Bill Text: PA HB129 | 2009-2010 | Regular Session | Introduced

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Bill Title: Further providing for definitions, for contents of actuarial valuation report, for minimum funding standards and for revision of financing; and providing for deferred retirement option plans in local governments.

Spectrum: Partisan Bill (Republican 6-0)

Status: (Introduced - Dead) 2009-01-30 - Referred to LOCAL GOVERNMENT [HB129 Detail]

Download: Pennsylvania-2009-HB129-Introduced.html

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PRINTER'S NO. 125
THE GENERAL ASSEMBLY OF PENNSYLVANIA
HOUSE BILL
No. 129 Session of2009
INTRODUCED BY KILLION, MUSTIO, SWANGER AND VULAKOVICH, JANUARY 30, 2009
REFERRED TO COMMITTEE ON LOCAL GOVERNMENT, JANUARY 30, 2009
AN ACT
Amending the act of December 18, 1984 (P.L.1005, No.205),
entitled "An act mandating actuarial funding standards for
all municipal pension systems; establishing a recovery
program for municipal pension systems determined to be
financially distressed; providing for the distribution of the
tax on the premiums of foreign fire insurance companies; and
making repeals," further providing for definitions, for
contents of actuarial valuation report, for minimum funding
standards and for revision of financing; and providing for
deferred retirement option plans in local governments.
The General Assembly of the Commonwealth of Pennsylvania
hereby enacts as follows:
Section 1. The title of the act of December 18, 1984 (P.L.
1005, No.205), known as the Municipal Pension Plan Funding
Standard and Recovery Act, is amended to read:
AN ACT
Mandating actuarial funding standards for all municipal pension
systems; establishing a recovery program for municipal
pension systems determined to be financially distressed;
providing for the distribution of the tax on the premiums of
foreign fire insurance companies; providing for the
establishment and administration of deferred retirement
option plans in local governments; and making repeals.
Section 2. The definition of "municipal employee" in section
102 of the act is amended and the section is amended by adding
definitions to read:
Section 102. Definitions.
Except as provided in Chapter 7, the following words and
phrases when used in this act shall have the meanings given to
them in this section unless the context clearly indicates
otherwise:
* * *
"DROP." A deferred retirement option plan created and
operated by a local government or the Pennsylvania Municipal
Retirement System under Chapter 11 or any deferred retirement
option plan or similar program established by a local government
that provides for the commencement and accumulation of
retirement benefit payments for active employees with
disbursement of the accumulated payments and interest earnings
as a lump sum upon termination of employment.
"DROP participant." A retired member of a local government-
defined benefit pension plan who is eligible to participate in a
DROP under section 1112, who has elected to participate in a
DROP under section 1113 and who is not an elected official.
"DROP participant account." A pension trust fund ledger
account established under section 1121(a).
* * *
"Local government." A municipality or any county.
* * *
"Municipal employee." Any person [other than an independent
contractor] who provides regular services for a municipality in
return for compensation from the municipality. The term does not
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include an independent contractor or a DROP participant.
* * *
Section 3. Section 202(b) of the act, amended July 15, 2004
(P.L.715, No.81), is amended to read:
Section 202. Contents of actuarial valuation report.
* * *
(b) Contents of actuarial exhibits; defined benefit plans
self-insured in whole or in part.--For any pension plan which is
a defined benefit plan and which is self-insured in whole or in
part, all applicable actuarial exhibits shall be prepared in
accordance with the entry age normal actuarial cost method with
entry age established as the actual entry age for all plan
members unless the municipality applies for and is granted
authorization by the commission to use an alternative actuarial
cost method. Authorization shall be granted if the municipality
demonstrates on an individual pension plan basis that there are
compelling reasons of an actuarial nature for the use of an
alternative actuarial cost method. The commission shall issue
rules and regulations specifying the criteria which the
commission will use to determine the question of the existence
of compelling reasons for the use of an alternative actuarial
cost method, the documentation which a municipality seeking the
authorization will be required to supply and the acceptable
alternative actuarial cost methods which the commission may
authorize. The actuarial cost method shall be used to value all
aspects of the benefit plan or plans of the pension plan unless
the municipality applies for and is granted authorization by the
commission to use approximation techniques other than the
actuarial cost method for aspects of the benefit plan or plans
of the pension plan other than the retirement benefit.
