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]
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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
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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
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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
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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
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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
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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.
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