PRINTER'S NO. 3904
No. 2655 Session of 2002
INTRODUCED BY NICKOL, ARMSTRONG, M. BAKER, BASTIAN, CAPPELLI,
CLYMER, CREIGHTON, DeWEESE, J. EVANS, FREEMAN, GEIST, GEORGE,
HARHART, HORSEY, JAMES, KENNEY, LAUGHLIN, McCALL, McILHATTAN,
R. MILLER, PALLONE, PICKETT, RUBLEY, SCHULER, SCRIMENTI,
STEELMAN, T. STEVENSON, E. Z. TAYLOR, THOMAS, WATSON, WILT
AND YOUNGBLOOD, MAY 13, 2002
REFERRED TO COMMITTEE ON LOCAL GOVERNMENT, MAY 13, 2002
AN ACT
1 Amending the act of December 18, 1984 (P.L.1005, No.205),
2 entitled "An act mandating actuarial funding standards for
3 all municipal pension systems; establishing a recovery
4 program for municipal pension systems determined to be
5 financially distressed; providing for the distribution of the
6 tax on the premiums of foreign fire insurance companies; and
7 making repeals," further providing for the certification of
8 municipal pension costs, for the administration of the
9 General Municipal Pension System State Aid Program and for
10 the continuation of the financially distressed municipal
11 pension system recovery program; adding provisions for the
12 establishment and administration of in-service retirement
13 option plans in local governments; and repealing the
14 financially distressed municipal pension plan determination
15 procedure.
16 The General Assembly of the Commonwealth of Pennsylvania
17 hereby enacts as follows:
18 Section 1. The title of the act of December 18, 1984
19 (P.L.1005, No.205), known as the Municipal Pension Plan Funding
20 Standard and Recovery Act, is amended to read:
21 AN ACT
22 Mandating actuarial funding standards for all municipal pension
1 systems; establishing a recovery program for municipal
2 pension systems determined to be financially distressed;
3 providing for the distribution of the tax on the premiums of
4 foreign fire insurance companies; providing for the
5 establishment and administration of in-service retirement
6 option plans in local governments; and making repeals.
7 Section 2. The definition of "municipal employee" in section
8 102 of the act is amended and the section is amended by adding
9 definitions to read:
10 Section 102. Definitions.
11 Except as provided in Chapter 7, the following words and
12 phrases when used in this act shall have the meanings given to
13 them in this section unless the context clearly indicates
14 otherwise:
15 * * *
16 "IROP." An in-service retirement option plan created and
17 operated by a local government under Chapter 11.
18 "IROP participant." A retired member of a local government-
19 defined benefit pension plan who is eligible to participate in
20 an IROP under section 1112 and who has elected to participate in
21 an IROP under section 1113.
22 "IROP participant account." A pension trust fund ledger
23 account established under section 1121(a).
24 "Local government." A municipality or any county.
25 * * *
26 "Municipal employee." Any person [other than an independent
27 contractor] who provides regular services for a municipality in
28 return for compensation from the municipality. The term does not
29 include an independent contractor or an IROP participant.
30 * * *
20020H2655B3904 - 2 -
1 Section 3. Section 202(b) of the act is amended to read:
2 Section 202. Contents of actuarial valuation report.
3 * * *
4 (b) Contents of actuarial exhibits; defined benefit plans
5 self-insured in whole or in part.--For any pension plan which is
6 a defined benefit plan and which is self-insured in whole or in
7 part, all applicable actuarial exhibits shall be prepared in
8 accordance with the entry age normal actuarial cost method with
9 entry age established as the actual entry age for all plan
10 members unless the municipality applies for and is granted
11 authorization by the commission to use an alternative actuarial
12 cost method. Authorization shall be granted if the municipality
13 demonstrates on an individual pension plan basis that there are
14 compelling reasons of an actuarial nature for the use of an
15 alternative actuarial cost method. The commission shall issue
16 rules and regulations specifying the criteria which the
17 commission will use to determine the question of the existence
18 of compelling reasons for the use of an alternative actuarial
19 cost method, the documentation which a municipality seeking the
20 authorization will be required to supply and the acceptable
21 alternative actuarial cost methods which the commission may
22 authorize. The actuarial cost method shall be used to value all
23 aspects of the benefit plan or plans of the pension plan unless
24 the municipality applies for and is granted authorization by the
25 commission to use approximation techniques other than the
26 actuarial cost method for aspects of the benefit plan or plans
27 of the pension plan other than the retirement benefit.
