PERC Actuarial Note July 2014

COMMONWEALTH OF PENNSYLVANIA
July 30, 2014
PUBLIC EMPLOYEE RETIREMENT COMMISSION

ACTUARIAL NOTE TRANSMITTAL
Bill ID:
Amendment Numbers 07223 and 09253 to

House Bill Number 1353, Printers Number 2152
System:
Public School Employees Retirement System and

State Employees Retirement System
Subject:
Cash Balance Plan for New and Returning Members
SYNOPSIS
Amendment Number 07223 to House Bill Number 1353, Printers Number 2152, would
amend the Public School Employees Retirement Code and the State Employees Retirement
Code to mandate the establishment of a hybrid benefit tier known as a cash balance plan
for most new or returning employees hired on or after July 1, 2015, in the case of the Public
School Employees Retirement System (PSERS), and January 1, 2015, in the case of the
State Employees Retirement System (SERS).
More specifically, Amendment Number 07223 would amend the Public School Employees
Retirement Code to:
1) Effective July 1, 2015, establish a cash balance benefit tier applicable to all new
school employees or employees returning after a break in service. Current members
of PSERS in Class T-D would be eligible to make a one-time and irrevocable election
to participate in the cash balance plan with corresponding benefit provision changes.
2) Under the cash balance plan, school employees would become a member of Class TG and would be required to contribute 7.0% of compensation with a corresponding
employer contribution rate of 4.0% of compensation. After attaining 15 years of
service, the employer contribution rate would increase to 5% of compensation. The
employer and employee contributions would both be credited to the members
notational cash balance savings account, plus interest, at the rate of 4.0% annually.
3) Establish the superannuation requirement for members of Class T-G as age 55, with
the employees account balance (including all contributions, credit and interest)
being 100% vested immediately.
Actuarial Note Transmittal

SYNOPSIS
(CONTD)
4) Provide 50% of excess interest to any active members of the cash balance plan if
the Systems annual investment return over a five-year average is above 5%. This
additional employer credit would be credited to the members savings accounts on an
annual basis, if applicable.
5) Taper the employer contribution rate collars through Fiscal Year 2018-2019 to be
limited to 3% of total payroll. Currently, under Act 120 of 2010, the contribution
collar is 4.5% of total payroll.
6) Permit the PSERS Board to apply to the Pennsylvania Economic Development
Financing Authority (PEDFA) for a total of up to $6 billion in bond proceeds.
Amendment Number 07223 would also amend the State Employees Retirement Code to:
1) Effective January 1, 2015, establish a cash balance benefit tier applicable to most
new State employees or employees returning after a break in service. Sworn officers
of the Pennsylvania State Police and members of the judiciary would be exempt from
membership in the new benefit tier. Current members of SERS in Class AA would
be eligible to make a one-time and irrevocable election to participate in the cash
balance plan with corresponding benefit provision changes.
2) Under the cash balance plan, State employees would become a member of Class
QB and would be required to contribute 7.0% of compensation with a corresponding
employer contribution rate of 4.0% of compensation. After attaining 15 years of
service, the employer contribution rate would increase to 5% of compensation. The
employer and employee contributions would both be credited to the members
notational cash balance savings account, plus interest, at the rate of 4.0% annually.
3) Establish the superannuation requirement for members of Class QB as age 55, with
the employees account balance (including all contributions, credit and interest)
being 100% vested immediately.
4) Provide 50% of excess interest to any active members of the cash balance plan if
the Systems annual investment return over a five-year average is above 5%. This
additional employer credit would be credited to the members savings accounts on an
annual basis, if applicable.
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SYNOPSIS
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5) Taper the employer contribution rate collars through Fiscal Year 2018-2019 to be
limited to 3% of total payroll. Currently, under Act 120 of 2010, the contribution
collar is 4.5% of total payroll.
6) Permit the SERS Board to apply to the Pennsylvania Economic Development
Financing Authority (PEDFA) for a total of up to $3 billion in bond proceeds.
Amendment Number 09253 would amend the Public School Employees Retirement Code
to:
1) Remove the language in Amendment Number 07223 that would require the
application for bond proceeds for PSERS be contingent on the percentage of Class TD members who opt in to the cash balance plan. This change in the language would
make the PSERS provisions consistent with the language for SERS.
DISCUSSION
The Retirement Codes and Systems
Currently, most full-time public school and state employees are members of either the
Public School Employees Retirement System (PSERS) or the State Employees Retirement
System (SERS). Both PSERS and SERS are governmental, cost-sharing, multiple-employer
defined benefit pension plans. The designated purpose of the Public School Employees
Retirement System and the State Employees Retirement System is to provide retirement
allowances and other benefits, including disability and death benefits to public school and
state employees. As of June 30, 2013, there were approximately 797 participating
employers, generally school districts, area vocational-technical schools, and intermediate
units in PSERS, and as of December 31, 2013, approximately 104 Commonwealth and other
employers participating in SERS.
Membership in PSERS and SERS is mandatory for most school and state employees.
Certain other employees are not required but are given the option to participate. As of
June 30, 2013, there were 267,428 active members and 209,204 annuitant members of
PSERS, and as of December 31, 2013, there were 107,002 active members and 120,052
annuitant members of SERS.
For most members of both Systems, the basic benefit formula used to determine the normal
retirement benefit is equivalent to the product of 2.5% multiplied by the members years of
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accumulated service credit (eligibility points) multiplied by the members final average
(highest three years) salary. Since the passage of Act 9 of 2001 (which increased the
accrual rate for most members from 2.0% to 2.5%), most members of PSERS are Class T-D
members and contribute 7.5% of compensation to PSERS, while most members of SERS are
Class AA members and contribute 6.25% of compensation to SERS. Within both Systems,
there are a number of additional membership classes with corresponding benefit accrual
and employee contribution rates that differ from the majority of school and state employees.
Act 120 of 2010 implemented major pension benefit reforms, including the establishment of
new benefit tiers applicable to most new members. Effective January 1, 2011, most new
members (including members of the General Assembly) are required to become members of
one of two membership classes, known as Class A-3 and Class A-4. Most new members
of SERS, other than State Police officers or members employed in a position for which a
class of service other than Class A or Class AA is credited or could be elected, become
members of Class A-3 beginning January 1, 2011 (or if a member of the General Assembly,
beginning December 1, 2010). Class A-3 members are eligible for an annuity based upon an
annual benefit accrual rate of 2% and have a corresponding employee contribution
requirement of 6.25% of compensation. As an alternative to Class A-3, an employee who
becomes a member of SERS on or after January 1, 2011, may elect Class A-4 membership
within 45 days of becoming a member of SERS. A Class A-4 member is eligible for an
annuity based upon an annual benefit accrual rate of 2.5% with a corresponding employee
contribution requirement equal to 9.3% of compensation.
Effective July 1, 2011, new members of PSERS are required to become members of one of
two membership classes, known as Class T-E and Class T-F. Most new members of
PSERS are required to become members of Class T-E beginning July 1, 2011. Class T-E
members are eligible for an annuity based upon an annual benefit accrual rate of 2% and
have a corresponding employee contribution of 7.5% of compensation. As an alternative to
Class T-E, an employee who becomes a member of PSERS on or after July 1, 2011, may
elect Class T-F membership within 45 days of becoming a member of PSERS. A Class T-F
member is eligible for an annuity based upon an annual benefit accrual rate of 2.5% with a
corresponding employee contribution requirement equal to 10.3% of compensation.
Under the Codes of both Systems, superannuation or normal retirement age is that date on
which a member may terminate service with the public employer and receive a full
retirement benefit without reduction. Under the Public School Employees Retirement
Code, superannuation or normal retirement age for most members is age 62 with at least
one full year of service, age 60 with 30 or more years of service, or any age with 35 years of
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service. Under the State Employees Retirement Code, superannuation or normal

