Submitted by Colleen Deer,
Mockenhaupt Benefits Group
412.394.9333 (direct and fax)
800.405.3620 (toll-free)
Colleen.Deer@MBGbenefits.com
On Friday, September 18, the governor signed House Bill No. 1828 into law. The primary purpose of the bill, now known as Act 44 of 2009, is to provide financial relief to local government pension plan sponsors in the wake of significant financial losses in 2008.
Some of the provisions of the bill offer widespread financial relief to plan sponsors statewide, while others are targeted at the most distressed, underfunded plans. Municipalities whose Minimum Municipal Obligations for their defined benefit plan(s) for 2010 will be calculated based on the 2007 actuarial valuation report may not see any relief from this bill until 2011.
Highlights of the bill include:
• Assignment of new distress scoring system based on the aggregated funding ratio of all of a municipality’s pension plans (total actuarial value of assets divided by total actuarial accrued liabilities) at the last valuation
* Distress Level 0 – funding ratio of 90% or more
* Distress Level 1 – funding ratio of 70% - 89%
* Distress Level 2 – funding ratio of 50% - 69%
* Distress Level 3 – funding ratio of less than 50%
• An increase in the maximum value that can be used for the actuarial value of assets in the 2009 valuation from 120% of market value to 130%; extension of this provision to the 2011 valuation for Level 1 and to the 2013 valuation for Levels 2 and 3
• Decrease in the amortization periods for discretionary changes that increase or decrease the plan’s unfunded liability (such as assumption changes or locally modified benefits)
• Increase in the assumption periods for non-discretionary changes that increase or decrease the plan’s unfunded liability (such as actuarial losses, actuarial gains, and state mandated benefit enhancements)
• Permit payment of MMO with 75% of amortization payment for distressed municipalities for up to 6 years, depending on Distress Level
• Mandatory aggregation of plan assets for municipalities with more than one defined benefit plan that are Level 2 or 3 Distress, and voluntary aggregation for Level 1
• Mandatory submission of a plan for administrative improvement for Level 2 and 3 municipalities (voluntary for Level 1)
• Special taxing authority for Level 2 and 3 Distress municipalities
• Establishment of a new plan for new hires for Level 3 Distress plans (voluntary for Level 2)
• Authorization of DROP provisions for all pension plans
• Standardized DROP provisions for all new DROPs
• Specific relief measures for Pittsburgh and Philadelphia
• New regulations on professional services contracting to reduce "pay to play"
The legislation will affect municipalities differently, and you should contact your Actuary for further information.
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