PRINTER'S NO. 1421
No. 1170 Session of 1997
INTRODUCED BY ARMSTRONG, OCTOBER 22, 1997
REFERRED TO FINANCE, OCTOBER 22, 1997
AN ACT 1 Amending the act of March 30, 1811 (P.L.145, No.99), entitled 2 "An act to amend and consolidate the several acts relating to 3 the settlement of the public accounts and the payment of the 4 public monies, and for other purposes," further providing for 5 deferred compensation plans of the Commonwealth and political 6 subdivisions; and making editorial changes. 7 The General Assembly of the Commonwealth of Pennsylvania 8 hereby enacts as follows: 9 Section 1. Section VIII.2 of the act of March 30, 1811 10 (P.L.145, No.99), entitled "An act to amend and consolidate the 11 several acts relating to the settlement of the public accounts 12 and the payment of the public monies, and for other purposes," 13 added November 6, 1987 (P.L.394, No.81), is amended to read: 14 Section VIII.2.--(a) The Commonwealth of Pennsylvania, and 15 any political subdivision of this Commonwealth, may establish 16 eligible deferred compensation plans pursuant to section 457 of 17 the Internal Revenue Code of 1986 (Public Law 99-514, 26 U.S.C. 18 § 457) for their elected or appointed officers and employes who 19 perform services for the Commonwealth or a political
1 subdivision. 2 (b) As used in this section, "Commonwealth officer" or 3 "employe" means: 4 (1) any individual who is an elected or appointed official 5 of the Commonwealth; 6 (2) any individual employed by the Commonwealth; or 7 (3) any individual employed by the Commonwealth where it is 8 deemed an employer-employe relationship exists. The State 9 Employees' Retirement Board shall make the final determination 10 of who is a Commonwealth officer or employe. 11 "Compensation" means pay for normal services rendered. 12 (c) Any eligible deferred compensation plans established for 13 Commonwealth officers or employes shall be established by the 14 State Employees' Retirement Board. 15 (d) Any eligible deferred compensation plans established for 16 the officers, employes or other individuals performing services 17 for a political subdivision shall be established and 18 administered by the governing body of the political subdivision. 19 (e) In order to establish and administer eligible deferred 20 compensation plans, the powers and duties of the State 21 Employees' Retirement Board or the governing body of a political 22 subdivision shall include, but not be limited to: 23 (1) Entering into written agreements with one or more 24 financial or other organizations to administer the deferred 25 compensation plan for Commonwealth employes or employes of 26 political subdivisions and to invest funds held pursuant to such 27 plan. Any such written agreement and deferred compensation plan 28 shall conform with [the provisions of] section 457 and any other 29 provisions of the Internal Revenue Code of 1986 (Public Law 99- 30 514, 26 U.S.C. § 457) [and regulations adopted pursuant thereto] 19970S1170B1421 - 2 -
1 applicable to the plans. 2 (2) Promulgating rules and regulations establishing 3 procedures whereby eligible individuals may elect to participate 4 in a plan, change their election amount or change their 5 investment choices on a [quarterly basis,] periodic basis as 6 determined by the State Employees' Retirement Board or governing 7 body of the political subdivision, which shall not be less 8 frequently than quarterly, whereby eligible individuals may 9 elect to cease [participation] deferrals entirely at any time 10 with reasonable notice, not to exceed four weeks, and whereby 11 such individuals may designate the amount of compensation to be 12 deferred above a minimum monthly deposit of ten dollars; 13 arranging for a deduction, from the compensation of eligible 14 individuals, of the amounts to be deferred under a plan; 15 establishing standards or criteria for the selection by the 16 State Employees' Retirement Board or the governing body of the 17 political subdivision of financial institutions, insurance 18 companies or other organizations which may be qualified as 19 managers on behalf of the Commonwealth, or a political 20 subdivision, of funds deferred under a plan on behalf of any 21 eligible individual; establishing standards and criteria for the 22 providing of options to eligible individuals concerning the 23 method of investing amounts deferred under any plan and of 24 informing eligible individuals of specific options offered by 25 qualified managers; establishing standards and criteria for the 26 disclosure to eligible individuals of the anticipated and actual 27 income attributable to such amounts, property and rights and all 28 fees, costs and charges to be made against such amounts deferred 29 to cover the costs of administering and managing the funds. [Any 30 officer or employe of the State or a political subdivision who 19970S1170B1421 - 3 -
