(a) Authorization.--The board and the head of department of an eligible employer of members of the system may enter into an agreement by which the eligible employer agrees to make one lump sum payment of all or a part of the eligible employer's portion of the present value of future accrued liability contributions determined under section 5508(c)(4) (relating to actuarial cost method) as modified by the cumulative experience adjustment factors calculated under section 5508(f)(1). The amount shall be calculated by the actuary in a manner and using actuarial factors and assumptions as the board, after obtaining the advice of the board's actuary, shall determine, and shall be certified by the board.
(b) Terms of lump sum payment.--The terms of an advance payment of accrued liability contributions shall be set forth in the agreement between the board and the head of department and subject to the following restrictions:
(1) Each eligible employer may make only one lump sum advance payment of accrued liability contributions.
(2) The lump sum may be based on not less than 75% and not more than 100% of the portion of the unfunded actuarial accrued liability of the system allocated to the eligible employer.
(3) The calculation of the unfunded actuarial accrued liability of the system and the portion allocated to the eligible employer shall be made by the actuary and approved by the board.
(4) The allocation of the unfunded actuarial accrued liability to the eligible employer must be made using a methodology, and the setoff schedule and other terms and conditions of the agreement must be such that if all eligible employers that employ members of the system simultaneously enter into agreements to make 100% advance payments of accrued liability contributions using the same date to calculate and allocate the unfunded actuarial accrued liability contributions and the same date to make lump sum payments, the total of the lump sum payments would equal the unfunded actuarial accrued liability on the calculation date.
(5) The agreement must establish a schedule of dollar-denominated annual setoffs against the future contributions of the eligible employer to amortize the lump sum advance payment of actuarial accrued liability contributions.
(6) The following shall apply:
(i) The agreement must provide a schedule of annual setoffs to provide for not less than 75% and not more than 100% of the anticipated future accrued liability contributions of the eligible employer as determined by the actuary and approved by the board as of the determination date. The schedule of setoffs of anticipated future accrued liability contributions:
(A) must be in dollar amounts that are consistent with the system's amortization bases that exist as of the determination date; and
(B) cannot be for a time period longer than the longest remaining amortization period for any initial actuarial accrued liability or experience adjustment factor included in the calculation of the advance payment of accrued liability contributions.
(ii) A good faith determination, calculation and payment of the lump sum that produces an annual setoff that is less than 75% or more than 100% of the anticipated future accrued liability contribution by a de minimis amount shall not be a violation of this subsection.
(7) The agreement shall provide a mechanism or method of recognizing or crediting the setoff against the actual contributions of the eligible employer, which may include recognizing or crediting the setoff in monthly, semi-monthly, biweekly or other periodic or reconciling increments to correspond to the schedule by which the eligible employer makes employer contributions to and to account for and reflect changes in the schedule of compensation payments to the members.
(8) After the lump sum payment is made, the annual setoff schedule and amounts established in the agreement cannot be changed except that:
(i) in no fiscal year can the recognized setoff be larger than the contributions by the eligible employer that are eligible for the setoff. If in any fiscal year the available setoff amount is larger than the actual contributions by the eligible employer that are eligible to be setoff, the excess setoff for that fiscal year shall be added to the next fiscal year's setoff amount as provided under subsection (c); and
(ii) if the General Assembly changes the actuarial cost method under section 5508, the board may change the schedule or amount of annual setoffs to conform to the amended actuarial cost method, as determined actuarially by the board, with the agreement of the head of the department.
(9) The board may not be involved in the issuance, service or administration of any bonds or financial instruments or any obligations of an eligible employer, the proceeds of which are used in total or in part to make any part of the lump sum advance payment of accrued liability contributions. The board may not provide financial advice or in any way act as a broker, banker, financial advisor, investment manager or in a similar capacity to the eligible employer. Any money received as a result of a lump sum payment of advance payment of accrued liability contributions shall be part of the general assets of the funds and may not be segregated or invested separately for the account of or benefit of the eligible employer that made the payment.
(10) An amount paid into the fund as an advance payment of accrued liability contributions may not be refunded or repaid to any eligible employer except as a setoff against future employer contributions.
