PRIOR PRINTER'S NO. 3904 PRINTER'S NO. 4563
No. 2655 Session of 2002
INTRODUCED BY NICKOL, T. 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
AS REPORTED FROM COMMITTEE ON LOCAL GOVERNMENT, HOUSE OF
REPRESENTATIVES, AS AMENDED, NOVEMBER 12, 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. OR THE <--
18 PENNSYLVANIA MUNICIPAL RETIREMENT SYSTEM UNDER CHAPTER 11 OR ANY
19 DEFERRED RETIREMENT OPTION PLAN OR SIMILAR PROGRAM ESTABLISHED
20 BY A LOCAL GOVERNMENT THAT PROVIDES FOR THE COMMENCEMENT AND
21 ACCUMULATION OF RETIREMENT BENEFIT PAYMENTS FOR ACTIVE EMPLOYEES
22 WITH DISBURSEMENT OF THE ACCUMULATED PAYMENTS AND INTEREST
23 EARNINGS AS A LUMP SUM UPON TERMINATION OF EMPLOYMENT.
24 "IROP participant." A retired member of a local government-
25 defined benefit pension plan who is eligible to participate in
26 an IROP under section 1112 and who has elected to participate in
27 an IROP under section 1113.
28 "IROP participant account." A pension trust fund ledger
29 account established under section 1121(a).
30 "Local government." A municipality or any county.
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1 * * *
2 "Municipal employee." Any person [other than an independent
3 contractor] who provides regular services for a municipality in
4 return for compensation from the municipality. The term does not
5 include an independent contractor or an IROP participant.
6 * * *
7 Section 3. Section 202(b) of the act is amended to read:
8 Section 202. Contents of actuarial valuation report.
9 * * *
10 (b) Contents of actuarial exhibits; defined benefit plans
11 self-insured in whole or in part.--For any pension plan which is
12 a defined benefit plan and which is self-insured in whole or in
13 part, all applicable actuarial exhibits shall be prepared in
14 accordance with the entry age normal actuarial cost method with
15 entry age established as the actual entry age for all plan
16 members unless the municipality applies for and is granted
17 authorization by the commission to use an alternative actuarial
18 cost method. Authorization shall be granted if the municipality
19 demonstrates on an individual pension plan basis that there are
20 compelling reasons of an actuarial nature for the use of an
21 alternative actuarial cost method. The commission shall issue
22 rules and regulations specifying the criteria which the
23 commission will use to determine the question of the existence
24 of compelling reasons for the use of an alternative actuarial
25 cost method, the documentation which a municipality seeking the
26 authorization will be required to supply and the acceptable
27 alternative actuarial cost methods which the commission may
28 authorize. The actuarial cost method shall be used to value all
29 aspects of the benefit plan or plans of the pension plan unless
30 the municipality applies for and is granted authorization by the
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1 commission to use approximation techniques other than the
2 actuarial cost method for aspects of the benefit plan or plans
3 of the pension plan other than the retirement benefit.
4 Authorization shall be granted if the municipality demonstrates
5 on an individual pension plan basis that there are compelling
6 reasons of an actuarial nature for the use of these
7 approximation techniques. The commission shall issue rules and
8 regulations specifying the criteria which the commission will
9 use to determine the question of the existence of compelling
10 reasons for the use of approximation techniques, the
11 documentation which a municipality seeking the authorization
12 will be required to supply and the acceptable approximation
13 technique which the commission may authorize. The actuarial
14 exhibits shall use actuarial assumptions which are, in the
15 judgment of the actuary and the governing body of the plan, the
16 best available estimate of future occurrences in the case of
17 each assumption. With respect to economic actuarial assumptions,
18 the assumptions shall either be within the range specified in
19 rules and regulations issued by the commission or documentation
20 explaining and justifying the choice of assumptions outside the
21 range shall accompany the report. The actuarial exhibits shall
22 measure all aspects of the benefit plan or plans of the pension
23 plan in accordance with modifications in the benefit plan or
24 plans, if any, and salaries which as of the valuation date are
25 known or can reasonably be expected to be in force during the
26 ensuing plan year. In preparing the actuarial exhibits or any
27 actuarial valuation report, the municipality shall exclude the
28 compensation of all IROP participants from the active member
29 payroll, all IROP participants from active member data and the
30 balance in the IROP participant account from the assets of the
20020H2655B4563 - 4 -
1 pension trust fund. The actuarial valuation report shall contain
2 the following actuarial exhibits:
3 (1) An exhibit of the normal cost of the benefits
4 provided by the benefit plan as of the date of the actuarial
5 valuation, expressed as a percentage of the future covered
6 payroll of the active membership of the pension plan as of
7 the date of the actuarial valuation.
