership by withdrawal of
accumulated deductions or status as an annuitant, vestee or
inactive member after the termination of service.
(d) Effect of election to be solely a participant in the
plan.--An election to become solely a participant in the plan
shall be irrevocable and shall become effective on the date that
membership in the system would have been effective had the
election not been made and shall remain in effect for all future
State service, other than service performed as a Class A-5
exempt employee. [Payment] Adjustment of regular member
contributions for Class A-5 State service and payment of
mandatory participant pickup contributions for service solely as
a participant in the plan performed prior to the election shall
be made in a form, manner and time determined by the board. Upon
termination and subsequent reemployment, a State employee who
elected to be solely a participant in the plan shall resume
active participation for State service performed after
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reemployment, except as a Class A-5 exempt employee, regardless
of termination of employment, termination of participation by a
partial or total distribution of vested total defined
contributions or status as an annuitant, vestee or inactive
member of the system as a Class A-5 exempt employee after the
termination of service.
* * *
§ 5310. Eligibility for death benefits.
In the event of the death of a member who is eligible for an
annuity in accordance with section 5308(a) or (b) (relating to
eligibility for annuities), his beneficiary shall be entitled to
a death benefit. [For purposes of this section, a member with
ten or more eligibility points shall be considered eligible for
an annuity based on Class A-5 service or Class A-6 service even
if under superannuation age.]
§ 5702. Maximum single life annuity.
(a) General rule.--Any full coverage member who is eligible
to receive an annuity pursuant to the provisions of section
5308(a) or (b) (relating to eligibility for annuities) who
terminates State service, or if a multiple service member who is
a school employee who is an active member of the Public School
Employees' Retirement System who terminates school service,
before attaining age 70 shall be entitled to receive a maximum
single life annuity attributable to his credited service and
equal to the sum of the following single life annuities
beginning at the effective date of retirement:
(1) A single life annuity that is the sum of the
standard single life annuities determined separately for each
class of service multiplied by the appropriate class of
service multiplier applicable to each standard single life
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annuity. In case the member on the effective date of
retirement is under superannuation age for any service, a
reduction factor calculated to provide benefits actuarially
equivalent to an annuity starting at superannuation age and
subject to the provisions of subsection [(e)] (f) shall be
applied to the product determined for that service: Provided,
however, That any standard single life annuity resulting from
Class A-5 service shall be reduced by a percentage determined
by multiplying the number of months, including a fraction of
a month as a full month, by which the effective date of
retirement precedes superannuation age by 0.25% if the
effective date of retirement is on or after the date the
member has attained age 57 and the member has 25 or more
eligibility points, and that any standard single life annuity
resulting from Class A-6 service shall be reduced by a
percentage determined by multiplying the number of months,
including a fraction of a month as a full month, by which the
effective date of retirement precedes superannuation age by
0.25% if the effective date of retirement is on or after the
date the member has attained age 62 and the member has 25 or
more eligibility points. The class of service multiplier for
any period of concurrent service shall be multiplied by the
proportion of total State and school compensation during such
period attributable to State service as a member of the
system. In the event a member has two multipliers for one
class of service, separate standard single life annuities
shall be calculated for the portion of service in the class
applicable to each class of service multiplier.
* * *
Section 2 8. Section 5902 of Title 71 is amended by adding a
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subsection to read:
§ 5902. Administrative duties of the board.
* * *
(r) Additional reporting requirements.--The following shall
apply:
(1) In addition to the requirements set forth in this
section, the board shall prepare and have published on its
publicly accessible Internet website, and electronically
submit copies to all members of the General Assembly, the
following information within six months after the end of the
system's calendar year:
(i) The performance of all investments over the most
recent 1-, 3-, 5-, 10- and 20-year periods.
(ii) The performance of all investments by asset
class over each time horizon, both gross and net of fees
being reported commencing prospectively from the
effective date of this subsection and WITH THE GROSS FEES
retroactively for the 5-year period and, to the extent
the information is available, retroactively for the 10-
year period REASONABLY AVAILABLE .
(iii) An itemized listing of the fees paid to all
investment managers for the applicable reporting years,
separated by base management fee and profit share,
including performance fees, carried interest and
incentive fees, including the basis of valuation, and
informed by the best practices as recommended by
recognized industry standards, including, but not limited
to, the Institutional Limited Partnership Association Fee
Transparency Initiative. The board shall disclose in the
report which industry standards were used and whether any
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changes to industry standards have been made.
(iv) Management letters prepared by:
(A) any independent certified public accounting
firm authorized to conduct an audit of the system or
the plan by the General Assembly;
(B) the Office of the Auditor General;
(C) auditors hired by the board and referenced
in the board's financial statements filed in
accordance with subsection (n) (M) ; and
(D) (B) an independent certified public
accounting firm specified in subsection (o) (N) .
(2) As used in this subsection, the following words and
phrases shall have the meanings given to them in this
paragraph unless the context clearly indicates otherwise:
"Carried interest." Any share of profits from an
alternative investment vehicle that is distributed to a fund
manager, general partner or related party, including
allocations of alternative investment vehicle profits
received by a fund manager in consideration of having waived
fees that the fund manager might otherwise have been entitled
to receive.
"Institutional Limited Partnership Association Fee
Transparency Initiative." An initiative created by the
Institutional Limited Partnership Association to establish
guidelines for reporting fees, expenses and compliance
disclosures regarding investments.
Section 3 9. This act shall take effect in 60 days.
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