71 Pa.C.S. § 1

The General Assembly finds and declares as follows:

(1) This act contains both benefit and administrative pension changes. The benefit changes include an enhancement to the basic benefit formula, a reduction in the vesting requirement, the addition of a new class of benefits for legislators and a change to the current arrangement by which members can combine service credit with both the State Employees' Retirement System and the Public School Employees' Retirement System.

(2) Over the past two decades, both pension funds have experienced investment returns well in excess of expectations. As a result, State and school district contributions have decreased dramatically to less than 1% of payroll for next year. At the same time, employee contributions range from 5% to 6.25% of payroll. The outstanding investment performance has resulted in the pension funds being over 123% funded, compared to current needs. The 4% statutory interest rate the employees receive on their pension accounts has consistently been eclipsed by the actual average returns of the funds over the last two

decades and also has been less than available private market interest rates. The fact that employees have been and are projected to continue to contribute at a rate that is materially greater than the employers due to the more than 100% funded status of the plans raises the issue of the extent to which employees should be provided additional benefits. The increase in benefits for State and school employees provided herein will in effect allow them for the first time to share in the outstanding investment performance of the funds. To date, that experience has only benefited the employers through reduced contributions to the funds. Even with the increases in benefits provided herein, both pension funds are projected to maintain minimal employer contribution rates and at the same time maintain a fully funded status. For at least the next decade, members are projected to continue to contribute at a rate substantially in excess of that required from the employers.

(3) A major change in the manner in which benefits are funded is warranted. Currently, gains or losses related to the funding for benefits are spread over a 20-year time frame. Under this proposed change, these gains or losses will now be spread over a shorter time frame, that being ten years, increasing intergenerational equity by reducing the time elapsed between the service of the members of the systems and the related funding. A similar policy was enacted in 1991 when 30-year funding for the two funds was reduced to 20-year funding.

(4) Participation in the enhanced benefit accrual rate should not be mandatory for current members. Members who elect to participate should have to agree, as provided herein, to increase employee contributions as consideration for their future receipt of enhanced benefits after the termination of service.

(5) The approach set out heretofore was cited as reasonable public pension policy by the Public Employee Retirement Commission in a report released on May 7 of this year. As the commission further noted, certain provisions herein will result in the systems being more closely aligned with similar plans in the private sector and further strengthen the systems' positions relative to Internal Revenue Code compliance. Explanatory Note. Act 9 amended, added or deleted sections 8102, 8302, 8303, 8304, 8305, 8305.1, 8306, 8307, 8308, 8321, 8323, 8324, 8325, 8327, 8328, 8342, 8344, 8345, 8346, 8348.1, 8348.2, 8348.3, 8348.5, 8501, 8502, 8502.1, 8502.2, 8503, 8504, 8505, 8506, 8507, 8509, 8521 and 8525 and Part V of Title 24 and sections 5102, 5302, 5303, 5304, 5305, 5305.1, 5306, 5306.1, 5306.2, 5307, 5308, 5309, 5501, 5502, 5502.1, 5504, 5505, 5506, 5507, 5508, 5702, 5704, 5705, 5706, 5707, 5708.1, 5708.2, 5708.3, 5708.5, 5901, 5902, 5903, 5904, 5905, 5906, 5931, 5937 and 5938 of Title 71. § 22. Calculation of return to service days. * * *
2.2, 8503, 8504, 8505, 8506, 8507, 8509, 8521 and 8525 and Part V of Title 24 and sections 5102, 5302, 5303, 5304, 5305, 5305.1, 5306, 5306.1, 5306.2, 5307, 5308, 5309, 5501, 5502, 5502.1, 5504, 5505, 5506, 5507, 5508, 5702, 5704, 5705, 5706, 5707, 5708.1, 5708.2, 5708.3, 5708.5, 5901, 5902, 5903, 5904, 5905, 5906, 5931, 5937 and 5938 of Title 71. § 22. Calculation of return to service days. * * *

(b) State employees.--Service performed by a member of the State Employees' Retirement System prior to July 1, 2001, shall not be included when calculating the 95 days an annuitant may return to service in a calendar year without loss of annuity pursuant to 71 Pa.C.S. § 5706.

§ 23. Effect on current members of limitation on benefits (Repealed). 2015 Repeal. Section 23 was repealed by the act of December 28, 2015, P.L.529, No.93, effective immediately. § 24. Authorized investments. Any and all investments of the Public School Employees' Retirement Board and the State Employees' Retirement Board which on the effective date of this section are owned or held through a vehicle as described in 24 Pa.C.S § 8521(i) or 71 Pa.C.S § 5931(i), as applicable, shall be deemed to have been lawfully made through such vehicle at inception. § 26. References to Internal Revenue Code of 1986. Except as may be otherwise specifically provided, references in this act to provisions of the Internal Revenue Code of 1986 (Public Law 99-514, 26 U.S.C. § 1 et seq.), including for this purpose administrative regulations promulgated thereunder, are intended to include such laws and regulations in effect on the effective date of this section and as they may hereafter be amended or supplemented or supplanted by successor provisions. § 27. Statements or estimates of benefits. * * *

(b) State employees.--Notwithstanding the provisions of 71 Pa.C.S. § 5903(b), the statement for each member prepared by the State Employees' Retirement Board for the period ending December 31, 2001, and any other statements or estimates of benefits prepared by the board pursuant to the State Employees' Retirement Code from the effective date of this section to June 30, 2002, need not reflect provisions of this act. § 28. Obligation to make payments within specified time periods. * * *

(b) State Employees' Retirement System.--Notwithstanding the provisions of 71 Pa.C.S. Pt. XXV, the obligation of the State Employees' Retirement Board to make payments within specified time periods of the receipt of applications for benefits or other information shall not apply from the effective date of this section to June 30, 2002. § 30. Election of multiple service membership in State Employees' Retirement System. Notwithstanding the limitation contained in 71 Pa.C.S. § 5907(c), any active member of the State Employees' Retirement System who was formerly an active member of the Public School Employees' Retirement System and whose service credit in the Public School Employees' Retirement System has not been converted to service credited in another public pension plan or retirement system in this Commonwealth may elect to become a multiple service member on or before December 31, 2003.