8 (2) An exhibit of the actuarial accrued liability of the
9 benefit plan as of the date of the actuarial valuation in
10 total which shall be the actuarial present value of all
11 projected benefits provided by the benefit plan reduced by
12 the actuarial present value of future normal costs, and in
13 particular, which shall include the following required
14 actuarial present values for pension plan benefits of related
15 items:
16 (i) Required actuarial present values on account of
17 active members:
18 (A) Retirement benefits.
19 (B) Disability benefits.
20 (C) Survivor benefits.
21 (D) Refund liability due to withdrawal from
22 active service or death.
23 (E) Other benefits, specifying the nature of
24 each type.
25 This item shall include a footnote indicating the amount
26 of accumulated member contributions without accrued
27 interest.
28 (ii) Required actuarial present values on account of
29 former members with a deferred, vested or otherwise
30 nonforfeitable right to a retirement benefit.
20020H2655B4563 - 5 -
1 (iii) Required actuarial present values on account
2 of former members who do not have a deferred, vested or
3 otherwise nonforfeitable right to the retirement benefit
4 and who have not withdrawn any accumulated member
5 contributions.
6 (iv) Required actuarial present values on account of
7 benefit recipients:
8 (A) Retirement benefits.
9 (B) Disability benefits.
10 (C) Surviving spouse benefits.
11 (D) Surviving child benefits.
12 (E) Other benefits, specifying the nature of
13 each type.
14 (v) Required actuarial present values for other
15 benefits provided by the benefit plan, specifying the
16 nature of each type.
17 (vi) Actuarial present value of future normal cost.
18 (3) An exhibit of the unfunded actuarial accrued
19 liability of the pension plan in total, which shall be the
20 actuarial accrued liability of the pension plan calculated
21 pursuant to paragraph (2) less the actuarial value of assets
22 of the pension plan calculated pursuant to subsection (e)(1),
23 and which, in particular, shall include the following:
24 (i) The remaining balance of the unfunded actuarial
25 accrued liability in existence as of the first actuarial
26 valuation report required by this section occurring next
27 following the date of enactment of this section.
28 (ii) The remaining balance of each increment of
29 unfunded actuarial accrued liability attributable to
30 modifications in the benefit plan governing the pension
20020H2655B4563 - 6 -
1 plan which were applicable to active members, separately
2 indicating each and designating each by the plan year in
3 which the benefit plan modification was made effective.
4 (iii) The remaining balance of each increment of
5 unfunded actuarial accrued liability attributable to
6 modifications in the benefit plan governing the pension
7 plan which were applicable to retired members and other
8 benefit recipients, separately indicating each and
9 designating each by the plan year in which the benefit
10 plan modification was made effective.
11 (iv) The remaining balance of each increment of net
12 unfunded actuarial accrued liability attributable to
13 modifications in the actuarial assumptions used to
14 calculate the actuarial accrued liability of the pension
15 plan separately indicating each and designating each by
16 the plan year in which the actuarial assumption
17 modification was made effective.
18 (v) The remaining balance of each increment or
19 decrement of net unfunded actuarial accrued liability
20 attributable to net actuarial experience losses or gains,
21 separately indicating each and designating each by the
22 plan year in which the actuarial experience loss or gain
23 was recognized.
24 The initial determination of the unfunded actuarial accrued
25 liability attributable to a modification in the benefit plan
26 governing the pension plan or to a modification in the
27 actuarial assumptions used to calculate the actuarial accrued
28 liability of the pension plan shall be made by calculating
29 the unfunded actuarial accrued liability of the pension plan
30 in accordance with the benefit plan provisions and actuarial
20020H2655B4563 - 7 -
1 assumptions which were in effect prior to the modification
2 and by calculating the unfunded actuarial accrued liability
3 of the pension plan in accordance with the modification in
4 the provisions of the benefit plan governing the pension plan
5 or the actuarial assumptions used to calculate the actuarial
6 accrued liability of the pension plan, whichever is
7 applicable, and the remaining benefit plan provisions and
8 actuarial assumptions. The initial determination of the
9 unfunded actuarial accrued liability attributable to an
10 actuarial loss shall be made in conjunction with the analysis
11 of increases or decreases in the unfunded actuarial accrued
12 liability of the pension plan required pursuant to paragraph
13 (6).
14 (4) An exhibit of any additional funding costs
15 associated with the amortization of any unfunded actuarial
16 accrued liability of the pension plan, indicating for each
17 increment of unfunded actuarial accrued liability specified
18 in paragraph (3), the level annual dollar contribution
19 required to pay an amount equal to the actuarial assumption
20 as to investment earnings applied to the principal amount of
21 the remaining balance of the increment of unfunded actuarial
22 accrued liability and to retire by the applicable
23 amortization target date specified in this paragraph the
24 principal amount of the remaining balance of the increment of
25 unfunded actuarial accrued liability. The amortization target
26 date applicable for each type of increment of unfunded
27 actuarial accrued liability shall be as follows:
28 (i) (A) In the case of a pension plan established
29 on or prior to January 1, 1985 for the unfunded
30 actuarial accrued liability in existence as of the
20020H2655B4563 - 8 -
1 beginning of the plan year occurring in calendar year
2 1985, at the end of the plan year occurring in
3 calendar year 2015; or
4 (B) In the case of a pension plan established
5 after January 1, 1985, for the unfunded actuarial
6 accrued liability then or subsequently determined to
7 be or to have been in existence as of the date of the
8 establishment of the plan, at the end of the plan
9 year occurring 30 years after the calendar year in
10 which the pension plan was established.