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Authorization shall be granted if the municipality demonstrates
on an individual pension plan basis that there are compelling
reasons of an actuarial nature for the use of these
approximation techniques. The commission shall issue rules and
regulations specifying the criteria which the commission will
use to determine the question of the existence of compelling
reasons for the use of approximation techniques, the
documentation which a municipality seeking the authorization
will be required to supply and the acceptable approximation
technique which the commission may authorize. The actuarial
exhibits shall use actuarial assumptions which are, in the
judgment of the actuary and the governing body of the plan, the
best available estimate of future occurrences in the case of
each assumption. With respect to economic actuarial assumptions,
the assumptions shall either be within the range specified in
rules and regulations issued by the commission or documentation
explaining and justifying the choice of assumptions outside the
range shall accompany the report. The actuarial exhibits shall
measure all aspects of the benefit plan or plans of the pension
plan in accordance with modifications in the benefit plan or
plans, if any, and salaries which as of the valuation date are
known or can reasonably be expected to be in force during the
ensuing plan year. In preparing the actuarial exhibits or any
actuarial valuation report, the municipality shall exclude the
compensation of all DROP participants from the active member
payroll, all DROP participants from active member data and the
balance in the DROP participant account from the assets of the
pension trust fund. The actuarial valuation report shall contain
the following actuarial exhibits:
(1) An exhibit of the normal cost of the benefits
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provided by the benefit plan as of the date of the actuarial
valuation, expressed as a percentage of the future covered
payroll of the active membership of the pension plan as of
the date of the actuarial valuation.
(2) An exhibit of the actuarial accrued liability of the
benefit plan as of the date of the actuarial valuation in
total which shall be the actuarial present value of all
projected benefits provided by the benefit plan reduced by
the actuarial present value of future normal costs, and in
particular, which shall include the following required
actuarial present values for pension plan benefits of related
items:
(i) Required actuarial present values on account of
active members:
(A) Retirement benefits.
(B) Disability benefits.
(C) Survivor benefits.
(D) Refund liability due to withdrawal from
active service or death.
(E) Other benefits, specifying the nature of
each type.
This item shall include a footnote indicating the amount
of accumulated member contributions without accrued
interest.
(ii) Required actuarial present values on account of
former members with a deferred, vested or otherwise
nonforfeitable right to a retirement benefit.
(iii) Required actuarial present values on account
of former members who do not have a deferred, vested or
otherwise nonforfeitable right to the retirement benefit
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and who have not withdrawn any accumulated member
contributions.
(iv) Required actuarial present values on account of
benefit recipients:
(A) Retirement benefits.
(B) Disability benefits.
(C) Surviving spouse benefits.
(D) Surviving child benefits.
(E) Other benefits, specifying the nature of
each type.
(v) Required actuarial present values for other
benefits provided by the benefit plan, specifying the
nature of each type.
(vi) Actuarial present value of future normal cost.
(3) An exhibit of the unfunded actuarial accrued
liability of the pension plan in total, which shall be the
actuarial accrued liability of the pension plan calculated
pursuant to paragraph (2) less the actuarial value of assets
of the pension plan calculated pursuant to subsection (e)(1),
and which, in particular, shall include the following:
(i) The remaining balance of the unfunded actuarial
accrued liability in existence as of the first actuarial
valuation report required by this section occurring next
following the date of enactment of this section.
(ii) The remaining balance of each increment of
unfunded actuarial accrued liability attributable to
modifications in the benefit plan governing the pension
plan which were applicable to active members, separately
indicating each and designating each by the plan year in
which the benefit plan modification was made effective.
20090HB0129PN0125 - 6 -
(iii) The remaining balance of each increment of
unfunded actuarial accrued liability attributable to
modifications in the benefit plan governing the pension
plan which were applicable to retired members and other
benefit recipients, separately indicating each and
designating each by the plan year in which the benefit
plan modification was made effective.
(iv) The remaining balance of each increment of net
unfunded actuarial accrued liability attributable to
modifications in the actuarial assumptions used to
calculate the actuarial accrued liability of the pension
plan separately indicating each and designating each by
the plan year in which the actuarial assumption
modification was made effective.
(v) The remaining balance of each increment or
decrement of net unfunded actuarial accrued liability
attributable to net actuarial experience losses or gains,
separately indicating each and designating each by the
plan year in which the actuarial experience loss or gain
was recognized.