retirement age for most members is age 60 with three years of service or any age with 35
years of service, while age 50 is the normal retirement age for members of the General
Assembly and certain public safety employees. For most members of the Systems who first
became members after the effective dates of Act 120, the superannuation requirement is
age 65 with a minimum of three years of service credit, or any combination of age and
service that totals 92 with at least 35 years of credited service, and age 55 for members of
the General Assembly and certain public safety employees.
Cash Balance Retirement Benefit Plan
Amendment Number 07223 to House Bill Number 1353, Printers Number 2152, would
establish a mandatory cash balance benefit tier applicable to most new or returning
employees of PSERS and SERS, beginning July 1, 2015, in the case of PSERS, and January
1, 2015, in the case of SERS.
A cash balance plan is a type of defined benefit plan with a defined contribution-like
portability component. A cash balance plan calculates benefits in a manner similar to a
defined contribution plan. Under a cash balance arrangement, benefits are accrued
throughout a workers years of employment. Similar to what tends to occur with defined
contribution plans, employees who move from employer to employer frequently or otherwise
leave service early will tend to benefit more from a cash balance plan than a traditional
defined benefit plan, because the accrued benefits will tend to be greater than would be the
case under a traditional defined benefit plan. Conversely, long-service employees will tend
to benefit less from a cash balance plan arrangement as compared with a traditional
defined benefit plan, because the portion of the benefit accrued in later years of service will
tend to be less than under a traditional defined benefit plan.
A cash balance plan is classified as a defined benefit plan because the employer bears the
investment risks and rewards along with the mortality risk if the employee elects to receive
benefits in the form of an annuity and lives beyond the anticipated retired life expectancy.
Unlike a traditional defined benefit plan, a cash balance plan establishes allocations to a
hypothetical individual account (the cash balance) for each participant (individual account
balances are segregated for accounting purposes only). Benefits under cash balance plans
may be paid as a lump sum or annuitized over the retirees expected remaining lifetime.
The cash balance retirement benefit calculation would differ from the current traditional
defined benefit formula. Rather than receiving an annuity based upon the current benefit
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formula (accrual rate x years of service x final average salary), the cash balance benefit
would be equal to the value of all accumulated employee and employer contributions plus
interest credited to the members cash balance ledger account at the time of retirement. A
member would be entitled to elect one of three benefit options at the time of separation: 1) a
lifetime annuity based upon the total value of the members account, plus interest (if
superannuated); 2) delay receipt of benefits until superannuation age by vesting; or 3) elect
to receive a lump-sum distribution of employee contributions and interest, but forfeiting the
employer contribution and interest component and any entitlement to a future annuity.
Cash balance plans and other types of hybrid defined benefit plans have been replacing
traditional retirement plans in the private sector for many years. Many employers,
including some public employers, have moved to cash balance plans in an attempt to control
plan costs, reduce employer contribution volatility, and shift some of the inherent risk
associated with maintaining a defined benefit plan from the employer to the employee.
Benefit costs under the cash balance plan proposal in the amendment will be lower than
the current traditional defined benefit plan. A significant part of this cost difference is due
to the difference between the guaranteed investment rate credited on employee accounts
(4% under the amendment for the first 15 years of service, then 5% thereafter) and
investment return assumptions on pension fund assets (currently 7.5%). Additionally,
because the amendment penalizes members for early termination (prior to age 55) by
requiring members to forfeit the employer contribution component of the cash balance
savings account (or defer receipt of an annuity until age 55), the recouping of these
employer contributions may serve to further reduce costs.
The cash balance plan will also shift inflation risk from the employer to the employee since
the final retirement benefit is a function of earnings over the working lifetime of the
employee instead of the final years when such earnings are typically the highest.
The cash balance benefit proposal in the amendment differs from most private sector plans
in several respects. The proposed cash balance plan is less generous and less portable than
a typical cash balance plan. Under the amendment, employer contributions with interest
are forfeited if a member elects to receive a lump sum of the accumulated member
contributions with interest. In the private sector, employees are generally 100% vested in
both the employee and employer contributions to the cash balance account, with interest,
after three years of service (the minimum required by federal law). Employees in the
private sector are typically entitled to a lump sum of the entire vested cash balance account
upon termination or retirement. Under the amendment, employees would not be entitled to
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DISCUSSION
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the employer contributions with interest or to annuitize the cash balance account until
reaching age 55. The proposal in the amendment also requires an employee contribution of
7.0% of pay, while private sector cash balance plans often require no employee
contributions.
Amendment Number 07223 would not affect the retirement benefit rights of current active
members of the Systems (unless they voluntarily elect to participate in the cash balance
plan). Instead, the amendment seeks to create new benefit tiers within PSERS and SERS
applicable to employees who first become members or are returning after a break in service
on or after the year 2015.
The amendments major design features are described below.
1)
Mandatory Membership: Membership in Class T-G and Class QB would be

mandatory for most new school or State employees hired or returning after a break
in service on or after July 1, 2015, or January 1, 2015, respectively. Membership
would be mandatory regardless of the number of hours or days worked annually.
The current minimum requirement for membership in PSERS (500 hours of work)
would be eliminated. For SERS, only sworn officers of the Pennsylvania State
Police and members of the judiciary (including district magistrates) would be
exempt from membership in the new benefit tier.
2)
Optional Membership: Current school or State employees who are members of

Class T-D or Class AA may make a one-time irrevocable election to participate in
the cash balance plan, with consent to the following changes to the members
benefit provisions: a reduction in the members contribution rate by 1.0% of
compensation; an increase in the final average salary calculation from the highest
three years to the highest five years; and a modification of the Option 4 lump-sum
withdrawal to be actuarially neutral to the System, if selected upon retirement.
New members of the Systems hired after the effective dates of Act 120 (Classes TE and T-F in PSERS, and Classes A-3 and A-4 in SERS) are prohibited from
electing to participate in the cash balance plan.
3)
Contributions: The contribution rate for Class T-G and Class QB members
would be equal to 7.0% of compensation, with a corresponding employer
contribution rate of 4.0% of compensation for the first 15 years of service, followed
by an increase in the employer contribution rate to 5.0% of compensation for all
years of service thereafter. The employer and employee contributions would both
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DISCUSSION
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be credited to the members cash balance savings account, plus interest, at the rate
of 4.0% annually.
4)
Excess Interest: Active members of the cash balance plans would be eligible to
receive 50% of excess interest credited to their savings accounts in the event the
Systems annual investment returns over a five-year average are above 5%. The
excess interest shall be calculated and allocated proportionately between the
members savings accounts and the accrued actuarial liabilities of the current
defined benefit plans of the Systems. The additional employer credit would be
credited to the members savings accounts on an annual basis, if applicable.
5)
Vesting: Class T-G and Class QB members would be 100% vested in the employee
contribution portion of the cash balance plan from the first day of membership.
Members leaving service before age 55 may elect to defer receipt of an annuity
until attaining superannuation age, or may elect to receive a refund of member
contributions with interest. Members electing to receive a refund of contributions
would forfeit eligibility for a future annuity benefit. The employer-share of
contributions and interest would be returned to the State accumulation account.
6)
Superannuation: The superannuation requirement for new members of Class TG and Class QB would be age 55. The cash balance benefit would be equal to the
present value of all accumulated employee and employer contributions plus
interest credited to the members cash balance savings account at the time of
retirement and would be paid to the member in the form of a lifetime annuity. An
eligible member would be entitled to elect to receive a lump-sum distribution of
employee contributions and interest, but would forfeit the employer contributions
and interest component and any entitlement to a future annuity.
7)
Service Credit Purchase: Class T-G and Class QB members would be

prohibited from purchasing previous school service or creditable nonschool service
except for an approved leave of absence (such as military service). The election of
multiple service membership is prohibited for members who only have credit in
Class T-G or Class QB. Multiple service membership involves the combining of
PSERS service and SERS service for retirement credit purposes. An individual
with prior service credit in one of the retirement systems who, due to a change in
employment status, becomes a member of the other retirement system may elect to
become a multiple service member. Because vesting in a cash balance plan is
immediate and no final average salary calculation is used to determine retirement
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benefits, multiple service membership is irrelevant to the cash balance

environment.
8)
Retirement Benefit Entitlement: Upon termination of service, any Class T-G or