11 (ii) Increment or decrement of net unfunded
12 actuarial accrued liability attributable to a change in
13 actuarial assumptions, at the end of the plan year
14 occurring 20 years after the calendar year in which
15 actuarial assumption modification was effective.
16 (iii) Increment of net unfunded actuarial accrued
17 liability attributable to a modification in the benefit
18 plan applicable to active members, at the end of the plan
19 year occurring 20 years after the calendar year in which
20 the benefit plan modification was effective.
21 (iv) Increment of unfunded actuarial accrued
22 liability attributable to a modification in the benefit
23 plan applicable to retired members and other benefit
24 recipients, at the end of the plan year occurring 10
25 years after the calendar year in which the benefit plan
26 modification was effective.
27 (v) Increment or decrement of net unfunded actuarial
28 accrued liability attributable to an actuarial experience
29 loss or gain, at the end of plan year occurring 15 years
30 after the calendar year in which the actuarial experience
20020H2655B4563 - 9 -
1 loss or gain was recognized.
2 With respect to any applicable pension plan other than a plan
3 which comprises all or part of a moderately distressed or a
4 severely distressed municipal pension system, if the
5 remaining average period between the current average attained
6 age of active members as of the valuation date and the later
7 of their earliest average normal retirement age or their
8 average assumed retirement age is less than the applicable
9 period or periods ending with the amortization target date or
10 dates specified in subparagraph (i), (ii), (iii) or (v), the
11 appropriate amortization target date for the applicable
12 subparagraph determined with reference to the longest
13 applicable remaining average period rounded to the next
14 largest whole number shall be used. With respect to any plan
15 year beginning after December 31, 1997, if, as of the
16 beginning of the plan year, the ratio of the actuarial value
17 of assets to the actuarial accrued liability exceeds 0.70 and
18 the governing body of the municipality has passed a
19 resolution to irrevocably commit the municipality to apply
20 the limit on the additional funding costs, as provided
21 herein, in the preparation of the current and all future
22 exhibits under this paragraph, then the sum of the additional
23 funding costs for subparagraphs (i), (ii), (iii), (iv) and
24 (v) above shall not exceed the amount required to amortize
25 the remaining unfunded actuarial accrued liability as of the
26 beginning of the plan year over 10 years in level annual
27 dollar contributions. The exhibit shall indicate the total
28 dollar amount of additional funding costs associated with the
29 amortization of any unfunded actuarial accrued liability of
30 the pension plan applicable for that plan year and any
20020H2655B4563 - 10 -
1 subsequent plan year occurring prior to the preparation of
2 the next required actuarial valuation report, which shall be
3 the total of the additional funding costs associated with the
4 amortization of each increment of unfunded actuarial accrued
5 liability. The exhibit shall also indicate the plan year in
6 which any unfunded actuarial accrued liability of the pension
7 plan would be fully amortized if the total annual additional
8 funding cost calculated pursuant to this paragraph were met
9 continuously without increase or decrease in amount until the
10 total unfunded actuarial accrued liability currently existing
11 was fully amortized. In calculating the additional funding
12 costs associated with the amortization of any unfunded
13 actuarial accrued liability of the pension plan in any plan
14 year, any amortization contribution made in the interval
15 since the last actuarial valuation report shall be allocated
16 to each type of increment of unfunded actuarial accrued
17 liability in proportion to the remaining dollar amount of
18 each type.
19 (5) An exhibit of the total administrative cost of the
20 pension plan for the plan year occurring immediately prior to
21 the plan year for which the actuarial valuation report is
22 made.
23 (6) An exhibit containing an analysis of the increase or
24 decrease in the unfunded actuarial accrued liability of the
25 pension plan since the most recent prior actuarial valuation
26 report, including specifically an indication of increases or
27 decreases due to the following:
28 (i) Modifications in the benefit plan or plans of
29 the pension plan.
30 (ii) Changes in actuarial assumptions.
20020H2655B4563 - 11 -
1 (iii) Deviations in the actual experience of the
2 pension plan from the experience expected by virtue of
3 the actuarial assumptions.
4 (iv) Presence or absence of payments to amortize the
5 unfunded accrued liability of the pension plan.
6 (v) Other reasons.
7 The analysis shall be based on the best professional judgment
8 of the approved actuary reached after preparing the various
9 applicable actuarial exhibits of the actuarial valuation
10 report. If, in the opinion of the approved actuary, the
11 inclusion of any portion of this information is not
12 appropriate, that portion of the analysis may be omitted with
13 the provision of adequate explanation or justification of the
14 appropriateness of the omission.