(vi) The remaining balance of each increment of
unfunded actuarial accrued liability attributable to the
provision of survivor benefits payable under section 5(e)
(2) of the act of May 29, 1956 (1955 P.L.1804, No.600),
referred to as the Municipal Police Pension Law,
separately indicating each and designating each by the
plan year in which the actuarial experience loss was
recognized.
The initial determination of the unfunded actuarial accrued
liability attributable to a modification in the benefit plan
20090HB0129PN0125 - 7 -
governing the pension plan or to a modification in the
actuarial assumptions used to calculate the actuarial accrued
liability of the pension plan shall be made by calculating
the unfunded actuarial accrued liability of the pension plan
in accordance with the benefit plan provisions and actuarial
assumptions which were in effect prior to the modification
and by calculating the unfunded actuarial accrued liability
of the pension plan in accordance with the modification in
the provisions of the benefit plan governing the pension plan
or the actuarial assumptions used to calculate the actuarial
accrued liability of the pension plan, whichever is
applicable, and the remaining benefit plan provisions and
actuarial assumptions. The initial determination of the
unfunded actuarial accrued liability attributable to an
actuarial loss shall be made in conjunction with the analysis
of increases or decreases in the unfunded actuarial accrued
liability of the pension plan required pursuant to paragraph
(6).
(4) An exhibit of any additional funding costs
associated with the amortization of any unfunded actuarial
accrued liability of the pension plan, indicating for each
increment of unfunded actuarial accrued liability specified
in paragraph (3), the level annual dollar contribution
required to pay an amount equal to the actuarial assumption
as to investment earnings applied to the principal amount of
the remaining balance of the increment of unfunded actuarial
accrued liability and to retire by the applicable
amortization target date specified in this paragraph the
principal amount of the remaining balance of the increment of
unfunded actuarial accrued liability. The amortization target
20090HB0129PN0125 - 8 -
date applicable for each type of increment of unfunded
actuarial accrued liability shall be as follows:
(i) (A) In the case of a pension plan established
on or prior to January 1, 1985 for the unfunded
actuarial accrued liability in existence as of the
beginning of the plan year occurring in calendar year
1985, at the end of the plan year occurring in
calendar year 2015; or
(B) In the case of a pension plan established
after January 1, 1985, for the unfunded actuarial
accrued liability then or subsequently determined to
be or to have been in existence as of the date of the
establishment of the plan, at the end of the plan
year occurring 30 years after the calendar year in
which the pension plan was established.
(ii) Increment or decrement of net unfunded
actuarial accrued liability attributable to a change in
actuarial assumptions, at the end of the plan year
occurring 20 years after the calendar year in which
actuarial assumption modification was effective.
(iii) Increment of net unfunded actuarial accrued
liability attributable to a modification in the benefit
plan applicable to active members, at the end of the plan
year occurring 20 years after the calendar year in which
the benefit plan modification was effective.
(iv) Increment of unfunded actuarial accrued
liability attributable to a modification in the benefit
plan applicable to retired members and other benefit
recipients, at the end of the plan year occurring 10
years after the calendar year in which the benefit plan
20090HB0129PN0125 - 9 -
modification was effective.
(v) (A) Increment or decrement of net unfunded
actuarial accrued liability attributable to an
actuarial experience loss or gain, at the end of plan
year occurring 15 years after the calendar year in
which the actuarial experience loss or gain was
recognized.
(B) Notwithstanding any other provision of this
act or other law, as of the beginning of the plan
year occurring in calendar year 2003, the outstanding
balance of the increment of unfunded actuarial
accrued liability attributable to the net actuarial
investment losses incurred in calendar years 2001 and
2002 may, at the sole discretion of the municipality,
be amortized with the amortization target date being
the end of the plan year occurring 30 years after
January 1, 2003. In order for a municipality to
extend the applicable amortization period pursuant to
this clause, the municipality must file a revised
actuarial valuation report reflecting the
amortization period extension provided for under this
clause with the executive director of the commission
no later than September 30, 2004. Any such revised
actuarial valuation report may not be filed in lieu
of the actuarial valuation report prepared in
compliance with clause (A) and required to be filed
on or before March 31, 2004, and may be used only for
the purposes of recalculating the 2004 minimum
municipal obligation of the municipality and
calculating the 2005 minimum municipal obligation of
20090HB0129PN0125 - 10 -
the municipality to reflect the amortization period
extension. Any such revised actuarial valuation
report shall not affect distributions under the
General Municipal Pension System State Aid Program
under Chapter 4.