Class QB member who is eligible to receive an annuity would be entitled to receive
a lifetime annuity with a present value equal to the balance of the members
savings account. Class T-G and Class QB members (as with all PSERS and SERS
members) would be entitled to elect various member benefit distribution options
intended to provide members with flexibility in deciding the manner in which
members benefits are disbursed and to ensure that members who choose to do so
have the ability to provide a reliable benefit stream to their designated survivor
beneficiaries. A superannuated member may elect to receive a lump-sum
distribution of employee contributions and interest in lieu of an annuity, but would
forfeit the employer contribution and interest component of the cash balance
savings account and any entitlement to a future annuity.
9)
Option 4: Members of Class T-G, Class QB, and currently active members who
voluntarily participate in the cash balance plan may elect the Option 4 lump-sum
withdrawal upon retirement, but the manner of determining the net annuity will
be modified to make the option actuarially cost neutral to the Systems. The lumpsum withdrawal option is currently prohibited for new members of the Systems
hired after the effective dates of Act 120.
10)
Disability Benefit: The amendment would amend the pertinent sections of the
PSERS and SERS Codes to provide for a disability benefit if a Class T-G or Class
QB member becomes disabled. A member would be eligible to receive an annuity
regardless of reaching superannuation age, but with the annuity being limited to
the present value of the members savings account at the time of retirement.
Additionally, Class T-G members in PSERS can opt to participate in a Long-Term
Disability Group Insurance Program, which is permitted, but not required, to be
established by the PSERS Board. The Long-Term Disability Insurance Program
would be sponsored by the Board and funded by and for Class T-G members. The
organization and administration of the program would be at the sole discretion of
the Board.
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11)
Death Benefit: If a member dies prior to retirement, the total value of the
members cash balance savings account (both employer and employee
contributions, plus interest accrued) would be paid in a lump sum to the members
designated beneficiaries or estate. Beyond payment of the members savings
account balance in a lump sum, there are no special death benefit provisions to
provide for the surviving beneficiaries of a Class T-G or Class QB member.
12)
Pension Obligation Bonds: As provided in Section 8502(r) and Section 5902(r)

in Amendment Number 07223 to the bill, the PSERS and SERS Boards are
authorized to apply to the Pennsylvania Economic Development Financing
Authority (PEDFA) for a total of up to $6 billion for PSERS and $3 billion for
SERS in bond proceeds. Based on the intent of the amendments sponsor, the
borrowing from PEDFA would be required to occur within the first year after the
effective date of the proposal. The amendment also repeals Section 13 of Act 120,
which prohibited the issuance of pension obligation bonds as a means for funding
the liabilities of PSERS and SERS.
Pension Obligation Bonds
Pension obligation bonds (POBs) are a form of taxable general obligation bonds that
governments issue to finance pension obligations. POBs may be employed to transform a
current pension obligation into a long-term, fixed obligation of the government. While
POBs may provide an avenue to alleviate fiscal distress and reduce pension liabilities, they
also pose certain risks. For this strategy to be successful, pension fund investment returns
must exceed the taxable borrowing rate on the bond issue, resulting in a net gain over time.
The timing of the bond issuance is another area of concern. In order to obtain the best
possible gains, the debt must be incurred when the borrowing costs are low. There is also a
greater risk that investment returns will prove insufficient during periods of liberal
monetary policy (i.e., quantitative easing). The net proceeds of a pension bond (after
expenses of issuance) are deposited into the pension fund and applied to reduce the
unfunded actuarial liability. Like all pension assets, they are projected to earn interest at
the plans assumed discount rate, and the value of the bond asset is determined in
accordance with that assumption. Unlike other pension assets, however, a bond imposes
debt service costs upon the public employer, in addition to the contribution required to
maintain the pension plan. In short, for the bond to be profitable, it must generate both the
pension plans assumed earnings rate and the debt service rate. A detailed analysis
published in July 2014 by the Center for Retirement Research at Boston College found that
pension obligation bonds are rarely, if ever, profitable to the government employer. The full
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study is accessible at http://crr.bc.edu/wp-content/uploads/2014/07/slp_40_508rev.pdf. Since this is

essentially a budgetary issue, rather than an actuarial matter, the Office of the Budget has
submitted a cost projection related to the issuance expenses and debt service costs for the
bond proposed by this bill. The net savings must cover the debt service on the bond.
Special Membership Classes
Within SERS, there are a number of special membership classes entitled to enhanced
retirement benefits, reduced superannuation requirements or both. These include all
members of the judiciary, members of the General Assembly, certain enforcement officers
and Pennsylvania State Police Officers. Officers of the Pennsylvania State Police and
members of the judiciary will be unaffected by the benefit changes of the amendment.
Under the amendment as written, however, membership in Class QB would be mandatory
for members of the General Assembly and certain other public safety employees. These
groups of employees would no longer be entitled to special benefit provisions that similarly
situated employees currently receive. Consequently, these employees would be entitled to
benefits that are significantly less valuable than their peers who became members before
the effective date of the amendment. Due to the hazardous nature of their duties, it may be
desirable to retain some type of enhanced benefit for hazardous duty personnel in the form
of special in-service death, disability or retirement provisions.
Determination of Employer Normal Cost
Section 8328 of the PSERS Code and Section 5508 of the SERS Code specify the methods to
be used by the actuaries of the respective systems to determine the employer normal
contribution rate or employer normal cost and the total employer contribution rate, which
consists of both the normal cost and the contributions required to fund the accrued
liabilities of each plan, plus any amortization contribution requirement.
Both the PSERS and SERS Codes require the normal cost to be determined using "... a level
percentage of the compensation of the average new active member...." However, the
Systems apply different interpretations to the language. Using the SERS interpretation,
the average new member, or entrant, to the System currently earns a benefit at a 2.0%
accrual rate. However, if enacted, the proposal would require the normal cost to be
calculated on new members in Class QB. This would result in a normal cost calculation of
0.0% that would understate the true cost of SERS, because in the early years of the reduced
benefit tier, the majority of members would remain in benefit classes entitling them to an
annual benefit accrual of greater value than for new members of Class QB. In the short
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term, the understated normal cost would generate an unfunded actuarial accrued liability
in SERS. This would occur because reducing the benefit accrual rate for new members only
would not affect the present value of benefits for current members, but would affect the
normal cost calculation.
In contrast, PSERS uses a more traditional method of determining normal cost under the
entry age normal actuarial cost method. The traditional method develops the normal cost
rate based upon a blending of accrual rates (and subsequently, the costs) attributable to all
active members, rather than new entrants only. Use of the traditional method would help
to achieve the presumed long-term cost reduction goals of the proposal by both gradually
reducing the normal cost and preventing the creation of unfunded actuarial accrued
liabilities.
Ancillary Issues
Effective Date for Members of the General Assembly. In the case of members of the General
Assembly who enter office on or after December 1, 2014, and before the amendments
effective date of January 1, 2015, for SERS, the effective date for membership in Class QB
shall be December 1, 2014.
Pension Forfeiture Act. Under Act 140 of 1978, known as the Public Employee Pension
Forfeiture Act (43 P.S. 1311-1315), a public official or public employee who is convicted
or pleads guilty or no defense to a crime related to public office or public employment is
disqualified to receive a retirement or other benefit or payment of any kind except a return
without interest of the contributions paid into a retirement system. The amendment does
not include any provisions for the forfeiture of a retirement benefit for members of the cash
balance plans.
Internal Revenue Code. The Commissions actuary points out that the proposals use of a
7.5% discount assumption with a maximum 5.25% earnings rate on deposits (4% plus
maximum excess interest) would be prohibited by the IRS for private sector plans, even
before the adoption of the Pension Protection Act. The effect on plan tax qualification
should be examined.
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SUMMARY OF ACTUARIAL COST IMPACT