28 Authorization shall be granted if the municipality demonstrates
29 on an individual pension plan basis that there are compelling
30 reasons of an actuarial nature for the use of these
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1 approximation techniques. The commission shall issue rules and
2 regulations specifying the criteria which the commission will
3 use to determine the question of the existence of compelling
4 reasons for the use of approximation techniques, the
5 documentation which a municipality seeking the authorization
6 will be required to supply and the acceptable approximation
7 technique which the commission may authorize. The actuarial
8 exhibits shall use actuarial assumptions which are, in the
9 judgment of the actuary and the governing body of the plan, the
10 best available estimate of future occurrences in the case of
11 each assumption. With respect to economic actuarial assumptions,
12 the assumptions shall either be within the range specified in
13 rules and regulations issued by the commission or documentation
14 explaining and justifying the choice of assumptions outside the
15 range shall accompany the report. The actuarial exhibits shall
16 measure all aspects of the benefit plan or plans of the pension
17 plan in accordance with modifications in the benefit plan or
18 plans, if any, and salaries which as of the valuation date are
19 known or can reasonably be expected to be in force during the
20 ensuing plan year. In preparing the actuarial exhibits or any
21 actuarial valuation report, the municipality shall exclude the
22 compensation of all IROP participants from the active member
23 payroll, all IROP participants from active member data and the
24 balance in the IROP participant account from the assets of the
25 pension trust fund. The actuarial valuation report shall contain
26 the following actuarial exhibits:
27 (1) An exhibit of the normal cost of the benefits
28 provided by the benefit plan as of the date of the actuarial
29 valuation, expressed as a percentage of the future covered
30 payroll of the active membership of the pension plan as of
20020H2655B3904 - 4 -
1 the date of the actuarial valuation.
2 (2) An exhibit of the actuarial accrued liability of the
3 benefit plan as of the date of the actuarial valuation in
4 total which shall be the actuarial present value of all
5 projected benefits provided by the benefit plan reduced by
6 the actuarial present value of future normal costs, and in
7 particular, which shall include the following required
8 actuarial present values for pension plan benefits of related
9 items:
10 (i) Required actuarial present values on account of
11 active members:
12 (A) Retirement benefits.
13 (B) Disability benefits.
14 (C) Survivor benefits.
15 (D) Refund liability due to withdrawal from
16 active service or death.
17 (E) Other benefits, specifying the nature of
18 each type.
19 This item shall include a footnote indicating the amount
20 of accumulated member contributions without accrued
21 interest.
22 (ii) Required actuarial present values on account of
23 former members with a deferred, vested or otherwise
24 nonforfeitable right to a retirement benefit.
25 (iii) Required actuarial present values on account
26 of former members who do not have a deferred, vested or
27 otherwise nonforfeitable right to the retirement benefit
28 and who have not withdrawn any accumulated member
29 contributions.
30 (iv) Required actuarial present values on account of
20020H2655B3904 - 5 -
1 benefit recipients:
2 (A) Retirement benefits.
3 (B) Disability benefits.
4 (C) Surviving spouse benefits.
5 (D) Surviving child benefits.
6 (E) Other benefits, specifying the nature of
7 each type.
8 (v) Required actuarial present values for other
9 benefits provided by the benefit plan, specifying the
10 nature of each type.
11 (vi) Actuarial present value of future normal cost.
12 (3) An exhibit of the unfunded actuarial accrued
13 liability of the pension plan in total, which shall be the
14 actuarial accrued liability of the pension plan calculated
15 pursuant to paragraph (2) less the actuarial value of assets
16 of the pension plan calculated pursuant to subsection (e)(1),
17 and which, in particular, shall include the following:
18 (i) The remaining balance of the unfunded actuarial
19 accrued liability in existence as of the first actuarial
20 valuation report required by this section occurring next
21 following the date of enactment of this section.
22 (ii) The remaining balance of each increment of
23 unfunded actuarial accrued liability attributable to
24 modifications in the benefit plan governing the pension
25 plan which were applicable to active members, separately
26 indicating each and designating each by the plan year in
27 which the benefit plan modification was made effective.
28 (iii) The remaining balance of each increment of
29 unfunded actuarial accrued liability attributable to
30 modifications in the benefit plan governing the pension
20020H2655B3904 - 6 -
1 plan which were applicable to retired members and other
2 benefit recipients, separately indicating each and
3 designating each by the plan year in which the benefit
4 plan modification was made effective.
5 (iv) The remaining balance of each increment of net
6 unfunded actuarial accrued liability attributable to
7 modifications in the actuarial assumptions used to
8 calculate the actuarial accrued liability of the pension
9 plan separately indicating each and designating each by
10 the plan year in which the actuarial assumption
11 modification was made effective.
12 (v) The remaining balance of each increment or
13 decrement of net unfunded actuarial accrued liability
14 attributable to net actuarial experience losses or gains,
15 separately indicating each and designating each by the
16 plan year in which the actuarial experience loss or gain
17 was recognized.