(vi) Increment of unfunded actuarial accrued
liability attributable to the provision of survivor
benefits payable under section 5(e)(2) of the Municipal
Police Pension Law at the end of the plan year occurring
40 years after the calendar year in which the survivor
benefits were first payable.
With respect to any applicable pension plan other than a plan
which comprises all or part of a moderately distressed or a
severely distressed municipal pension system, if the
remaining average period between the current average attained
age of active members as of the valuation date and the later
of their earliest average normal retirement age or their
average assumed retirement age is less than the applicable
period or periods ending with the amortization target date or
dates specified in subparagraph (i), (ii), (iii) or (v)(A),
the appropriate amortization target date for the applicable
subparagraph determined with reference to the longest
applicable remaining average period rounded to the next
largest whole number shall be used. With respect to any plan
year beginning after December 31, 1997, if, as of the
beginning of the plan year, the ratio of the actuarial value
of assets to the actuarial accrued liability exceeds 0.70 and
the governing body of the municipality has passed a
resolution to irrevocably commit the municipality to apply
the limit on the additional funding costs, as provided
20090HB0129PN0125 - 11 -
herein, in the preparation of the current and all future
exhibits under this paragraph, then the sum of the additional
funding costs for subparagraphs (i), (ii), (iii), (iv) and
(v) above shall not exceed the amount required to amortize
the remaining unfunded actuarial accrued liability as of the
beginning of the plan year over 10 years in level annual
dollar contributions. The exhibit shall indicate the total
dollar amount of additional funding costs associated with the
amortization of any unfunded actuarial accrued liability of
the pension plan applicable for that plan year and any
subsequent plan year occurring prior to the preparation of
the next required actuarial valuation report, which shall be
the total of the additional funding costs associated with the
amortization of each increment of unfunded actuarial accrued
liability. The exhibit shall also indicate the plan year in
which any unfunded actuarial accrued liability of the pension
plan would be fully amortized if the total annual additional
funding cost calculated pursuant to this paragraph were met
continuously without increase or decrease in amount until the
total unfunded actuarial accrued liability currently existing
was fully amortized. In calculating the additional funding
costs associated with the amortization of any unfunded
actuarial accrued liability of the pension plan in any plan
year, any amortization contribution made in the interval
since the last actuarial valuation report shall be allocated
to each type of increment of unfunded actuarial accrued
liability in proportion to the remaining dollar amount of
each type.
(5) An exhibit of the total administrative cost of the
pension plan for the plan year occurring immediately prior to
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the plan year for which the actuarial valuation report is
made.
(6) An exhibit containing an analysis of the increase or
decrease in the unfunded actuarial accrued liability of the
pension plan since the most recent prior actuarial valuation
report, including specifically an indication of increases or
decreases due to the following:
(i) Modifications in the benefit plan or plans of
the pension plan.
(ii) Changes in actuarial assumptions.
(iii) Deviations in the actual experience of the
pension plan from the experience expected by virtue of
the actuarial assumptions.
(iv) Presence or absence of payments to amortize the
unfunded accrued liability of the pension plan.
(v) Other reasons.
The analysis shall be based on the best professional
judgment of the approved actuary reached after preparing
the various applicable actuarial exhibits of the
actuarial valuation report. If, in the opinion of the
approved actuary, the inclusion of any portion of this
information is not appropriate, that portion of the
analysis may be omitted with the provision of adequate
explanation or justification of the appropriateness of
the omission.
(7) An exhibit summarizing the economic and demographic
actuarial assumptions used in the preparation of the
actuarial exhibits.
(8) A summary of the principal provisions of the benefit
plan of the pension plan upon which the actuarial exhibits
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are based.
* * *
Section 4. Section 302(b)(2) of the act, amended December
18, 1990 (P.L.753, No.189), is amended to read:
Section 302. Minimum funding standard; defined benefit plans
self-insured in whole or in part.