The Commissions consulting actuary has reviewed the amendments and the actuarial cost
estimates provided to the Commission by the consulting actuaries for PSERS and SERS
and has prepared an actuarial note.
The Commissions consulting actuary has estimated the total cost savings for PSERS and
SERS over the 30 year projection period of $19.8 billion and $10.7 billion
respectively. Though significant, these projected savings differ from the $26.8 billion in
savings projected by Buck Consultants for PSERS and the $15.3 billion in savings projected
by Hay Group for SERS, and reflect the generally more conservative approach of the
Commissions consulting actuary. The consulting actuarys results assume higher employer
contributions in the later years of the projection, based upon the consulting actuarys
assessment of cash flow and benefit projection data provided to the Commission staff by
Hay and Buck, including estimates as to the population that will be covered by the cash
balance plan and anticipated separation rates. Additionally, in the case of SERS, the
consulting actuary for the Commission assumed that legacy defined benefit plan members
will continue to have a normal cost closer to current levels instead of a normal cost of zero.
Furthermore, in the private sector, the transition to a cash balance plan is normally
addressed by selecting a low interest crediting rate and by investing plan assets
conservatively to insulate the fund from market volatility. The conservative asset
allocation is targeted to ensure a high probability that returns will exceed the guaranteed
cash balance plan crediting rate. Retention of the long-term investment assumption of
7.5% utilized by Buck and Hay in their cost estimates may somewhat overstate the longterm cost savings of the proposal. The Commissions consulting actuary developed a model
that assumes a gradual reduction in the assumed rate of return as cash balance plan
membership increases and represents a larger share of plan liabilities relative to the
liabilities of legacy defined benefit plan members.
In its analysis, the Commissions consulting actuary developed two scenarios for each of the
projections. The first scenario assumes the investment return assumption for both Systems
remains at 7.50%. The second scenario assumes the investment return assumption is
blended to reflect a gradual reduction of market risk that the funds are exposed to,
thereby gradually reducing the investment return assumption. Additionally, the tables
include a projection if only the pension obligations bonds are implemented. The results of
this analysis are summarized in the following tables.
Tables 1 and 2 show the projection of employer contributions for PSERS in comparison with
existing law over the 30-year projection period through Fiscal Year 2043-44. Table 1 shows
the employer contributions as a percentage of payroll, and Table 2 shows the employer
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contributions in dollar amounts (in billions). The first column under the cash balance plan
proposal shows the projection of employer contributions assuming a 7.50% investment
return assumption. The second column shows the projection of employer contributions
using a blended investment return assumption, and the last column projects the employer
contributions for the pension obligation bonds only. Similarly, the projection of employer
contributions for SERS over the 30-year projection period through Fiscal Year 2043-44 are
displayed in tables 3 and 4.
Tables 5 and 6 show the projection of funded ratio and unfunded liabilities, respectively, for
PSERS in comparison with existing law over the 30-year projection period through Fiscal
Year 2043-44. The first column under the cash balance plan proposal shows the projection
of funded ratio/unfunded liability assuming a 7.50% investment return assumption. The
second column shows the projection of funded ratio/unfunded liability using a blended
investment return assumption, and the last column projects the funded ratio/unfunded
liability for the pension obligation bonds only. Likewise, Tables 7 and 8 show the projection
of funded ratio and unfunded liabilities for SERS, respectively, over the 30-year projection
period through Fiscal Year 2043-44.
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TABLE 1
Public School Employees' Retirement System
Projection of Employer Contributions
Fiscal Year
Existing Law
Cash Balance/Funding Reform

7.5%
Rate of Return
Blended Return
Pension
Obligation
Bonds Only
7.5%
Rate of Return
2015
20.5%
20.5%
20.5%
20.5%
2016
25.0%
23.5%
23.5%
25.0%
2017
28.1%
26.5%
26.5%
28.1%
2018
29.0%
25.9%
25.9%
26.0%
2019
30.1%
26.8%
26.8%
27.0%
2020
30.9%
27.4%
27.4%
27.8%
2021
30.8%
27.2%
27.2%
27.7%
2022
30.8%
27.1%
27.1%
27.7%
2023
31.1%
27.2%
27.2%
28.0%
2024
31.1%
27.2%
27.2%
28.0%
2025
31.2%
27.2%
27.2%
28.1%
2026
31.3%
27.2%
27.2%
28.2%
2027
31.4%
27.2%
27.2%
28.2%
2028
31.5%
27.3%
27.2%
28.3%
2029
31.6%
27.3%
27.2%
28.3%
2030
31.6%
27.3%
27.3%
28.4%
2031
31.7%
27.4%
27.4%
28.4%
2032
31.8%
27.5%
27.5%
28.5%
2033
31.9%
27.6%
27.6%
28.6%
2034
32.0%
27.8%
27.8%
28.6%
2035
32.1%
28.0%
28.0%
28.7%
2036
18.5%
14.5%
14.6%
15.1%
2037
15.1%
11.1%
11.3%
11.6%
2038
13.4%
9.6%
9.8%
9.9%
2039
11.6%
7.9%
8.2%
8.0%
2040
9.9%
6.2%
6.7%
6.2%
2041
8.3%
4.8%
5.4%
4.7%
2042
6.9%
7.1%
7.8%
6.9%
2043
5.5%
5.6%
6.5%
5.5%
2044
4.4%
4.6%
5.7%
4.4%
- 15 -

(CONTD)
TABLE 2
(in billions)
Fiscal
Year
Existing
Law
Pension Obligation
Bonds Only