1 elects to participate in a deferred compensation plan shall have 2 the option to elect that his deferred compensation be invested 3 in a portfolio which does not include any stock or obligation of 4 any corporation doing business, either by itself or through any 5 subsidiary or affiliate, in the Republic of South Africa or 6 Namibia. The State Employees' Retirement Board or governing body 7 of a political subdivision shall, in selecting qualified fund 8 managers, ensure that a fund manager is selected who has such an 9 option available.] 10 (3) An annual review of any qualified fund manager for the 11 purpose of making certain it continues to meet all standards and 12 criteria established. 13 (4) Establishing procedures in the plan document where any 14 officer or employe may [cease making deferrals or where deferred 15 amounts may be withdrawn in cases of financial hardship or the 16 separation of such individual from service with the Commonwealth 17 or political subdivision.]: 18 (i) cease making deferrals; and 19 (ii) withdraw deferred amounts in cases of financial 20 hardship or separation of such individual from service with the 21 Commonwealth or political subdivision, or as otherwise permitted 22 under section 457 of the Internal Revenue Code of 1986. 23 (5) All deferred compensation plans shall be administered in 24 compliance with section 457 and any other provisions of the 25 Internal Revenue Code of 1986 (Public Law 99-514, 26 U.S.C. § 26 457) and [its accompanying regulations] applicable to the plans. 27 Any income deferred under such authorized agreement shall 28 continue to be included as regular compensation for computing 29 retirement and benefits earned by any Commonwealth or political 30 subdivision officer or employe, but any sum deferred shall not 19970S1170B1421 - 4 -
1 be included in the computation of any Federal income taxes to be 2 withheld. 3 (f) All amounts deferred under a deferred compensation plan 4 shall constitute taxable income for purposes of the act of March 5 4, 1971 (P.L.6, No.2), known as the "Tax Reform Code of 1971," 6 and shall constitute taxable income for State and local earned 7 income taxes. 8 (g) Neither the Commonwealth, the State Employees' 9 Retirement Board nor any political subdivision shall be 10 responsible for any investment loss incurred in the program, or 11 for the failure of any investment to earn any specific or 12 expected return or to earn as much as any other investment 13 opportunity, whether or not such other investment opportunity 14 was offered to participants in the program, nor shall the 15 Commonwealth contribute to its deferred compensation program. 16 The expenses arising from allowing individuals to elect to 17 participate in a deferred compensation plan, to choose a fund 18 manager, to deduct from compensation amounts deferred under a 19 plan and to transfer to the fund manager amounts so deducted 20 shall be borne by the Commonwealth or the political subdivision. 21 All other expenses arising from the administration of a deferred 22 compensation plan shall be assessed against the accounts created 23 on behalf of participating individuals either by the fund 24 managers or by the Commonwealth or a political subdivision. The 25 obligation of the Commonwealth or political subdivision officer 26 or employe shall be a contractual obligation only with no 27 preferred or special interest in deferred funds to such officer, 28 employe or contractor except as otherwise provided by this act. 29 (h) (1) All [funds] assets and income which have been or 30 shall be withheld or deferred by the Commonwealth or political 19970S1170B1421 - 5 -