* * *
(b) Financial requirements of the pension plan.--
* * *
(2) The normal cost and administrative expense
requirements for the following plan year shall be expressed
as a dollar amount and shall be determined by applying the
normal cost of the benefit plan and the administrative
expense payable from the assets attributable to the benefit
plan, as reported in the actuarial valuation report of the
pension plan and expressed as a percentage of payroll, to the
payroll of the active membership of the pension plan as of
the date the financial requirements of the pension plan are
determined. In expressing the normal cost and administrative
expense requirements as a dollar amount, the municipality
shall exclude the compensation of all DROP participants from
the payroll of the active membership of the pension plan.
* * *
Section 5. Section 402(e)(2) of the act is amended to read:
Section 402. Revision of financing from State revenue sources;
General Municipal Pension System State Aid Program.
* * *
(e) Allocation of general municipal pension system State
aid.--
* * *
20090HB0129PN0125 - 14 -
(2) The applicable number of units shall be attributable
to each active employee who was employed on a full-time basis
for a minimum of six consecutive months prior to December 31
preceding the date of certification and who was participating
in a pension plan maintained by that municipality, provided
that the municipality maintains a generally applicable
pension plan for that type of employee which was either
established on or prior to December 31, 1984, or, if
established after December 31, 1984, has been maintained by
that municipality for at least three plan years. For the
purpose of computing and reporting the applicable number of
units, a DROP participant shall not be reported to the
Auditor General as an active employee. The applicable number
of units per employee attributable to each eligible recipient
county of the second class shall be two units for each police
officer. The applicable number of units attributable to each
eligible recipient city, borough, incorporated town and
township shall be as follows:
(i) Police officer - two units.
(ii) Firefighter - two units.
(iii) Employee other than police officer or
firefighter - one unit.
* * *
Section 6. The act is amended by adding a chapter to read:
CHAPTER 11
DEFERRED RETIREMENT OPTION PLANS LAW
SUBCHAPTER A
PRELIMINARY PROVISIONS
Section 1101. Short title.
This chapter shall be known and may be cited as the Deferred
20090HB0129PN0125 - 15 -
Retirement Option Plans Law.
Section 1102. Declaration of purpose.
It is the purpose of this chapter to provide for a deferred
retirement option plan under which an eligible member of the
local government's retirement system may elect to participate in
a DROP, defer receipt of retirement system benefits and continue
employment with the local government.
Section 1103. Definitions.
The following words and phrases when used in this chapter
shall have the meanings given to them in this section unless the
context clearly indicates otherwise:
"Normal retirement benefit." The retirement benefit payable
to a member of a defined benefit pension plan on or after the
date on which the member first satisfies the age and service
requirements for full, unreduced retirement benefits, including
supplemental amounts provided to the member after retirement as
cost-of-living increases.
"Subsidiary DROP participant account." The separate,
interest-bearing, subsidiary DROP participant account
established for a DROP participant under section 1121.
Section 1104. Employment status.
Participation in a DROP does not guarantee the DROP
participant's employment by the local government during the
specified period of the DROP.
SUBCHAPTER B
GENERAL PROVISIONS
Section 1111. Establishment of DROP.
(a) Local governments.--A local government that has
established or maintains a defined benefit pension plan for a
group of its employees which is self-insured in whole or in part
20090HB0129PN0125 - 16 -
under section 202(b), except for a local government that has
joined the Pennsylvania Municipal Retirement System, may
establish by ordinance a DROP for those employees as part of the
pension plan. The ordinance establishing the DROP shall specify
a uniform participation period for the DROP that is not more
than five years in duration.
(b) Pennsylvania Municipal Retirement System participants.--
A local government that has established or maintains a defined
benefit plan for a group of its employees which is self-insured
in whole or in part under section 202(b) and has joined the
Pennsylvania Municipal Retirement System may establish a DROP
for those employees as a part of the pension plan only through
participation in the DROP established and administered by the
Pennsylvania Municipal Retirement System.
(c) Pennsylvania Municipal Retirement System standards.--The
Pennsylvania Municipal Retirement Board shall establish a DROP
for local government-defined benefit pension plans that have
joined the Pennsylvania Municipal Retirement System. The DROP so
established shall be uniform, in compliance with the provisions
of this chapter, open to any local government and applicable to
any of the defined benefit pension plans administered by the
Pennsylvania Municipal Retirement System.
Section 1112. Eligibility of member to participate in DROP.