15 (7) An exhibit summarizing the economic and demographic
16 actuarial assumptions used in the preparation of the
17 actuarial exhibits.
18 (8) A summary of the principal provisions of the benefit
19 plan of the pension plan upon which the actuarial exhibits
20 are based.
21 * * *
22 Section 4. The act is amended by adding a section to read:
23 Section 209. Certification of municipal pension costs.
24 The commission shall determine annually the actual financial
25 requirement for each municipal pension plan based on the data
26 contained in the most recent complete report required to be
27 filed by the municipality pursuant to this chapter and shall
28 certify annually to the Auditor General the actual financial
29 requirements for each municipal pension plan based on the data
30 contained in the most recent actuarial valuation report required
20020H2655B4563 - 12 -
1 to be filed by the municipality pursuant to this act CHAPTER. <--
2 The Auditor General shall use the data certified by the
3 commission to implement the provisions of section 402(f)(2).
4 Section 5. Section 302(b)(2) of the act, amended December
5 18, 1990 (P.L.753, No.189), is amended to read:
6 Section 302. Minimum funding standard; defined benefit plans
7 self-insured in whole or in part.
8 * * *
9 (b) Financial requirements of the pension plan.--
10 * * *
11 (2) The normal cost and administrative expense
12 requirements for the following plan year shall be expressed
13 as a dollar amount and shall be determined by applying the
14 normal cost of the benefit plan and the administrative
15 expense payable from the assets attributable to the benefit
16 plan, as reported in the actuarial valuation report of the
17 pension plan and expressed as a percentage of payroll, to the
18 payroll of the active membership of the pension plan as of
19 the date the financial requirements of the pension plan are
20 determined. In expressing the normal cost and administrative
21 expense requirements as a dollar amount, the municipality
22 shall exclude the compensation of all IROP participants from
23 the payroll of the active membership of the pension plan.
24 * * *
25 Section 6. Section 402(e)(2) and (j) of the act are OF THE <--
26 ACT IS amended to read:
27 Section 402. Revision of financing from State revenue sources;
28 General Municipal Pension System State Aid
29 Program.
30 * * *
20020H2655B4563 - 13 -
1 (e) Allocation of general municipal pension system State
2 aid.--
3 * * *
4 (2) The applicable number of units shall be attributable
5 to each active employee who was employed on a full-time basis
6 for a minimum of six consecutive months prior to December 31
7 preceding the date of certification and who was participating
8 in a pension plan maintained by that municipality, provided
9 that the municipality maintains a generally applicable
10 pension plan for that type of employee which was either
11 established on or prior to December 31, 1984, or, if
12 established after December 31, 1984, has been maintained by
13 that municipality for at least three plan years. For the
14 purpose of computing and reporting the applicable number of
15 units, an IROP participant shall not be reported to the
16 Auditor General as an active employee. The applicable number
17 of units per employee attributable to each eligible recipient
18 county of the second class shall be two units for each police
19 officer. The applicable number of units attributable to each
20 eligible recipient city, borough, incorporated town and
21 township shall be as follows:
22 (i) Police officer - two units.
23 (ii) Firefighter - two units.
24 (iii) Employee other than police officer or
25 firefighter - one unit.
26 * * *
27 (j) Administration.--The Auditor General shall have the duty <--
28 of administering the General Municipal Pension System State Aid
29 Program. The Auditor General may promulgate rules and
30 regulations necessary for the efficient administration of this
20020H2655B4563 - 14 -
1 program and may specify the form and content of any forms
2 applicable to the program. The Auditor General, as deemed
3 necessary, shall make an audit of every municipality which
4 receives general municipal pension system State aid and of every
5 municipal pension plan and fund in which general municipal
6 pension system State aid is deposited. Based upon the audit,
7 whenever the Auditor General is of the opinion that a
8 municipality has failed or refused to comply with the funding
9 standard prescribed in Chapter 3, the Auditor General shall
10 withhold or prevent the payment of general municipal pension
11 system State aid to the municipality until the municipality
12 fully complies with the funding standard.
13 Section 7. Chapter 5 of the act is repealed.
14 Section 8. Sections 602, 603, 604, 605 and 606 of the act
15 are repealed.
16 Section 9. Section 607(a) of the act is amended to read:
17 Section 607. Remedies applicable to various recovery program
18 levels.
19 (a) Generally.--Notwithstanding any provision of law,
20 municipal charter, municipal ordinance, municipal resolution, or
21 pension plan agreement, document or instrument to the contrary,
22 the remedies specified in this section shall be available to the
23 applicable municipalities. After December 31, 2003, a
24 municipality may continue to utilize any of the remedies
25 specified in this section that it elected, implemented and used
26 on December 31, 2003.