18 The initial determination of the unfunded actuarial accrued
19 liability attributable to a modification in the benefit plan
20 governing the pension plan or to a modification in the
21 actuarial assumptions used to calculate the actuarial accrued
22 liability of the pension plan shall be made by calculating
23 the unfunded actuarial accrued liability of the pension plan
24 in accordance with the benefit plan provisions and actuarial
25 assumptions which were in effect prior to the modification
26 and by calculating the unfunded actuarial accrued liability
27 of the pension plan in accordance with the modification in
28 the provisions of the benefit plan governing the pension plan
29 or the actuarial assumptions used to calculate the actuarial
30 accrued liability of the pension plan, whichever is
20020H2655B3904 - 7 -
1 applicable, and the remaining benefit plan provisions and
2 actuarial assumptions. The initial determination of the
3 unfunded actuarial accrued liability attributable to an
4 actuarial loss shall be made in conjunction with the analysis
5 of increases or decreases in the unfunded actuarial accrued
6 liability of the pension plan required pursuant to paragraph
7 (6).
8 (4) An exhibit of any additional funding costs
9 associated with the amortization of any unfunded actuarial
10 accrued liability of the pension plan, indicating for each
11 increment of unfunded actuarial accrued liability specified
12 in paragraph (3), the level annual dollar contribution
13 required to pay an amount equal to the actuarial assumption
14 as to investment earnings applied to the principal amount of
15 the remaining balance of the increment of unfunded actuarial
16 accrued liability and to retire by the applicable
17 amortization target date specified in this paragraph the
18 principal amount of the remaining balance of the increment of
19 unfunded actuarial accrued liability. The amortization target
20 date applicable for each type of increment of unfunded
21 actuarial accrued liability shall be as follows:
22 (i) (A) In the case of a pension plan established
23 on or prior to January 1, 1985 for the unfunded
24 actuarial accrued liability in existence as of the
25 beginning of the plan year occurring in calendar year
26 1985, at the end of the plan year occurring in
27 calendar year 2015; or
28 (B) In the case of a pension plan established
29 after January 1, 1985, for the unfunded actuarial
30 accrued liability then or subsequently determined to
20020H2655B3904 - 8 -
1 be or to have been in existence as of the date of the
2 establishment of the plan, at the end of the plan
3 year occurring 30 years after the calendar year in
4 which the pension plan was established.
5 (ii) Increment or decrement of net unfunded
6 actuarial accrued liability attributable to a change in
7 actuarial assumptions, at the end of the plan year
8 occurring 20 years after the calendar year in which
9 actuarial assumption modification was effective.
10 (iii) Increment of net unfunded actuarial accrued
11 liability attributable to a modification in the benefit
12 plan applicable to active members, at the end of the plan
13 year occurring 20 years after the calendar year in which
14 the benefit plan modification was effective.
15 (iv) Increment of unfunded actuarial accrued
16 liability attributable to a modification in the benefit
17 plan applicable to retired members and other benefit
18 recipients, at the end of the plan year occurring 10
19 years after the calendar year in which the benefit plan
20 modification was effective.
21 (v) Increment or decrement of net unfunded actuarial
22 accrued liability attributable to an actuarial experience
23 loss or gain, at the end of plan year occurring 15 years
24 after the calendar year in which the actuarial experience
25 loss or gain was recognized.
26 With respect to any applicable pension plan other than a plan
27 which comprises all or part of a moderately distressed or a
28 severely distressed municipal pension system, if the
29 remaining average period between the current average attained
30 age of active members as of the valuation date and the later
20020H2655B3904 - 9 -
1 of their earliest average normal retirement age or their
2 average assumed retirement age is less than the applicable
3 period or periods ending with the amortization target date or
4 dates specified in subparagraph (i), (ii), (iii) or (v), the
5 appropriate amortization target date for the applicable
6 subparagraph determined with reference to the longest
7 applicable remaining average period rounded to the next
8 largest whole number shall be used. With respect to any plan
9 year beginning after December 31, 1997, if, as of the
10 beginning of the plan year, the ratio of the actuarial value
11 of assets to the actuarial accrued liability exceeds 0.70 and
12 the governing body of the municipality has passed a
13 resolution to irrevocably commit the municipality to apply
14 the limit on the additional funding costs, as provided
15 herein, in the preparation of the current and all future
16 exhibits under this paragraph, then the sum of the additional
17 funding costs for subparagraphs (i), (ii), (iii), (iv) and
18 (v) above shall not exceed the amount required to amortize
19 the remaining unfunded actuarial accrued liability as of the
20 beginning of the plan year over 10 years in level annual
21 dollar contributions. The exhibit shall indicate the total
22 dollar amount of additional funding costs associated with the
23 amortization of any unfunded actuarial accrued liability of
24 the pension plan applicable for that plan year and any
25 subsequent plan year occurring prior to the preparation of
26 the next required actuarial valuation report, which shall be
27 the total of the additional funding costs associated with the
28 amortization of each increment of unfunded actuarial accrued
29 liability. The exhibit shall also indicate the plan year in
30 which any unfunded actuarial accrued liability of the pension
20020H2655B3904 - 10 -
1 plan would be fully amortized if the total annual additional
2 funding cost calculated pursuant to this paragraph were met
3 continuously without increase or decrease in amount until the
4 total unfunded actuarial accrued liability currently existing
5 was fully amortized. In calculating the additional funding
6 costs associated with the amortization of any unfunded
7 actuarial accrued liability of the pension plan in any plan
8 year, any amortization contribution made in the interval
9 since the last actuarial valuation report shall be allocated
10 to each type of increment of unfunded actuarial accrued
11 liability in proportion to the remaining dollar amount of
12 each type.