An active member of a local government retirement system that
has a DROP as a part of its defined benefit pension plan who is
eligible for a normal retirement benefit under the pension plan
or will be eligible for a normal retirement benefit under the
pension plan prior to participation in the DROP and who is not
an elected official is eligible to participate in the DROP by
filing a written application with the retirement system at least
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30 days before the member's effective date of retirement.
Section 1113. Participation in DROP.
(a) Election by an active member.--An eligible active member
may elect to participate in a DROP for the period specified in
the ordinance establishing the DROP.
(b) DROP participation election.--Upon deciding to
participate in a DROP, a member shall submit on forms provided
and required by the retirement system:
(1) A binding and irrevocable letter of resignation from
regular employment with the local government that discloses
the member's intent to retire and specifies the member's
retirement date.
(2) An irrevocable written election to participate in
the DROP that:
(i) Details a DROP participant's rights and
obligations under the DROP.
(ii) Includes an agreement to forgo:
(A) Active membership in the retirement system.
(B) Any growth in the salary base used for
calculating the regular retirement benefit.
(C) Any additional benefit accrual for
retirement purposes, including length-of-service
increments.
(iii) Specifies the effective date of DROP
participation that shall be the day after the specified
retirement date.
(iv) Specifies the DROP termination date that
satisfies the limitation in subsection (a).
(3) Any other information required by the retirement
system.
20090HB0129PN0125 - 18 -
(c) DROP termination.--
(1) A DROP participant may change the DROP termination
date to an earlier date within the limitations of subsection
(a). No penalty shall be imposed for early termination of
DROP participation.
(2) Upon either early or regular termination of DROP
participation:
(i) The DROP participant shall be separated from
employment by the local government.
(ii) The retirement system shall pay the balance in
the DROP participant's subsidiary DROP participant
account to the terminating DROP participant as provided
in section 1114(d).
(iii) The DROP participant shall be ineligible to
reenroll in the DROP thereafter even if the former DROP
participant is reemployed by the local government with
renewed active membership in the retirement system.
Section 1114. Benefits payable under DROP.
(a) Fixing retirement benefit, retirement date, retirement
benefits and DROP dates.-- Effective with the date of
retirement, which shall be the day before the effective date of
DROP participation, the member's monthly, normal retirement
benefit under the pension plan, the member's effective date of
retirement and the member's effective dates of beginning and
terminating employment as a DROP participant shall be fixed.
(b) Effective dates of DROP participation.--
(1) A retired member's effective date of participation
in a DROP shall begin the day following the effective date of
the member's regular retirement.
(2) A retired member's participation in a DROP shall end
20090HB0129PN0125 - 19 -
on the last day of the participation period specified in the
ordinance establishing the DROP that is in effect on the
effective date of the retired member's participation in the
DROP.
(c) Treatment of normal retirement benefit payments and
accruals.--All of the retired member's monthly, normal
retirement benefit and interest thereon at the assigned rate
shall be credited to the DROP participant's subsidiary DROP
participant account in the pension trust fund and a separate
accounting of the DROP participant's accrued benefit
accumulation under the DROP shall be calculated annually and
provided to the DROP participant.
(d) Payment of DROP benefits.--On the effective date of a
DROP participant's termination of employment with the local
government as a DROP participant, participation in the DROP
shall cease and the retirement system shall calculate and pay to
the participant the participant's total accumulated DROP
benefits in the DROP participant's subsidiary DROP participant
account subject to the following provisions:
(1) Except as provided in paragraph (2), the terminating
DROP participant or, if deceased, the participant's survivor
as provided by the enabling pension statute applicable to the
appropriate class of employees of the municipality or, in
lieu thereof, the participant's named beneficiary, shall
elect on a form provided by the retirement system to receive
payment of the DROP benefits in accordance with one of the
following options:
(i) The balance in the DROP participant's subsidiary
DROP participant account less withholding taxes, if any,
remitted to the Internal Revenue Service shall be paid
20090HB0129PN0125 - 20 -
within 45 days by the retirement system from the account
to the DROP participant or surviving beneficiary.
(ii) The balance in the DROP participant's
subsidiary DROP participant account shall be paid within
45 days by the retirement system from the account
directly to the custodian of an eligible retirement plan
as defined in section 402(c)(8)(b) of the Internal
Revenue Code of 1986 (Public Law 99-514, 26 U.S.C. §
402(c)(8)(b)), or, in the case of an eligible rollover
distribution to the surviving spouse of a deceased DROP
participant, an eligible retirement plan that is an
individual retirement account or an individual retirement
annuity as described in section 402(c)(9) of the Internal
Revenue Code of 1986 (26 U.S.C. § 402(c)(9)).