27 * * *
28 Section 10. Section 608 of the act is repealed.
29 Section 11. The act is amended by adding a chapter to read:
30 CHAPTER 11
20020H2655B4563 - 15 -
1 IN-SERVICE RETIREMENT OPTION PLANS LAW
2 SUBCHAPTER A
3 PRELIMINARY PROVISIONS
4 Section 1101. Short title.
5 This chapter shall be known and may be cited as the In-
6 Service Retirement Option Plans Law.
7 Section 1102. Declaration of purpose.
8 It is the purpose of this chapter to authorize a local
9 government to adopt an in-service retirement option plan as a
10 part of its defined benefit pension plan under which an eligible
11 member of the local government's retirement system may elect to
12 participate in an IROP, defer receipt of retirement system
13 benefits and continue employment with the local government.
14 Section 1103. Definitions.
15 The following words and phrases when used in this chapter
16 shall have the meanings given to them in this section unless the
17 context clearly indicates otherwise:
18 "Normal retirement benefit." The retirement benefit payable
19 to a member of a defined benefit pension plan at the point in <--
20 time when the member ON OR AFTER THE DATE ON WHICH THE MEMBER <--
21 FIRST satisfies the age and service requirements for full,
22 unreduced retirement benefits, INCLUDING SUPPLEMENTAL AMOUNTS <--
23 PROVIDED TO THE MEMBER AFTER RETIREMENT AS COST-OF-LIVING
24 INCREASES.
25 "Subsidiary IROP participant account." The separate,
26 interest-bearing, subsidiary IROP participant account
27 established for an IROP participant under section 1121.
28 Section 1104. Employment status.
29 The employment of an IROP participant by a local government <--
30 PARTICIPATION in an IROP does not guarantee the IROP <--
20020H2655B4563 - 16 -
1 participant's employment by the local government during the
2 specified period of the IROP.
3 SUBCHAPTER B
4 GENERAL PROVISIONS
5 Section 1111. Establishment of IROP.
6 (a) Local governments.--A local government that has
7 established or maintains a defined benefit pension plan for a
8 group of its employees which is self-insured in whole or in part
9 under section 202(b), except for a local government that has
10 joined the Pennsylvania Municipal Retirement System, may
11 establish by ordinance an IROP for those employees as part of
12 the pension plan. The ordinance establishing the IROP shall
13 specify a uniform participation period for the IROP that is not
14 less than one year nor more than four MORE THAN FIVE years in <--
15 duration.
16 (b) PMRS participants.--A local government that has
17 established or maintains a defined benefit plan for a group of
18 its employees which is self-insured in whole or in part under
19 section 202(b) and has joined the Pennsylvania Municipal
20 Retirement System may establish an IROP for those employees as a
21 part of the pension plan only through participation in the IROP
22 established and administered by the Pennsylvania Municipal
23 Retirement System.
24 (c) PMRS standards.--The Pennsylvania Municipal Retirement
25 Board shall establish an IROP for local government-defined
26 benefit pension plans that have joined the Pennsylvania
27 Municipal Retirement System. The IROP so established shall be
28 uniform, in compliance with the provisions of this chapter, open
29 to any local government and applicable to any of the defined
30 benefit pension plans administered by the Pennsylvania Municipal
20020H2655B4563 - 17 -
1 Retirement System.
2 Section 1112. Eligibility of member to participate in IROP.
3 An active member of a local government retirement system that
4 has an IROP as a part of its defined benefit pension plan who is
5 eligible for a normal retirement benefit under the pension plan
6 or will be eligible for a normal retirement benefit under the
7 pension plan prior to participation in the IROP is eligible to
8 participate in the IROP by filing a written application with the
9 retirement system at least 30 days before the member's effective
10 date of retirement.
11 Section 1113. Participation in IROP.
12 (a) Election by an active member.--An eligible active member
13 may elect to participate in an IROP for the period specified in
14 the ordinance establishing the IROP.
15 (b) IROP participation election.--Upon deciding to
16 participate in an IROP, a member shall submit on forms provided
17 and required by the retirement system:
18 (1) A binding and irrevocable letter of resignation from
19 regular employment with the local government that discloses
20 the member's intent to retire and specifies the member's
21 retirement date.
22 (2) An irrevocable written election to participate in
23 the IROP that:
24 (i) Details an IROP participant's rights and
25 obligations under the IROP.
26 (ii) Includes an agreement to forgo:
27 (A) Active membership in the retirement system.
28 (B) Any growth in the salary base used for
29 calculating the regular retirement benefit.
30 (C) Any additional benefit accrual for
20020H2655B4563 - 18 -
1 retirement purposes.
2 (D) Any eligibility for disability pension <--
3 benefits.
4 (iii) Specifies the effective date of IROP
5 participation that shall be the day after the specified
6 retirement date.
7 (iv) Specifies the IROP termination date that
8 satisfies the limitation in subsection (a).
9 (3) Any other information required by the retirement
10 system.