13 (5) An exhibit of the total administrative cost of the
14 pension plan for the plan year occurring immediately prior to
15 the plan year for which the actuarial valuation report is
16 made.
17 (6) An exhibit containing an analysis of the increase or
18 decrease in the unfunded actuarial accrued liability of the
19 pension plan since the most recent prior actuarial valuation
20 report, including specifically an indication of increases or
21 decreases due to the following:
22 (i) Modifications in the benefit plan or plans of
23 the pension plan.
24 (ii) Changes in actuarial assumptions.
25 (iii) Deviations in the actual experience of the
26 pension plan from the experience expected by virtue of
27 the actuarial assumptions.
28 (iv) Presence or absence of payments to amortize the
29 unfunded accrued liability of the pension plan.
30 (v) Other reasons.
20020H2655B3904 - 11 -
1 The analysis shall be based on the best professional judgment
2 of the approved actuary reached after preparing the various
3 applicable actuarial exhibits of the actuarial valuation
4 report. If, in the opinion of the approved actuary, the
5 inclusion of any portion of this information is not
6 appropriate, that portion of the analysis may be omitted with
7 the provision of adequate explanation or justification of the
8 appropriateness of the omission.
9 (7) An exhibit summarizing the economic and demographic
10 actuarial assumptions used in the preparation of the
11 actuarial exhibits.
12 (8) A summary of the principal provisions of the benefit
13 plan of the pension plan upon which the actuarial exhibits
14 are based.
15 * * *
16 Section 4. The act is amended by adding a section to read:
17 Section 209. Certification of municipal pension costs.
18 The commission shall determine annually the actual financial
19 requirement for each municipal pension plan based on the data
20 contained in the most recent complete report required to be
21 filed by the municipality pursuant to this chapter and shall
22 certify annually to the Auditor General the actual financial
23 requirements for each municipal pension plan based on the data
24 contained in the most recent actuarial valuation report required
25 to be filed by the municipality pursuant to this act. The
26 Auditor General shall use the data certified by the commission
27 to implement the provisions of section 402(f)(2).
28 Section 5. Section 302(b)(2) of the act, amended December
29 18, 1990 (P.L.753, No.189), is amended to read:
30 Section 302. Minimum funding standard; defined benefit plans
20020H2655B3904 - 12 -
1 self-insured in whole or in part.
2 * * *
3 (b) Financial requirements of the pension plan.--
4 * * *
5 (2) The normal cost and administrative expense
6 requirements for the following plan year shall be expressed
7 as a dollar amount and shall be determined by applying the
8 normal cost of the benefit plan and the administrative
9 expense payable from the assets attributable to the benefit
10 plan, as reported in the actuarial valuation report of the
11 pension plan and expressed as a percentage of payroll, to the
12 payroll of the active membership of the pension plan as of
13 the date the financial requirements of the pension plan are
14 determined. In expressing the normal cost and administrative
15 expense requirements as a dollar amount, the municipality
16 shall exclude the compensation of all IROP participants from
17 the payroll of the active membership of the pension plan.
18 * * *
19 Section 6. Section 402(e)(2) and (j) of the act are amended
20 to read:
21 Section 402. Revision of financing from State revenue sources;
22 General Municipal Pension System State Aid
23 Program.
24 * * *
25 (e) Allocation of general municipal pension system State
26 aid.--
27 * * *
28 (2) The applicable number of units shall be attributable
29 to each active employee who was employed on a full-time basis
30 for a minimum of six consecutive months prior to December 31
20020H2655B3904 - 13 -
1 preceding the date of certification and who was participating
2 in a pension plan maintained by that municipality, provided
3 that the municipality maintains a generally applicable
4 pension plan for that type of employee which was either
5 established on or prior to December 31, 1984, or, if
6 established after December 31, 1984, has been maintained by
7 that municipality for at least three plan years. For the
8 purpose of computing and reporting the applicable number of
9 units, an IROP participant shall not be reported to the
10 Auditor General as an active employee. The applicable number
11 of units per employee attributable to each eligible recipient
12 county of the second class shall be two units for each police
13 officer. The applicable number of units attributable to each
14 eligible recipient city, borough, incorporated town and
15 township shall be as follows:
16 (i) Police officer - two units.