7.5%
Rate of
Return
Increase/
(Decrease)
Blended
Return
Increase/
(Decrease)
2015
$ 2.812
$ 2.812
$ 2.812
2016
$ 3.520
$ 3.309
(0.211)
$ 3.309
2017
$ 4.059
$ 3.832
(0.226)
$ 3.832
2018
$ 4.314
$ 3.847
(0.467)
$ 3.846
2019
$ 4.596
$ 4.101
(0.495)
2020
$ 4.856
$ 4.317
(0.538)
2021
$ 4.989
$ 4.409
2022
$ 5.138
$ 4.518
2023
$ 5.326
$ 4.669
2024
$ 5.498
2025
$ 5.674
2026
Increase/
(Decrease)
$ 2.812
(0.211)
$ 3.520
(0.226)
$ 4.059
(0.469)
$ 3.866
(0.448)
$ 4.097
(0.499)
$ 4.133
(0.463)
$ 4.313
(0.543)
$ 4.376
(0.480)
(0.580)
$ 4.403
(0.586)
$ 4.493
(0.496)
(0.619)
$ 4.510
(0.627)
$ 4.624
(0.514)
(0.657)
$ 4.660
(0.666)
$ 4.795
(0.532)
$ 4.804
(0.694)
$ 4.794
(0.704)
$ 4.948
(0.550)
$ 4.944
(0.730)
$ 4.933
(0.741)
$ 5.104
(0.570)
$ 5.848
$ 5.084
(0.764)
$ 5.072
(0.776)
$ 5.258
(0.590)
2027
$ 6.025
$ 5.226
(0.798)
$ 5.214
(0.811)
$ 5.414
(0.610)
2028
$ 6.201
$ 5.370
(0.830)
$ 5.358
(0.843)
$ 5.569
(0.632)
2029
$ 6.377
$ 5.516
(0.861)
$ 5.505
(0.872)
$ 5.723
(0.654)
2030
$ 6.556
$ 5.667
(0.889)
$ 5.657
(0.899)
$ 5.879
(0.677)
2031
$ 6.742
$ 5.825
(0.916)
$ 5.818
(0.924)
$ 6.041
(0.700)
2032
$ 6.929
$ 5.989
(0.941)
$ 5.985
(0.944)
$ 6.205
(0.725)
2033
$ 7.120
$ 6.165
(0.954)
$ 6.166
(0.953)
$ 6.370
(0.750)
2034
$ 7.317
$ 6.351
(0.966)
$ 6.359
(0.958)
$ 6.541
(0.776)
2035
$ 7.518
$ 6.544
(0.974)
$ 6.562
(0.956)
$ 6.714
(0.803)
2036
$ 4.447
$ 3.470
(0.977)
$ 3.500
(0.947)
$ 3.615
(0.832)
2037
$ 3.700
$ 2.723
(0.977)
$ 2.769
(0.931)
$ 2.839
(0.861)
2038
$ 3.381
$ 2.409
(0.971)
$ 2.476
(0.905)
$ 2.490
(0.891)
2039
$ 2.997
$ 2.035
(0.962)
$ 2.127
(0.870)
$ 2.075
(0.922)
2040
$ 2.606
$ 1.645
(0.961)
$ 1.767
(0.839)
$ 1.652
(0.954)
2041
$ 2.254
$ 1.295
(0.959)
$ 1.455
(0.799)
$ 1.266
(0.988)
2042
$ 1.935
$ 1.968
0.033
$ 2.173
0.238
$ 1.935
0.000
2043
$ 1.573
$ 1.607
0.034
$ 1.867
0.294
$ 1.573
0.000
2044
$ 1.282
$ 1.354
0.072
$ 1.679
0.398
$ 1.282
0.000
(16.416)
Total
$ (19.778)
7.5%
Rate of
Return
$ (18.568)
- 16 -

(CONTD)
TABLE 3
State Employees' Retirement System
Fiscal Year
Existing Law

7.5%
Rate of Return
Blended Return
Pension
Obligation
Bonds Only
7.5%
Rate of Return
2015
20.5%
20.5%
20.5%
20.5%
2016
25.0%
23.5%
23.5%
25.0%
2017
29.5%
26.5%
26.5%
26.8%
2018
30.4%
25.6%
25.6%
26.0%
2019
29.6%
24.9%
24.9%
25.3%
2020
28.9%
24.2%
24.2%
24.7%
2021
28.2%
23.6%
23.5%
24.2%
2022
27.5%
22.9%
22.8%
23.6%
2023
26.8%
22.3%
22.2%
23.0%
2024
26.2%
21.7%
21.6%
22.5%
2025
25.6%
21.1%
21.0%
22.0%
2026
25.0%
20.5%
20.5%
21.5%
2027
24.4%
20.0%
20.0%
21.0%
2028
23.8%
19.5%
19.5%
20.5%
2029
23.2%
19.0%
19.0%
20.1%
2030
22.7%
18.5%
18.6%
19.6%
2031
22.2%
18.1%
18.3%
19.2%
2032
21.7%
17.7%
17.9%
18.8%
2033
21.2%
17.3%
17.7%
18.4%
2034
20.7%
16.9%
17.4%
18.0%
2035
20.2%
16.6%
17.2%
17.6%
2036
19.8%
16.2%
17.0%
17.2%
2037
19.3%
15.9%
16.8%
16.8%
2038
18.9%
15.6%
16.7%
16.5%
2039
18.5%
15.3%
16.6%
16.2%
2040
18.1%
14.9%
16.5%
15.8%
2041
14.2%
11.1%
12.9%
12.0%
2042
11.3%
8.3%
10.4%
9.2%
2043
8.1%
5.2%
7.7%
6.1%
2044
6.2%
3.3%
6.1%
4.1%
- 17 -

(CONTD)
TABLE 4
(in billions)
Fiscal
Year
Existing
Law
Pension Obligation
Bonds Only

7.5%
Rate of
Return
Increase/
(Decrease
Blended
Return
$ 1.254
Increase/
(Decrease)
$ 1.254
$ 1.254
$ 1.254
2016
$ 1.576
$ 1.482
$ (0.095)
$ 1.482
$ (0.095)
$ 1.576
2017
$ 1.917
$ 1.722
$ (0.195)
$ 1.722
$ (0.195)
$ 1.742
$ (0.175)
2018
$ 2.035
$ 1.716
$ (0.319)
$ 1.713
$ (0.322)
$ 1.739
$ (0.296)
2019
$ 2.045
$ 1.719
$ (0.326)
$ 1.715
$ (0.330)
$ 1.749
$ (0.296)
2020
$ 2.056
$ 1.722
$ (0.333)
$ 1.718
$ (0.338)
$ 1.759
$ (0.296)
2021
$ 2.066
$ 1.726
$ (0.341)
$ 1.721
$ (0.346)
$ 1.770
$ (0.296)
2022
$ 2.077
$ 1.729
$ (0.348)
$ 1.724
$ (0.353)
$ 1.781
$ (0.296)
2023
$ 2.089
$ 1.733
$ (0.356)
$ 1.728
$ (0.361)
$ 1.793
$ (0.296)
2024
$ 2.101
$ 1.738
$ (0.363)
$ 1.733
$ (0.368)
$ 1.804
$ (0.296)
2025
$ 2.113
$ 1.743
$ (0.370)
$ 1.739
$ (0.374)
$ 1.817
$ (0.296)
2026
$ 2.126
$ 1.748
$ (0.377)
$ 1.746
$ (0.380)
$ 1.829
$ (0.296)
2027
$ 2.139
$ 1.754
$ (0.384)
$ 1.754
$ (0.385)
$ 1.842
$ (0.296)
2028
$ 2.152
$ 1.761
$ (0.391)
$ 1.763
$ (0.389)
$ 1.856
$ (0.296)
2029
$ 2.166
$ 1.768
$ (0.398)
$ 1.775
$ (0.391)
$ 1.869
$ (0.296)
2030
$ 2.180
$ 1.776
$ (0.404)
$ 1.788
$ (0.392)
$ 1.884
$ (0.296)
2031
$ 2.195
$ 1.791
$ (0.404)
$ 1.809
$ (0.386)
$ 1.898
$ (0.296)
2032
$ 2.210
$ 1.804
$ (0.406)
$ 1.830
$ (0.380)
$ 1.914
$ (0.296)
2033
$ 2.225
$ 1.818
$ (0.408)
$ 1.855
$ (0.371)
$ 1.929
$ (0.296)
2034
$ 2.241
$ 1.833
$ (0.409)
$ 1.883
$ (0.359)
$ 1.945
$ (0.296)
2035
$ 2.258
$ 1.849
$ (0.409)
$ 1.915
$ (0.343)
$ 1.962
$ (0.296)
2036
$ 2.275
$ 1.867
$ (0.408)
$ 1.952
$ (0.323)
$ 1.979
$ (0.296)
2037
$ 2.293
$ 1.887
$ (0.406)
$ 1.993
$ (0.299)
$ 1.996
$ (0.296)
2038
$ 2.311
$ 1.908
$ (0.403)
$ 2.041
$ (0.270)
$ 2.014
$ (0.296)
2039
$ 2.329
$ 1.923
$ (0.406)
$ 2.087
$ (0.242)
$ 2.033
$ (0.296)
2040
$ 2.349
$ 1.939
$ (0.410)
$ 2.139
$ (0.209)
$ 2.052
$ (0.296)
2041
$ 1.894
$ 1.480
$ (0.414)
$ 1.724
$ (0.170)
$ 1.598
$ (0.296)
2042
$ 1.559
$ 1.142
$ (0.417)
$ 1.436
$ (0.123)
$ 1.263
$ (0.296)
2043
$ 1.155
$ 0.735
$ (0.421)
$ 1.086
$ (0.069)
$ 0.859
$ (0.296)
2044
$ 0.902
$ 0.478
$ (0.424)
$ 0.895
$ (0.007)
$ 0.606
$ (0.296)
$ (10.743)
7.5%
Rate of
Return
2015
Total
Increase/
(Decrease)
$ (8.569)
- 18 -
$ (8.175)