11 (c) IROP termination.--
12 (1) An IROP participant may change the IROP termination
13 date to an earlier date within the limitations of subsection
14 (a). No penalty shall be imposed for early termination of
15 IROP participation.
16 (2) Upon either early or regular termination of IROP
17 participation:
18 (i) The IROP participant shall be separated from
19 employment by the local government.
20 (ii) The retirement system shall pay the balance in
21 the IROP participant's subsidiary IROP participant
22 account to the terminating IROP participant as provided
23 in section 1114(d).
24 (iii) The IROP participant shall be ineligible to
25 reenroll in the IROP thereafter even if the former IROP
26 participant is reemployed by the local government with
27 renewed active membership in the retirement system.
28 Section 1114. Benefits payable under IROP.
29 (a) Fixing retirement benefit, retirement date, retirement
30 benefits and IROP dates.-- Effective with the date of
20020H2655B4563 - 19 -
1 retirement, which shall be the day before the effective date of
2 IROP participation, the member's monthly, normal retirement
3 benefit under the pension plan, the member's effective date of
4 retirement and the member's effective dates of beginning and
5 terminating employment as an IROP participant shall be fixed.
6 (b) Effective dates of IROP participation.--
7 (1) A retired member's effective date of participation
8 in an IROP shall begin the day following the effective date
9 of the member's regular retirement.
10 (2) A retired member's participation in an IROP shall
11 end on the last day of the participation period specified in
12 the ordinance establishing the IROP that is in effect on the
13 effective date of the retired member's participation in the
14 IROP.
15 (c) Treatment of normal retirement benefit payments and
16 accruals.--All of the retired member's monthly, normal
17 retirement benefit and interest thereon at the assigned rate
18 shall be credited to the IROP participant's subsidiary IROP
19 participant account in the pension trust fund and a separate
20 accounting of the IROP participant's accrued benefit
21 accumulation under the IROP shall be calculated annually and
22 provided to the IROP participant.
23 (d) Payment of IROP benefits.--On the effective date of an
24 IROP participant's termination of employment with the local
25 government as an IROP participant, participation in the IROP
26 shall cease and the retirement system shall calculate and pay to
27 the participant the participant's total accumulated IROP
28 benefits in the IROP participant's subsidiary IROP participant
29 account subject to the following provisions:
30 (1) Except as provided in paragraph (2), the terminating
20020H2655B4563 - 20 -
1 IROP participant or, if deceased, the participant's named
2 beneficiary shall elect on a form provided by the retirement
3 system to receive payment of the IROP benefits in accordance
4 with one of the following options:
5 (i) The balance in the IROP participant's subsidiary
6 IROP participant account less withholding taxes, if any,
7 remitted to the Internal Revenue Service shall be paid
8 within 45 days by the retirement system from the account
9 to the IROP participant or surviving beneficiary.
10 (ii) The balance in the IROP participant's
11 subsidiary IROP participant account shall be paid within
12 45 days by the retirement system from the account
13 directly to the custodian of an eligible retirement plan
14 as defined in section 402(c)(8)(b) of the Internal
15 Revenue Code of 1986 (Public Law 99-514, 26 U.S.C. § 1 et
16 seq.), or, in the case of an eligible rollover
17 distribution to the surviving spouse of a deceased IROP
18 participant, an eligible retirement plan that is an
19 individual retirement account or an individual retirement
20 annuity as described in section 402(c)(9) of the Internal
21 Revenue Code.
22 (2) If the IROP participant or beneficiary fails to
23 elect a method of payment within 60 days after the
24 participant's termination date, the retirement system shall
25 pay the balance as a lump sum as provided in paragraph (1).
26 (3) The form of payment selected by the IROP participant
27 or surviving beneficiary shall comply with the minimum
28 distribution requirements of the Internal Revenue Code.
29 (e) Taxation, attachment and assignment of IROP
30 participant's account.--
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1 (1) Except as provided in paragraphs (2), (3) and (4),
2 the right of an IROP participant to any benefit or right
3 accrued or accruing under the provisions of this chapter and
4 the moneys in the IROP participant's subsidiary IROP
5 participant account are exempt from any State or municipal
6 tax, levy and sale, garnishment, attachment, spouse's
7 election or any other process whatsoever.
8 (2) Rights under this chapter shall be subject to
9 forfeiture as provided by the act of July 8, 1978 (P.L.752,
10 No.140), known as the Public Employee Pension Forfeiture Act.
11 Forfeitures under this subsection or under any other
12 provision of law may not be applied to increase the benefits
13 that any IROP participant otherwise would receive under this
14 chapter.
15 (3) Rights under this chapter shall be subject to
16 attachment in favor of an alternate payee as set forth in a
17 qualified domestic relations order.