17 (ii) Firefighter - two units.
18 (iii) Employee other than police officer or
19 firefighter - one unit.
20 * * *
21 (j) Administration.--The Auditor General shall have the duty
22 of administering the General Municipal Pension System State Aid
23 Program. The Auditor General may promulgate rules and
24 regulations necessary for the efficient administration of this
25 program and may specify the form and content of any forms
26 applicable to the program. The Auditor General, as deemed
27 necessary, shall make an audit of every municipality which
28 receives general municipal pension system State aid and of every
29 municipal pension plan and fund in which general municipal
30 pension system State aid is deposited. Based upon the audit,
20020H2655B3904 - 14 -
1 whenever the Auditor General is of the opinion that a
2 municipality has failed or refused to comply with the funding
3 standard prescribed in Chapter 3, the Auditor General shall
4 withhold or prevent the payment of general municipal pension
5 system State aid to the municipality until the municipality
6 fully complies with the funding standard.
7 Section 7. Chapter 5 of the act is repealed.
8 Section 8. Sections 602, 603, 604, 605 and 606 of the act
9 are repealed.
10 Section 9. Section 607(a) of the act is amended to read:
11 Section 607. Remedies applicable to various recovery program
12 levels.
13 (a) Generally.--Notwithstanding any provision of law,
14 municipal charter, municipal ordinance, municipal resolution, or
15 pension plan agreement, document or instrument to the contrary,
16 the remedies specified in this section shall be available to the
17 applicable municipalities. After December 31, 2003, a
18 municipality may continue to utilize any of the remedies
19 specified in this section that it elected, implemented and used
20 on December 31, 2003.
21 * * *
22 Section 10. Section 608 of the act is repealed.
23 Section 11. The act is amended by adding a chapter to read:
24 CHAPTER 11
25 IN-SERVICE RETIREMENT OPTION PLANS LAW
26 SUBCHAPTER A
27 PRELIMINARY PROVISIONS
28 Section 1101. Short title.
29 This chapter shall be known and may be cited as the In-
30 Service Retirement Option Plans Law.
20020H2655B3904 - 15 -
1 Section 1102. Declaration of purpose.
2 It is the purpose of this chapter to authorize a local
3 government to adopt an in-service retirement option plan as a
4 part of its defined benefit pension plan under which an eligible
5 member of the local government's retirement system may elect to
6 participate in an IROP, defer receipt of retirement system
7 benefits and continue employment with the local government.
8 Section 1103. Definitions.
9 The following words and phrases when used in this chapter
10 shall have the meanings given to them in this section unless the
11 context clearly indicates otherwise:
12 "Normal retirement benefit." The retirement benefit payable
13 to a member of a defined benefit pension plan at the point in
14 time when the member satisfies the age and service requirements
15 for full, unreduced retirement benefits.
16 "Subsidiary IROP participant account." The separate,
17 interest-bearing, subsidiary IROP participant account
18 established for an IROP participant under section 1121.
19 Section 1104. Employment status.
20 The employment of an IROP participant by a local government
21 in an IROP does not guarantee the IROP participant's employment
22 by the local government during the specified period of the IROP.
23 SUBCHAPTER B
24 GENERAL PROVISIONS
25 Section 1111. Establishment of IROP.
26 (a) Local governments.--A local government that has
27 established or maintains a defined benefit pension plan for a
28 group of its employees which is self-insured in whole or in part
29 under section 202(b), except for a local government that has
30 joined the Pennsylvania Municipal Retirement System, may
20020H2655B3904 - 16 -
1 establish by ordinance an IROP for those employees as part of
2 the pension plan. The ordinance establishing the IROP shall
3 specify a uniform participation period for the IROP that is not
4 less than one year nor more than four years in duration.