(2) If the DROP participant or beneficiary fails to
elect a method of payment within 60 days after the
participant's termination date, the retirement system shall
pay the balance as a lump sum as provided in paragraph (1).
(3) The form of payment selected by the DROP participant
or surviving beneficiary shall comply with the minimum
distribution requirements of the Internal Revenue Code.
(e) Taxation, attachment and assignment of DROP
participant's account.--
(1) Except as provided in paragraphs (2), (3) and (4),
the right of a DROP participant to any benefit or right
accrued or accruing under the provisions of this chapter and
the moneys in the DROP participant's subsidiary DROP
participant account are exempt from any State or municipal
tax, levy and sale, garnishment, attachment, spouse's
election or any other process whatsoever.
20090HB0129PN0125 - 21 -
(2) Rights under this chapter shall be subject to
forfeiture as provided by the act of July 8, 1978 (P.L.752,
No.140), known as the Public Employee Pension Forfeiture Act.
Forfeitures under this subsection or under any other
provision of law may not be applied to increase the benefits
that any DROP participant otherwise would receive under this
chapter.
(3) Rights under this chapter shall be subject to
attachment in favor of an alternate payee as set forth in a
qualified domestic relations order.
(4) (i) Under subsection (d)(1)(ii), a distributee may
elect to have an eligible rollover distribution paid
directly to an eligible retirement plan by way of a
direct rollover.
(ii) For purposes of this paragraph, a "distributee"
includes a DROP participant, a DROP participant's
survivor as provided by the enabling pension statute
applicable to the appropriate class of employees of the
municipality or, in lieu thereof, the participant's
designated beneficiary and a DROP participant's former
spouse who is an alternate payee under a qualified
domestic relations order.
(iii) For purposes of this paragraph, "eligible
rollover distribution" has the meaning given the term by
section 402(f)(2)(A) of the Internal Revenue Code of 1986
(26 U.S.C. § 402(f)(2)(A)), except that a qualified trust
shall be considered an eligible retirement plan only if
it accepts the distributee's eligible rollover
distribution and, in the case of an eligible rollover
distribution to a surviving spouse, an eligible
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retirement plan is an "individual retirement account" or
an "individual retirement annuity" as those terms are
defined in section 408(a) and (b) of the Internal Revenue
Code of 1986 (26 U.S.C. § 408(a) and (b)).
(f) Effect of disability pension benefits.--If a DROP
participant becomes eligible for a disability pension benefit
and terminates employment, the monthly normal retirement benefit
of the DROP participant shall terminate.
(g) Eligibility for active member benefits.--Except for
those benefits specified under section 1113(b)(2)(ii) as forgone
by the member, a DROP participant shall be eligible for any
employee benefits provided to active employees before retirement
as set forth in the ordinance instituting the DROP.
(h) Eligibility for benefits otherwise provided by law.--A
DROP participant shall be eligible for all preretirement
benefits for employees otherwise provided by law, including, but
not limited to, benefits under:
(1) the act of June 2, 1915 (P.L.736, No.338), known as
the Workers' Compensation Act;
(2) the act of June 28, 1935 (P.L.477, No.193), referred
to as the Enforcement Officer Disability Benefits Law;
(3) the act of December 5, 1936 (2nd Sp.Sess., 1937 P.L.
2897, No.1), known as the Unemployment Compensation Law;
(4) the act of June 24, 1976 (P.L.424, No.101), referred
to as the Emergency and Law Enforcement Personnel Death
Benefits Act; and
(5) the Public Safety Officers' Benefit Act of 1976
(Public Law 94-430, 42 U.S.C. § 90 Stat. 1347).
Section 1115. Death benefits under DROP.
(a) DROP benefits for named beneficiary.--If a DROP
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participant dies, the DROP participant's named beneficiary shall
be entitled to apply for and receive the benefits accrued in the
DROP participant's subsidiary DROP participant account as
provided in section 1114(d).
(b) Final credited monthly retirement benefit.--The monthly
retirement system benefit accrued in the DROP participant's
subsidiary DROP participant account during the month of a DROP
participant's death shall be the final monthly retirement system
benefit credited for DROP participation.