(CONTD)
TABLE 5
Projection of Funded Ratio
Fiscal Year
Existing Law

7.5%
Rate of Return
Blended Return
Pension
Obligation
Bonds Only
7.5%
Rate of Return
2015
59.8%
59.8%
59.8%
59.8%
2016
58.5%
64.6%
64.6%
64.8%
2017
57.1%
63.3%
63.3%
63.7%
2018
56.4%
62.4%
62.4%
62.9%
2019
57.7%
63.5%
63.5%
64.0%
2020
59.0%
64.6%
64.6%
65.1%
2021
59.9%
65.4%
65.4%
65.8%
2022
61.2%
66.5%
66.6%
67.0%
2023
62.7%
67.8%
67.9%
68.2%
2024
64.3%
69.3%
69.4%
69.6%
2025
66.0%
71.0%
71.0%
71.1%
2026
67.9%
72.8%
72.8%
72.8%
2027
70.0%
74.7%
74.8%
74.6%
2028
72.2%
76.9%
76.9%
76.5%
2029
74.5%
79.1%
79.2%
78.6%
2030
77.0%
81.6%
81.6%
80.8%
2031
79.6%
84.2%
84.2%
83.1%
2032
82.3%
87.1%
87.0%
85.5%
2033
85.2%
90.1%
89.9%
88.1%
2034
88.3%
93.4%
93.1%
90.8%
2035
91.6%
96.9%
96.4%
93.7%
2036
93.1%
98.5%
97.8%
94.8%
2037
94.2%
99.6%
98.8%
95.5%
2038
95.1%
100.6%
99.5%
95.9%
2039
95.9%
101.7%
100.3%
96.2%
2040
96.4%
102.7%
100.9%
96.2%
2041
96.7%
103.5%
101.3%
96.0%
2042
96.8%
104.8%
102.1%
96.0%
2043
96.7%
105.9%
102.6%
95.9%
2044
96.1%
107.0%
103.0%
95.3%
- 19 -

(CONTD)
TABLE 6
Projection of Unfunded Liability
(in billions)
Fiscal Year
Existing Law

7.5%
Rate of Return
Blended Return
Pension
Obligation
Bonds Only
7.5%
Rate of Return
2015
$38.458
38.458
$38.458
$38.458
2016
$40.866
34.856
$34.856
$34.645
2017
$43.418
37.233
$37.228
$36.731
2018
$45.424
39.230
$39.217
$38.699
2019
$45.438
39.205
$39.182
$38.689
2020
$45.359
39.073
$39.036
$38.601
2021
$45.615
39.261
$39.209
$38.865
2022
$45.423
38.973
$38.904
$38.699
2023
$45.011
38.451
$38.365
$38.335
2024
$44.325
37.641
$37.539
$37.718
2025
$43.355
36.534
$36.419
$36.844
2026
$42.096
35.123
$34.999
$35.707
2027
$40.521
33.378
$33.252
$34.286
2028
$38.621
31.285
$31.168
$32.573
2029
$36.376
28.830
$28.737
$30.552
2030
$33.752
25.984
$25.933
$28.193
2031
$30.725
22.721
$22.736
$25.475
2032
$27.270
19.026
$19.139
$22.378
2033
$23.349
14.858
$15.106
$18.867
2034
$18.898
10.154
$10.583
$14.885
2035
$13.896
4.901
$ 5.566
$10.415
2036
$11.691
2.451
$ 3.416
$ 8.811
2037
$10.088
0.608
$ 1.948
$ 7.884
2038
$ 8.688
(1.019)
$ 0.777
$ 7.242
2039
$ 7.572
(2.904)
$ (0.564)
$ 6.974
2040
$ 6.789
(4.569)
$ (1.589)
$ 7.136
2041
$ 6.361
(6.008)
$ (2.255)
$ 7.758
2042
$ 6.270
(8.278)
$ (3.604)
$ 7.771
2043
$ 6.605
$ (10.354)
$ (4.592)
$ 8.219
2044
$ 8.018
$ (12.414)
$ (5.379)
$ 9.754
- 20 -

(CONTD)
TABLE 7
Fiscal
Year
Existing Law

7.5%
Rate of Return
Blended Return
Pension
Obligation
Bonds Only
7.5%
Rate of Return
2015
58.6%
58.6%
58.6%
58.6%
2016
58.5%
65.3%
65.3%
65.3%
2017
58.6%
65.6%
65.6%
65.9%
2018
60.2%
67.2%
67.2%
67.4%
2019
61.6%
68.4%
68.4%
68.6%
2020
63.0%
69.6%
69.6%
69.8%
2021
64.4%
70.8%
70.8%
70.9%
2022
65.8%
72.0%
72.0%
72.0%
2023
67.2%
73.2%
73.2%
73.2%
2024
68.6%
74.4%
74.5%
74.3%
2025
69.9%
75.7%
75.7%
75.4%
2026
71.3%
77.0%
77.0%
76.6%
2027
72.7%
78.3%
78.2%
77.7%
2028
74.2%
79.6%
79.5%
78.9%
2029
75.6%
81.1%
80.9%
80.1%
2030
77.1%
82.5%
82.3%
81.3%
2031
78.7%
84.1%
83.6%
82.6%
2032
80.3%
85.7%
85.1%
83.8%
2033
81.9%
87.3%
86.5%
85.2%
2034
83.5%
89.1%
88.0%
86.5%
2035
85.2%
90.9%
89.5%
87.9%
2036
87.0%
92.7%
91.0%
89.3%
2037
88.7%
94.6%
92.5%
90.7%
2038
90.5%
96.6%
94.0%
92.2%
2039
92.4%
99.1%
96.0%
93.7%
2040
94.2%
101.8%
98.0%
95.2%
2041
96.1%
104.6%
100.1%
96.7%
2042
97.3%
106.8%
101.6%
97.6%
2043
98.2%
108.7%
102.7%
98.1%
2044
98.5%
110.1%
103.2%
98.1%
- 21 -