5 (b) PMRS participants.--A local government that has
6 established or maintains a defined benefit plan for a group of
7 its employees which is self-insured in whole or in part under
8 section 202(b) and has joined the Pennsylvania Municipal
9 Retirement System may establish an IROP for those employees as a
10 part of the pension plan only through participation in the IROP
11 established and administered by the Pennsylvania Municipal
12 Retirement System.
13 (c) PMRS standards.--The Pennsylvania Municipal Retirement
14 Board shall establish an IROP for local government-defined
15 benefit pension plans that have joined the Pennsylvania
16 Municipal Retirement System. The IROP so established shall be
17 uniform, in compliance with the provisions of this chapter, open
18 to any local government and applicable to any of the defined
19 benefit pension plans administered by the Pennsylvania Municipal
20 Retirement System.
21 Section 1112. Eligibility of member to participate in IROP.
22 An active member of a local government retirement system that
23 has an IROP as a part of its defined benefit pension plan who is
24 eligible for a normal retirement benefit under the pension plan
25 or will be eligible for a normal retirement benefit under the
26 pension plan prior to participation in the IROP is eligible to
27 participate in the IROP by filing a written application with the
28 retirement system at least 30 days before the member's effective
29 date of retirement.
30 Section 1113. Participation in IROP.
20020H2655B3904 - 17 -
1 (a) Election by an active member.--An eligible active member
2 may elect to participate in an IROP for the period specified in
3 the ordinance establishing the IROP.
4 (b) IROP participation election.--Upon deciding to
5 participate in an IROP, a member shall submit on forms provided
6 and required by the retirement system:
7 (1) A binding and irrevocable letter of resignation from
8 regular employment with the local government that discloses
9 the member's intent to retire and specifies the member's
10 retirement date.
11 (2) An irrevocable written election to participate in
12 the IROP that:
13 (i) Details an IROP participant's rights and
14 obligations under the IROP.
15 (ii) Includes an agreement to forgo:
16 (A) Active membership in the retirement system.
17 (B) Any growth in the salary base used for
18 calculating the regular retirement benefit.
19 (C) Any additional benefit accrual for
20 retirement purposes.
21 (D) Any eligibility for disability pension
22 benefits.
23 (iii) Specifies the effective date of IROP
24 participation that shall be the day after the specified
25 retirement date.
26 (iv) Specifies the IROP termination date that
27 satisfies the limitation in subsection (a).
28 (3) Any other information required by the retirement
29 system.
30 (c) IROP termination.--
20020H2655B3904 - 18 -
1 (1) An IROP participant may change the IROP termination
2 date to an earlier date within the limitations of subsection
3 (a). No penalty shall be imposed for early termination of
4 IROP participation.
5 (2) Upon either early or regular termination of IROP
6 participation:
7 (i) The IROP participant shall be separated from
8 employment by the local government.
9 (ii) The retirement system shall pay the balance in
10 the IROP participant's subsidiary IROP participant
11 account to the terminating IROP participant as provided
12 in section 1114(d).
13 (iii) The IROP participant shall be ineligible to
14 reenroll in the IROP thereafter even if the former IROP
15 participant is reemployed by the local government with
16 renewed active membership in the retirement system.
17 Section 1114. Benefits payable under IROP.
18 (a) Fixing retirement benefit, retirement date, retirement
19 benefits and IROP dates.-- Effective with the date of
20 retirement, which shall be the day before the effective date of
21 IROP participation, the member's monthly, normal retirement
22 benefit under the pension plan, the member's effective date of
23 retirement and the member's effective dates of beginning and
24 terminating employment as an IROP participant shall be fixed.
25 (b) Effective dates of IROP participation.--
26 (1) A retired member's effective date of participation
27 in an IROP shall begin the day following the effective date
28 of the member's regular retirement.
29 (2) A retired member's participation in an IROP shall
30 end on the last day of the participation period specified in
20020H2655B3904 - 19 -
1 the ordinance establishing the IROP that is in effect on the
2 effective date of the retired member's participation in the
3 IROP.
4 (c) Treatment of normal retirement benefit payments and
5 accruals.--All of the retired member's monthly, normal
6 retirement benefit and interest thereon at the assigned rate
7 shall be credited to the IROP participant's subsidiary IROP
8 participant account in the pension trust fund and a separate
9 accounting of the IROP participant's accrued benefit
10 accumulation under the IROP shall be calculated annually and
11 provided to the IROP participant.
12 (d) Payment of IROP benefits.--On the effective date of an
13 IROP participant's termination of employment with the local
14 government as an IROP participant, participation in the IROP
15 shall cease and the retirement system shall calculate and pay to
16 the participant the participant's total accumulated IROP
17 benefits in the IROP participant's subsidiary IROP participant
18 account subject to the following provisions:
19 (1) Except as provided in paragraph (2), the terminating
20 IROP participant or, if deceased, the participant's named
21 beneficiary shall elect on a form provided by the retirement
22 system to receive payment of the IROP benefits in accordance
23 with one of the following options:
24 (i) The balance in the IROP participant's subsidiary
25 IROP participant account less withholding taxes, if any,
26 remitted to the Internal Revenue Service shall be paid
27 within 45 days by the retirement system from the account
28 to the IROP participant or surviving beneficiary.