18 (4) Under subsection (d)(1)(ii), a distributee may elect
19 to have an eligible rollover distribution paid directly to an
20 eligible retirement plan by way of a direct rollover. For
21 purposes of this paragraph, a "distributee" includes an IROP
22 participant, an IROP participant's designated beneficiary and
23 an IROP participant's former spouse who is an alternate payee
24 under a qualified domestic relations order. For purposes of
25 this paragraph, "eligible rollover distribution" has the
26 meaning given the term by section 402(f)(2)(A) of the
27 Internal Revenue Code, except that a qualified trust shall be
28 considered an eligible retirement plan only if it accepts the
29 distributee's eligible rollover distribution and, in the case
30 of an eligible rollover distribution to a surviving spouse,
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1 an eligible retirement plan is an "individual retirement
2 account" or an "individual retirement annuity" as those terms
3 are defined in section 408(a) and (b) of the Internal Revenue
4 Code.
5 (f) Eligibility for postretirement benefits.--An IROP
6 participant shall be eligible for all postretirement benefits
7 such as postretirement medical insurance that are provided to
8 retired employees by the local government.
9 (g) Ineligibility for most preretirement benefits.--Except
10 as otherwise provided under subsection (h), an IROP participant
11 shall not be eligible for any employee benefits provided only to
12 active employees before retirement by the local government.
13 including, but not limited to, disability pension benefits, <--
14 preretirement medical benefits, salary base growth for purposes
15 of computing retirement benefits and retirement benefit
16 accruals.
17 (h) Eligibility for certain preretirement benefits.--
18 Notwithstanding an IROP participant's ineligibility for
19 preretirement benefits under subsection (g), an IROP participant
20 shall be eligible for preretirement benefits for employees
21 otherwise provided by law, including, but not limited to,
22 benefits under the act of June 2, 1915 (P.L.736, No.338), known
23 as the Workers' Compensation Act; the act of June 28, 1935
24 (P.L.477, No.193), referred to as the Enforcement Officer
25 Disability Benefits Law; the act of December 5, 1936 (2nd
26 Sp.Sess., 1937 P.L.2897, No.1), known as the Unemployment
27 Compensation Law; the act of June 24, 1976 (P.L.424, No.101),
28 referred to as the Emergency and Law Enforcement Personnel Death
29 Benefits Act; and the Public Safety Officers' Benefit Act of
30 1976 (Public Law 94-430, 42 U.S.C. § 3701 et seq.) AND FOR ANY <--
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1 OTHER BENEFITS THAT ARE SPECIFIED AS BEING PROVIDED TO IROP
2 PARTICIPANTS IN THE ORDINANCE ESTABLISHING THE IROP THAT MAY
3 INCLUDE DISABILITY PENSION BENEFITS PROVIDED TO ACTIVE MEMBERS.
4 Section 1115. Death benefits under IROP.
5 (a) IROP benefits for named beneficiary.--If an IROP
6 participant dies, the IROP participant's named beneficiary shall
7 be entitled to apply for and receive the benefits accrued in the
8 IROP participant's subsidiary IROP participant account as
9 provided in section 1114(d).
10 (b) Final credited monthly retirement benefit.--The monthly
11 retirement system benefit accrued in the IROP participant's
12 subsidiary IROP participant account during the month of an IROP
13 participant's death shall be the final monthly retirement system
14 benefit credited for IROP participation.
15 (c) IROP eligibility terminates upon participant's death.--
16 An IROP participant's eligibility to participate in the IROP
17 terminates upon the death of the IROP participant. If an IROP
18 participant dies on or after the effective date of participation
19 in the IROP but before the monthly retirement system benefit of
20 the participant accruable for the month has accrued in the IROP
21 participant's subsidiary IROP participant account, the local
22 government shall pay the monthly retirement system benefits as
23 though the participant had not elected IROP participation and
24 had died after the member's effective date of retirement but
25 before receipt of the retired member's first regular retirement
26 benefit.
27 (d) Survivors ineligible for active member's death
28 benefit.--The survivors of an IROP participant who dies shall
29 not be eligible to receive retirement system death benefits
30 payable in the event of the death of an active member.
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1 Section 1116. Subsequent employment and renewal of active
2 membership.
3 After both the termination of the IROP participant's
4 employment as an IROP participant by the local government and
5 the expiration of the IROP participation period, a former IROP
6 participant shall be subject to such reemployment limitations as
7 other retired members and shall be eligible for renewed
8 membership as an active member in the local government
9 employees' retirement system.
10 SUBCHAPTER C
11 ADMINISTRATIVE PROVISIONS
12 Section 1121. IROP participant account.
13 (a) General rule.--If a local government creates an IROP, it
14 shall establish an IROP participant account as an interest-
15 bearing ledger account in its pension trust fund. The account
16 balance shall be accounted for separately but need not be
17 physically segregated from other pension trust fund assets.