(CONTD)
TABLE 8
(in billions)
Fiscal Year
Existing Law

7.5%
Rate of Return
Blended Return
Pension
Obligation
Bonds Only
7.5%
Rate of Return
2015
$18.276
$18.276
$18.276
$18.276
2016
$18.773
$15.694
$15.690
$15.662
2017
$19.131
$15.898
$15.888
$15.788
2018
$18.814
$15.502
$15.483
$15.401
2019
$18.520
$15.235
$15.209
$15.158
2020
$18.207
$14.942
$14.908
$14.900
2021
$17.871
$14.618
$14.577
$14.623
2022
$17.511
$14.262
$14.215
$14.327
2023
$17.129
$13.874
$13.824
$14.013
2024
$16.720
$13.451
$13.400
$13.677
2025
$16.282
$12.990
$12.944
$13.319
2026
$15.814
$12.488
$12.453
$12.936
2027
$15.313
$11.942
$11.928
$12.526
2028
$14.777
$11.350
$11.369
$12.088
2029
$14.203
$10.709
$10.776
$11.620
2030
$13.589
$10.016
$10.148
$11.118
2031
$12.930
$ 9.274
$ 9.492
$10.582
2032
$12.225
$ 8.471
$ 8.800
$10.008
2033
$11.470
$ 7.607
$ 8.076
$ 9.394
2034
$10.660
$ 6.678
$ 7.321
$ 8.736
2035
$ 9.793
$ 5.681
$ 6.533
$ 8.032
2036
$ 8.864
$ 4.613
$ 5.713
$ 7.277
2037
$ 7.868
$ 3.469
$ 4.858
$ 6.470
2038
$ 6.800
$ 2.247
$ 3.966
$ 5.604
2039
$ 5.656
$ 0.598
$ 2.722
$ 4.677
2040
$ 4.429
$ (1.216)
$ 1.368
$ 3.684
2041
$ 3.113
$ (3.211)
$ (0.093)
$ 2.620
2042
$ 2.194
$ (4.910)
$ (1.178)
$ 1.971
2043
$ 1.577
$ (6.419)
$ (1.989)
$ 1.645
2044
$ 1.359
$ (7.655)
$ (2.440)
$ 1.739
- 22 -

POLICY CONSIDERATIONS
In reviewing the
considerations.
amendments,
the
Commission
identified
the
following
policy
Reduced Benefit Tier. Amendment Number 07223 would have the effect of reducing
the value of retirement benefits for most future members of PSERS and SERS
relative to most current members of the Systems. Amendment Number 07223 would
also lower the normal retirement age to age 55 for most new members, while
increasing employee contributions relative to the benefits earned.
Benefit Disparities. By creating additional, reduced benefit tiers, Amendment
Number 07223 creates the potential for pension benefit inequities in the treatment
of similarly situated public employees, and in some cases, the potential for litigation
brought by members over resulting pension benefit disparities. The complexities
involved in the administration of multiple benefit tiers will also likely add to the
Systems operational and administrative costs.
Further Departure from Actuarial Funding Standards. The proposal would taper
the collared contribution rates implemented under Act 120 for both PSERS and
SERS, further delaying the increases in employer contributions and spreading the
increases over future years. The Commission is well aware of the fiscal challenges
facing
the
Commonwealth
resulting
from
the
increased
pension
contributions. However, it must be noted that the tapering of the collared
contribution rates proposed in the amendment will generate additional liabilities for
the Systems in the long term. The short-term effect of the tapering of the collars
would be to further defer the payment of contributions to both PSERS and SERS,
resulting in the additional underfunding of both retirement Systems. This would
also offset the savings realized under the proposal from the establishment of zerocost benefit tiers and the proceeds from the pension obligation bonds. The
Commonwealths policymakers must determine whether the further departure from
actuarial funding standards proposed by the amendment is consistent with the
Commonwealths pension plan funding and fiscal management goals.
Pension Obligation Bonds. Amendment Number 07223 authorizes the PSERS and
SERS Boards to apply for pension bonds in amounts up to $6 billion and $3 billion,
respectively, to pay down the unfunded accrued liabilities of the Systems. Based on
the understanding of the sponsors intent, the borrowing would be required to occur
within the first year after the effective date of the proposal. The infusion of the bond
proceeds would have a positive impact on the funding of both the Systems. It must
- 23 -

(CONTD)
be noted that the actuarial cost analyses do not address the costs to the
Commonwealth for debt service on the bonds.
Normal Cost Calculation. PSERS and SERS use somewhat dissimilar methods for
calculating the normal cost rate. Under the SERS method, the normal cost is
calculated based upon the average new entrant to the System. As a result, the
normal cost for SERS would decrease even though the cost of providing benefits to
current members would not change. Because benefits provided to current members
are higher than the benefits provided to members of the new Class QB, the employer
normal cost under SERS would be significantly lower than the average cost of the
benefits provided to current members, and will tend to understate the Systems
normal cost. In the short term, the understated normal cost would generate a
significant unfunded actuarial accrued liability in SERS. In contrast, the normal
cost method employed by PSERS is based on a blending of the normal cost rates of
all active members. This is the traditional method for calculating the normal cost
under the entry age normal actuarial cost method.
The Commission's consulting actuary has indicated that the PSERS method would
be the preferred approach for determining the normal cost for both PSERS and
SERS. This is especially important if the reduced benefit classes are adopted for
new members in order to avoid having a decrease in the normal cost for current
members and an increase in the actuarial accrued liability. Under the PSERS
approach, the normal cost and unfunded actuarial accrued liability would not
change for current members, but there would be a reduced normal cost for new
members as they join the system. Thus, the total normal cost would gradually
decline as new members are added and current members retire. Use of the
traditional method would help to achieve the presumed long-term cost reduction
goals of Amendment Number 07223 by both gradually reducing the normal cost and
preventing the creation of additional unfunded actuarial accrued liabilities.
Special Membership Classes. Under the SERS Code, there are a number of special
categories of public employees entitled to enhanced benefits, reduced
superannuation requirements, or both. These include members of the General
Assembly, the judiciary, enforcement officers and certain other hazardous duty
personnel.
Under Amendment Number 07223, there are no special benefit
provisions for several of these groups of employees. The uniform benefit level for
Class QB would result in a major reduction in the value of employer-provided
- 24 -

(CONTD)
benefits for these groups of employees in the future and would result in significant
benefit disparities between similarly situated employees.
Adequacy of Disability and Death Benefits for Hazardous Duty Personnel.
Historically, it has been the practice of the Commonwealth to provide special
disability and death benefits to public safety employees due to the hazardous nature
of such employment. Amendment Number 07223 represents a major departure from
past practice by providing no such special benefits for hazardous duty personnel.
Due to the hazardous nature of their duties, it may be desirable to retain some type
of enhanced benefit for hazardous duty personnel in the form of special in-service
death, disability or retirement provisions.
Benefit Disparity among Hazardous Duty Personnel. By implementing a reduced
benefit tier for new hazardous duty employees while exempting members of the
Pennsylvania State Police, the proposal creates the potential for benefit inequities in
the treatment of similarly situated public employees that may result in employee
bargaining disputes and subsequent litigation over benefit disparities.
Personnel Recruitment and Retention. One unintended effect of Amendment
Number 07223 may be to decrease the attractiveness of public employment,
particularly among certain subgroups of employees who have traditionally received
enhanced retirement benefits. The consulting actuary for PSERS estimates the
value of the cash balance benefit to be half of the defined benefit available under Act
120. Policymakers must determine whether the benefit provisions of Amendment
Number 07223 are consistent with the Commonwealths long-term personnel
management goals.
COMMISSION RECOMMENDATION
The Commission voted to attach the actuarial note to the amendments, recommending that
the General Assembly and the Governor consider the policy issues identified above.
- 25 -