29 (ii) The balance in the IROP participant's
30 subsidiary IROP participant account shall be paid within
20020H2655B3904 - 20 -
1 45 days by the retirement system from the account
2 directly to the custodian of an eligible retirement plan
3 as defined in section 402(c)(8)(b) of the Internal
4 Revenue Code of 1986 (Public Law 99-514, 26 U.S.C. § 1 et
5 seq.), or, in the case of an eligible rollover
6 distribution to the surviving spouse of a deceased IROP
7 participant, an eligible retirement plan that is an
8 individual retirement account or an individual retirement
9 annuity as described in section 402(c)(9) of the Internal
10 Revenue Code.
11 (2) If the IROP participant or beneficiary fails to
12 elect a method of payment within 60 days after the
13 participant's termination date, the retirement system shall
14 pay the balance as a lump sum as provided in paragraph (1).
15 (3) The form of payment selected by the IROP participant
16 or surviving beneficiary shall comply with the minimum
17 distribution requirements of the Internal Revenue Code.
18 (e) Taxation, attachment and assignment of IROP
19 participant's account.--
20 (1) Except as provided in paragraphs (2), (3) and (4),
21 the right of an IROP participant to any benefit or right
22 accrued or accruing under the provisions of this chapter and
23 the moneys in the IROP participant's subsidiary IROP
24 participant account are exempt from any State or municipal
25 tax, levy and sale, garnishment, attachment, spouse's
26 election or any other process whatsoever.
27 (2) Rights under this chapter shall be subject to
28 forfeiture as provided by the act of July 8, 1978 (P.L.752,
29 No.140), known as the Public Employee Pension Forfeiture Act.
30 Forfeitures under this subsection or under any other
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1 provision of law may not be applied to increase the benefits
2 that any IROP participant otherwise would receive under this
3 chapter.
4 (3) Rights under this chapter shall be subject to
5 attachment in favor of an alternate payee as set forth in a
6 qualified domestic relations order.
7 (4) Under subsection (d)(1)(ii), a distributee may elect
8 to have an eligible rollover distribution paid directly to an
9 eligible retirement plan by way of a direct rollover. For
10 purposes of this paragraph, a "distributee" includes an IROP
11 participant, an IROP participant's designated beneficiary and
12 an IROP participant's former spouse who is an alternate payee
13 under a qualified domestic relations order. For purposes of
14 this paragraph, "eligible rollover distribution" has the
15 meaning given the term by section 402(f)(2)(A) of the
16 Internal Revenue Code, except that a qualified trust shall be
17 considered an eligible retirement plan only if it accepts the
18 distributee's eligible rollover distribution and, in the case
19 of an eligible rollover distribution to a surviving spouse,
20 an eligible retirement plan is an "individual retirement
21 account" or an "individual retirement annuity" as those terms
22 are defined in section 408(a) and (b) of the Internal Revenue
23 Code.
24 (f) Eligibility for postretirement benefits.--An IROP
25 participant shall be eligible for all postretirement benefits
26 such as postretirement medical insurance that are provided to
27 retired employees by the local government.
28 (g) Ineligibility for most preretirement benefits.--Except
29 as otherwise provided under subsection (h), an IROP participant
30 shall not be eligible for any employee benefits provided only to
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1 active employees before retirement by the local government,
2 including, but not limited to, disability pension benefits,
3 preretirement medical benefits, salary base growth for purposes
4 of computing retirement benefits and retirement benefit
5 accruals.
6 (h) Eligibility for certain preretirement benefits.--
7 Notwithstanding an IROP participant's ineligibility for
8 preretirement benefits under subsection (g), an IROP participant
9 shall be eligible for preretirement benefits for employees
10 otherwise provided by law, including, but not limited to,
11 benefits under the act of June 2, 1915 (P.L.736, No.338), known
12 as the Workers' Compensation Act; the act of June 28, 1935
13 (P.L.477, No.193), referred to as the Enforcement Officer
14 Disability Benefits Law; the act of December 5, 1936 (2nd
15 Sp.Sess., 1937 P.L.2897, No.1), known as the Unemployment
16 Compensation Law; the act of June 24, 1976 (P.L.424, No.101),
17 referred to as the Emergency and Law Enforcement Personnel Death
18 Benefits Act; and the Public Safety Officers' Benefit Act of
19 1976 (Public Law 94-430, 42 U.S.C. § 3701 et seq.).
20 Section 1115. Death benefits under IROP.
21 (a) IROP benefits for named beneficiary.--If an IROP
22 participant dies, the IROP participant's named beneficiary shall
23 be entitled to apply for and receive the benefits accrued in the
24 IROP participant's subsidiary IROP participant account as
25 provided in section 1114(d).
