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. 20020H2655B4563 - 2 -
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 20020H2655B4563 - 3 -
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.
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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.-- 20020H2655B4563 - 21 -
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, 20020H2655B4563 - 22 -
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 <-- 20020H2655B4563 - 23 -
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. 20020H2655B4563 - 24 -
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 20020H2655B4563 - 25 -
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. C22L72DMS/20020H2655B4563 - 28 -