(c) DROP eligibility terminates upon participant's death.--A
DROP participant's eligibility to participate in the DROP
terminates upon the death of the DROP participant. If a DROP
participant dies on or after the effective date of participation
in the DROP but before the monthly retirement system benefit of
the participant accruable for the month has accrued in the DROP
participant's subsidiary DROP participant account, the local
government shall pay the monthly retirement system benefits as
though the participant had not elected DROP participation and
had died after the member's effective date of retirement but
before receipt of the retired member's first regular retirement
benefit.
(d) Survivors ineligible for active member's death
benefit.--Except for those benefits specifically payable as a
result of death incurred in the course of performing a hazardous
public duty, the survivors of a DROP participant who dies shall
not be eligible to receive retirement system death benefits
payable in the event of the death of an active member.
(e) Survivors eligible for retired member's death benefit.--
The DROP participant's survivor shall be eligible to receive
retirement system death benefits normally payable in the event
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of the death of a retired employee.
Section 1116. Subsequent employment and renewal of active
membership.
After both the termination of a DROP participant's employment
as a DROP participant by the local government and the expiration
of the DROP participation period, a former DROP participant
shall be subject to such reemployment limitations as other
retired members and shall be eligible for renewed membership as
an active member in the local government employees' retirement
system.
SUBCHAPTER C
ADMINISTRATIVE PROVISIONS
Section 1121. DROP participant account.
(a) General rule.--If a local government creates a DROP, it
shall establish a DROP participant account as an interest-
bearing ledger account in its pension trust fund. The account
balance shall be accounted for separately but need not be
physically segregated from other pension trust fund assets.
(b) Subsidiary DROP participant accounts.--A separate
interest-bearing subsidiary DROP participant account shall be
established for each DROP participant. While a retired member is
employed as a DROP participant, the member's monthly, normal
retirement benefit and interest thereon shall be credited to the
DROP participant's subsidiary DROP participant account under
section 1114(c). The interest shall be compounded and credited
monthly at an annual rate specified in the ordinance
establishing the DROP that shall be not less than 1% nor more
than 4 1/2%.
(c) Termination of employment.--
(1) When a DROP participant terminates employment with
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the local government as a DROP participant, the DROP
participant's total accumulated benefits shall be calculated,
charged to the DROP participant account and paid out of the
pension trust fund under section 1114(d)(2).
(2) Under section 202(b), the balance in the DROP
participant account shall be excluded from actuarial
valuation reports of the retirement system prepared and filed
under this act.
(d) Account held in trust.--A DROP participant account shall
be held in trust for the exclusive benefit of DROP retired
members who are or were DROP participants and for the
beneficiaries of the members.
Section 1122. Audit of Pennsylvania Municipal Retirement
System.
The DROP established by the Pennsylvania Municipal Retirement
Board shall be subject to financial and compliance audits
conducted by the Auditor General with the initial audit
conducted within one year of establishment of the DROP.
Section 1123. Existing DROPs.
A local government that established a DROP prior to or on the
effective date of this section that does not conform to the
provisions of this chapter shall amend its plan within 180 days
of the effective date of this section or when the current labor-
management contract creating the plan expires, whichever is
later, to conform with the provisions of this chapter with
respect to future DROP participants.
Section 1124. Noncompliance.
(a) General rule.--If a local government that established a
DROP under section 1111(a) or the Pennsylvania Municipal
Retirement Board that established a DROP under section 1111(c)
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fails to comply within 90 days with a finding by the Auditor
General of noncompliance with this chapter or if the finding is
appealed within 90 days of conclusion of the appeal process, the
failure to comply shall be deemed sufficient refusal by the
local government or the Pennsylvania Municipal Retirement Board
to comply with its duty antecedent to the commencement of a
mandamus action and the Auditor General shall refer the finding
to the Attorney General.
(b) Mandamus action.--Upon receipt of the finding from the
Auditor General, the Attorney General, following an
administrative proceeding in accordance with 2 Pa.C.S. (relating
to administrative law and procedure), shall proceed in the name
of the Commonwealth to institute a legal proceeding for mandamus
and no other remedy at law shall be deemed to be sufficiently
adequate and appropriate to bar the commencement of this action.
Section 7. This act shall take effect in 60 days.
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