26 (b) Final credited monthly retirement benefit.--The monthly
27 retirement system benefit accrued in the IROP participant's
28 subsidiary IROP participant account during the month of an IROP
29 participant's death shall be the final monthly retirement system
30 benefit credited for IROP participation.
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1 (c) IROP eligibility terminates upon participant's death.--
2 An IROP participant's eligibility to participate in the IROP
3 terminates upon the death of the IROP participant. If an IROP
4 participant dies on or after the effective date of participation
5 in the IROP but before the monthly retirement system benefit of
6 the participant accruable for the month has accrued in the IROP
7 participant's subsidiary IROP participant account, the local
8 government shall pay the monthly retirement system benefits as
9 though the participant had not elected IROP participation and
10 had died after the member's effective date of retirement but
11 before receipt of the retired member's first regular retirement
12 benefit.
13 (d) Survivors ineligible for active member's death
14 benefit.--The survivors of an IROP participant who dies shall
15 not be eligible to receive retirement system death benefits
16 payable in the event of the death of an active member.
17 Section 1116. Subsequent employment and renewal of active
18 membership.
19 After both the termination of the IROP participant's
20 employment as an IROP participant by the local government and
21 the expiration of the IROP participation period, a former IROP
22 participant shall be subject to such reemployment limitations as
23 other retired members and shall be eligible for renewed
24 membership as an active member in the local government
25 employees' retirement system.
26 SUBCHAPTER C
27 ADMINISTRATIVE PROVISIONS
28 Section 1121. IROP participant account.
29 (a) General rule.--If a local government creates an IROP, it
30 shall establish an IROP participant account as an interest-
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1 bearing ledger account in its pension trust fund. The account
2 balance shall be accounted for separately but need not be
3 physically segregated from other pension trust fund assets.
4 (b) Subsidiary IROP participant accounts.--A separate
5 interest-bearing subsidiary IROP participant account shall be
6 established for each IROP participant. While a retired member is
7 employed as an IROP participant, the member's monthly, normal
8 retirement benefit and interest thereon shall be credited to the
9 IROP participant's subsidiary IROP participant account under
10 section 1114(c). The interest shall be compounded and credited
11 monthly at the discount rate applicable to six-month U.S.
12 Treasury Bills on the last business day of December in the year
13 preceding the year in which the interest is credited.
14 (c) Termination of employment.--When an IROP participant
15 terminates employment with the local government as an IROP
16 participant, the IROP participant's total accumulated benefits
17 shall be calculated, charged to the IROP participant account and
18 paid out of the pension trust fund under section 1114(d). Under
19 section 202(b), the balance in the IROP participant account
20 shall be excluded from actuarial valuation reports of the
21 retirement system prepared and filed under this act.
22 (d) Account held in trust.--The IROP participant account
23 shall be held in trust for the exclusive benefit of IROP retired
24 members who are or were IROP participants and for the
25 beneficiaries of the members.
26 Section 1122. Audit of Pennsylvania Municipal Retirement
27 System.
28 (a) Compliance audit.--The IROP established by the
29 Pennsylvania Municipal Retirement Board shall be subject to
30 financial and compliance audits conducted by the Auditor General
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1 with the initial audit conducted within one year of its
2 establishment.
3 (b) PMRS noncompliance.--If the Pennsylvania Municipal
4 Retirement Board fails to ensure compliance with this chapter in
5 response to an audit finding under subsection (b), the IROP
6 shall be closed to new IROP participants for a period of two
7 years from the date of the finding of noncompliance or until the
8 IROP is found to be in compliance, whichever is later.
9 Section 1123. Existing IROPs.
10 A local government with an IROP in existence on the effective
11 date of this chapter that does not conform to the provisions of
12 this chapter shall amend its plan within 180 days of the
13 effective date of this chapter or when the current labor-
14 management contract creating the plan expires, whichever is
15 later, to conform with the provisions of this chapter.
16 Section 1124. Noncompliance.
17 If a local government that established an IROP under section
18 1111(a) fails to comply within 90 days with a finding by the
19 Auditor General of noncompliance with this chapter or if the
20 finding is appealed within 90 days of the conclusion of the
21 appeal process, the IROP shall be closed to new IROP
22 participants for a period of two years from the date of the
23 finding or until the IROP is found to be in compliance by the
24 Auditor General, whichever is later.
25 Section 12. This act shall take effect as follows:
26 (1) The repeal of Chapter 5 of the act shall take effect
27 August 16, 2002, or in 60 days, whichever occurs later.
28 (2) The repeal of sections 602, 603, 604, 605, 606 and
29 608 of the act shall take effect January 1, 2004.
30 (3) The remainder of this act shall take effect in 60
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1 days.
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