18 (b) Subsidiary IROP participant accounts.--A separate
19 interest-bearing subsidiary IROP participant account shall be
20 established for each IROP participant. While a retired member is
21 employed as an IROP participant, the member's monthly, normal
22 retirement benefit and interest thereon shall be credited to the
23 IROP participant's subsidiary IROP participant account under
24 section 1114(c). The interest shall be compounded and credited
25 monthly at the discount rate applicable to six-month U.S. <--
26 Treasury Bills on the last business day of December in the year
27 preceding the year in which the interest is credited. MONTHLY AT <--
28 AN ANNUAL RATE SPECIFIED IN THE ORDINANCE ESTABLISHING THE IROP
29 THAT SHALL BE NOT LESS THAN 1% NOR MORE THAN 4 1/2%.
30 (c) Termination of employment.--When an IROP participant
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1 terminates employment with the local government as an IROP
2 participant, the IROP participant's total accumulated benefits
3 shall be calculated, charged to the IROP participant account and
4 paid out of the pension trust fund under section 1114(d). Under
5 section 202(b), the balance in the IROP participant account
6 shall be excluded from actuarial valuation reports of the
7 retirement system prepared and filed under this act.
8 (d) Account held in trust.--The IROP participant account
9 shall be held in trust for the exclusive benefit of IROP retired
10 members who are or were IROP participants and for the
11 beneficiaries of the members.
12 Section 1122. Audit of Pennsylvania Municipal Retirement
13 System.
14 (a) Compliance audit.--The IROP established by the <--
15 Pennsylvania Municipal Retirement Board shall be subject to
16 financial and compliance audits conducted by the Auditor General
17 with the initial audit conducted within one year of its
18 establishment.
19 (b) PMRS noncompliance.--If the Pennsylvania Municipal <--
20 Retirement Board fails to ensure compliance with this chapter in
21 response to an audit finding under subsection (b), the IROP
22 shall be closed to new IROP participants for a period of two
23 years from the date of the finding of noncompliance or until the
24 IROP is found to be in compliance, whichever is later.
25 Section 1123. Existing IROPs.
26 A local government with an IROP in existence on the effective
27 date of this chapter that does not conform to the provisions of
28 this chapter shall amend its plan within 180 days of the
29 effective date of this chapter or when the current labor-
30 management contract creating the plan expires, whichever is
20020H2655B4563 - 26 -
1 later, to conform with the provisions of this chapter WITH <--
2 RESPECT TO FUTURE IROP PARTICIPANTS.
3 Section 1124. Noncompliance.
4 If a local government that established an IROP under section <--
5 1111(a) fails to comply within 90 days with a finding by the
6 Auditor General of noncompliance with this chapter or if the
7 finding is appealed within 90 days of the conclusion of the
8 appeal process, the IROP shall be closed to new IROP
9 participants for a period of two years from the date of the
10 finding or until the IROP is found to be in compliance by the
11 Auditor General, whichever is later.
12 IF A LOCAL GOVERNMENT THAT ESTABLISHED AN IROP UNDER SECTION <--
13 1111(A) OR THE PENNSYLVANIA MUNICIPAL RETIREMENT BOARD THAT
14 ESTABLISHED AN IROP UNDER SECTION 1111(C) FAILS TO COMPLY WITHIN
15 90 DAYS WITH A FINDING BY THE AUDITOR GENERAL OF NONCOMPLIANCE
16 WITH THIS CHAPTER OR IF THE FINDING IS APPEALED WITHIN 90 DAYS
17 OF CONCLUSION OF THE APPEAL PROCESS, THE FAILURE TO COMPLY SHALL
18 BE DEEMED SUFFICIENT REFUSAL BY THE LOCAL GOVERNMENT OR THE
19 PENNSYLVANIA MUNICIPAL RETIREMENT BOARD TO COMPLY WITH ITS DUTY
20 ANTECEDENT TO THE COMMENCEMENT OF A MANDAMUS ACTION AND THE
21 AUDITOR GENERAL SHALL REFER THE FINDING TO THE ATTORNEY GENERAL.
22 UPON RECEIPT OF THE FINDING FROM THE AUDITOR GENERAL, THE
23 ATTORNEY GENERAL, FOLLOWING AN ADMINISTRATIVE PROCEEDING IN
24 ACCORDANCE WITH 2 PA.C.S. (RELATING TO ADMINISTRATIVE LAW AND
25 PROCEDURE), SHALL PROCEED IN THE NAME OF THE COMMONWEALTH TO
26 INSTITUTE A LEGAL PROCEEDING FOR MANDAMUS AND NO OTHER REMEDY AT
27 LAW SHALL BE DEEMED TO BE SUFFICIENTLY ADEQUATE AND APPROPRIATE
28 TO BAR THE COMMENCEMENT OF THIS ACTION.
29 Section 12. This act shall take effect as follows:
30 (1) The repeal of Chapter 5 of the act shall take effect
20020H2655B4563 - 27 -
1 August 16, 2002, or in 60 days, whichever occurs later.
2 (2) The repeal of sections 602, 603, 604, 605, 606 and
3 608 of the act shall take effect January 1, 2004.
4 (3) The remainder of this act shall take effect in 60
5 days.
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