1 subdivision in accordance with [the terms of this act shall 2 remain an asset of the Commonwealth and shall be held in a 3 special fund hereby created within the State Treasury of which 4 the State Treasurer shall be the custodian, or an asset of the 5 political subdivision] this section shall be held in trust in 6 any funding vehicle permitted by section 457 of the Internal 7 Revenue Code of 1986 for the exclusive benefit of the plan's 8 participants and their beneficiaries until such time as the 9 funds are distributed to the participant or his beneficiary in 10 accordance with the terms of the agreement between the 11 participant and the State Employees' Retirement Board or between 12 the participant and the governing body of the political 13 subdivision. Such deferred compensation plans shall exist and 14 serve in addition to and shall not be a part of any retirement 15 or pension system for officers and employes. 16 (2) The members of the State Employees' Retirement Board 17 shall be the trustees of the deferred compensation plan 18 established for Commonwealth officers and employes. Any 19 political subdivision administering a plan as a trust under this 20 section shall be required to name one or more persons as trustee 21 of such plan, and to establish provisions relating to the 22 removal or resignation of a trustee, the appointment of a 23 successor and the methods by which the trustee may take 24 necessary action as required under the plan. 25 (3) The trust established for Commonwealth officers and 26 employes is declared to be a spendthrift trust, and any 27 construction of a participant's plan account as self-settled 28 shall not cause the plan account to be treated as other than a 29 spendthrift trust. 30 (4) Any benefit or interest available under a deferred 19970S1170B1421 - 6 -
1 compensation plan established under this section, or any right 2 to receive or direct payments under such a plan, or any 3 distribution of payment made under such a plan shall not, except 4 as expressly specified by the plan, be subject to assignment, 5 alienation, garnishment, attachment, transfer, anticipation, 6 sale, mortgage, pledge, hypothecation, commutation, execution or 7 levy, whether by voluntary or involuntary act of any interested 8 person. However, the State Employees' Retirement Board or any 9 political subdivision may establish procedures in the plan 10 document to dispose of a participant's account pursuant to a 11 domestic relations order unless in conflict with the provisions 12 of section 457 of the Internal Revenue Code of 1986. 13 (i) Investment of deferred funds by any corporation, 14 institution, insurance company or custodial bank which the State 15 Employees' Retirement Board or governing body of a political 16 subdivision has approved shall not be unreasonably delayed, and 17 in no case shall the investment of deferred funds be delayed 18 more than thirty days from the date of payroll deduction to the 19 date that funds are invested. Any interest earned on such funds 20 pending investment shall be allocated to the Commonwealth or 21 political subdivision and credited to the accounts of employes 22 who are then participating in the plan unless such interest is 23 used to defray administrative costs and fees which would 24 otherwise be required to be borne by employes who are then 25 participating in the plan. 26 [(j) No officer or employe participant or beneficiary shall 27 have the right to commute, sell, assign or otherwise transfer or 28 convey the rights to receive any payments under agreements 29 entered into pursuant to this section, and such payments and 30 rights are expressly declared to be nonassignable and 19970S1170B1421 - 7 -
1 nontransferable.] 2 (k) A participant may withdraw from the agreement in 3 accordance with the approved plan by notice, in writing, signed 4 by the participant and approved by the administrator and such 5 withdrawal shall discontinue future deferrals by the [State] 6 Commonwealth or the political subdivision, but shall not operate 7 to withdraw any funds theretofore contributed, except in cases 8 of approved financial hardship or as otherwise authorized by the 9 plan. 10 (l) Every officer or employe of the Commonwealth or 11 political subdivision [who, upon the effective date of this act, 12 has either been in office or employed by the Commonwealth or 13 political subdivision shall immediately be] shall be eligible 14 for participation in a deferred compensation plan[. Thereafter, 15 every officer or employe of the Commonwealth or political 16 subdivision shall become eligible upon employment] under this 17 section. 18 [(m) The State Employees' Retirement Board shall promulgate 19 rules and regulations extending its administrative, funding and 20 marketing facilities to any political subdivision which elects 21 to utilize them in providing a deferred compensation plan to its 22 employes. Each political subdivision shall designate an officer 23 to coordinate the deferred compensation program.] 24 Section 2. This act shall take effect immediately. J15L71JLW/19970S1170B1421 - 8 -