(11) Advance payment of accrued liability contributions made prior to the execution of an agreement that, in the sole determination of the board or in the determination of the commissioner, could result in the system failing to satisfy the requirements necessary to be a qualified pension plan under IRC § 401(a) and other applicable provisions of the IRC, shall not be permitted.
(c) Effect of payment.--The effect of a payment shall be as follows:
(1) Any eligible employer that makes a lump sum payment of advance accrued liability contributions shall receive an annual setoff on a fiscal year basis against the payment of future accrued liability contributions in an amount and for the time period provided in the agreement. If the amount of the annual setoff exceeds the accrued liability contributions of the eligible employer for that fiscal year, the remaining setoff amount shall be applied against any supplemental annuity contributions determined under section 5508(e)(2). If no supplemental annuity contributions are due, or if the remaining annual setoff exceeds the amount of the supplemental annuity contributions, any remaining annual setoff shall be applied against the employer normal contributions of the eligible employer. Any annual setoff amount in excess of the actual accrued liability contributions, supplemental annuity contributions and employer normal contributions for that fiscal year shall be deferred without interest and made part of the scheduled annual setoff amount of the eligible employer for the next subsequent year as determined by the actuary and certified by the board. In no event shall a setoff for advance payments reduce or be used to pay additional accrued liability contributions under section 5507(g) (relating to contributions to the system by the Commonwealth and other employers), benefits completion plan contributions under section 5507(e), employer defined contributions paid into the trust on account of a participant's State service or any member or participant contributions to the system or the plan. A lump sum amount or annual excess setoff of advance accrued liability contributions may not be paid from the fund by the board to the eligible employer.
(2) Advance payment of accrued liability contributions results only in a dollar amount setoff against actual future contributions as set forth in the agreement between the board and eligible employer and determined by the actuary and certified by the board. An eligible employer shall be subject to all changes in employer contribution rates and actual contribution amounts caused by any reason, including actual recognition of investment returns, changes in economic or demographic actuarial assumptions, including the assumed rate of investment return, actual experience being different from the economic or demographic assumptions, including the number of State employees who are members of the system and their compensation, changes in benefits and changes in the actuarial cost method.
(d) Payment of costs and fees.--
(1) The costs incurred by the board after the effective date of this section, including any fees charged by the actuary, to estimate, determine, calculate or administer the amount of any lump sum payment and annual setoff potentially or actually resulting from advance payment of accrued liability contributions shall be paid by the eligible employer on whose behalf the costs were incurred, in amounts certified by the board. Notwithstanding this paragraph, costs may not be paid by the eligible employer until the board provides a written estimate of the costs to the eligible employer and receives written approval from the eligible employer to incur the costs on the eligible employer's behalf.
(2) Payment of fees and costs incurred by the board at the request of the head of a department shall be paid by the corresponding eligible employer without regard to whether an agreement is entered into between the board and the head of department of an eligible employer under subsection (a) and without regard to whether the costs and fees are incurred before or after an agreement is entered into under subsection (a).
(3) The board may require advance payment of costs and fees before performing any estimate, determination, calculation or administrative work under this section.
(4) The board may setoff the payment of costs and fees against either the lump sum payment or annual setoffs.
(5) Notwithstanding this subsection, the board may waive all or part of the reimbursement due by an eligible employer if the board in its sole discretion determines that it is in the best interests of the fund and the members of the system to do so.
(e) Limitation of time.--
(1) A lump sum payment for advance payment of accrued liability contributions made on or after July 1 and on or before the following May 1 will be recognized by annual setoffs beginning the next fiscal year. A lump sum payment for advance payment of accrued liability contributions made on or after May 2 and before July 1 will be recognized by annual setoffs beginning the second following fiscal year.
(2) Any agreement under this section must be entered into by December 31, 2024. Any lump sum payment under this section must be made by May 1, 2025.
(Nov. 27, 2019, P.L.723, No.105, eff. imd.)
2019 Amendment. Act 105 added section 5508.1. See section 9 of Act 105 in the appendix to this title for special provisions relating to applicability.
Cross References. Section 5508.1 is referred to in section 5507 of this title.