ATTACHMENTS
Actuarial Note provided by Kenneth Kent of Cheiron, Inc.
Actuarial cost estimate provided by Buck Consultants, consulting actuary for the Public
School Employees Retirement System.
Actuarial cost estimate provided by the Hay Group, consulting actuary for the State
Employees Retirement System.
Attached without adoption, Letter of July 29, 2014, from Secretary Charles Zogby.
Amendment Number 07223.
Amendment Number 09253.
- 26 -
July 28, 2014

James L. McAneny
Executive Director
Public Employee Retirement Commission
510 Finance Building
Harrisburg, PA 17120
Re: Cash Balance Retirement Plan (Amendment 07223 to House Bill 1353, Printers No. 2152)
Dear Jim,
We are writing with regard to the proposed cash balance retirement plan for the State Employees Retirement System (SERS) and the
Public School Employees Retirement System (PSERS) collectively referred to as the Systems.
Overview and Implications of the Cash Balance Retirement Plan
For SERS effective January 1, 2015 and PSERS effective July 1, 2015, the cash balance retirement plan (hereafter referred to as the CB
plan) creates two new membership classes (Class OB in SERS and Class T-G in PSERS, respectively). Based on our understanding of
House Bill 1353 (HB 1353) these new members and any members returning to active membership will be covered by the CB plan that
provides for employer contributions of 4% of compensation for the first 15 years of service and 5% of compensation for service
thereafter.
The implications of the CB plan are:
To reduce the overall costs of the Systems through potentially lower benefits and retirement security to new members
To add to the cost savings by guaranteeing an investment return of 4% on the cash balance accounts with expectation of actual
returns exceeding the guarantee thereby providing additional funding to the Systems current unfunded liability
To provide gain sharing in which 50% of investment returns in excess of 5% will be allocated across the entire Systems
liabilities with a proportionate share to the cash balance accounts to provide additional projected cash balance benefits.
Mr. James L. McAneny

July 27, 2014
Page 2
From our analysis the cost savings patterns will be very different between the two Systems because of the differing methods of funding
and amortization of the unfunded liability. Typically under generally accepted funding methods a new tier of benefits results in no
immediate savings and takes effect over time as new entrants replace the existing workforce with the lower cost benefits. However
under SERS the CB plan normal cost rate is defined by Hay as zero and applied to all active participants. In our analysis we assumed
the Legacy DB members continue to have a normal cost rate at the current level, unaffected by the CB plan for new members.
There are some general concerns over the magnitude of the long term savings for SERS and PSERS demonstrated by the work
submitted by the Systems actuaries. The Systems actuaries assumed an investment return assumption of 7.5% during the projection
period. In the private sector cash balance retirement plans are designed to significantly reduce investment risk through asset allocations
targeted to secure a high rate of probability the returns each year will exceed the guaranteed crediting rate. In this case the anticipated
investment target return is 4%. If this is not part of the CB plan design, the Systems take on additional risk. If that investment risk is
not measured, by continuing to assume a long term average return rate of 7.5%, the cost savings of the CB plan is overstated.
Conversion to a CB plan is typically addressed by selecting a low interest crediting rate and by investing the assets conservatively so
that they are not subject to the current level of market volatility. Therefore, over time, we would expect the underlying discount rate and
long term investment return rate to gradually decrease as the cash balance accounts become larger relative to the legacy defined benefit
plan liabilities. We suggest SERS and PSERS demonstrate the potential implications on cost based on more conservative investment
assumptions.
Another demonstration of the cost implication in the valuation of a CB plan is that by projecting cash balance accounts forward at 4%
and discounting the final accumulated account balance backward by 7.5%, the actuarial liability for these benefits become distorted
relative to the expected accumulated value. This is particularly true when HB 1353 provides that 50% of the return in excess of 5%
supplements the cash balance accounts suggesting that not all the returns of the average assumed rate will be available for funding but
will be dedicated to provide enhanced benefits. In these terms a 7.5% discount assumption only provides a return of 6.25% under a
layman interpretation of the provisions related to the CB plan liabilities with 1.25% of the return increasing the plan liability. If the
method to determine the liabilities of the CB plan is to project the CB account with interest, then based upon the asset return assumption
of 7.5%, the cash balance interest assumption could be as much as 5.25% after reflecting the excess interest.

July 27, 2014
Page 3
It should be pointed out that this funding methodology in cash balance plans, whereby the cash balance accounts are projected forward
at the interest crediting rate and discounted backward at the higher discount rate was prohibited by the IRS for private sector pension
plans before single employer plans had to comply with using the corporate bond yield curve discount rates for funding under the
Pension Protection Act.
For SERS specifically there is also concern over the long term savings due to the actuarial cost method used. Hay uses a variant of the
entry age normal cost method that calculates the normal cost based on the benefits and demographics of the new hires for this plan. The
CB plan reduces benefits for Class OB members; therefore the normal cost as a percent of pay will be lower for Class OB members than
that of the current members. In fact, based on the SERS actuarys analysis, the normal cost, as a percent of pay, is expected to be 0%
for Class OB. This is due to two features of the proposed CB plan design:
First, the cash balance accounts are credited with the statutory interest rate of 4% plus a maximum of 1.25% in excess
interest, for a total maximum interest of 5.25% which is less than the assumed investment return of 7.5%. Applying this
technique and these assumptions, this difference of 2.25% is available to cover the annual cost of the CB plan.
Second, the cash balance account is converted to a life annuity based on the statutory interest rate of 4%. The difference
between the 4% statutory interest rate and the assumed investment return of 7.5% is also used to fund the plan.
According to Hay, the combination of the two results in a normal cost of 0% of pay due to the assumption that the return in excess of
the contributions pays the employers portion of the benefit.
This method applies the Class OB normal cost rate of 0% to all members, regardless of the benefits that apply to the other membership
classes resulting in an illogical and potentially dangerous misrepresentation of the overall costs of SERS. The total present value of
benefits has not changed for the other membership classes, so this causes the actuarial liability for current members to increase even
though their benefits have not changed. It has the effect of deferring employer contributions into the future because the employer
normal cost contribution will be lower and the increase in the liability due to the cash balance retirement plan is amortized over 20
years which is a longer period of time than if it were funded through the normal cost.

July 27, 2014
Page 4
Due to this methodology, any cost savings under the CB plan will be further overstated by pushing the legacy cost out further. This
method also lacks transparency and is potentially misleading because it makes it appear as if there is no annual cost to provide benefits
under the plan based on the application of this method.
This variation of the entry age normal method arose during a period when benefits were being increased and resulted in a more
disciplined funding approach. However, it does not work well in reverse with benefit cutbacks and has been criticized when applied to
new lower tier benefits because it results in lower initial contributions and as a result defers payment into the future creating
intergenerational equity issues. Under GASB 67 and 68, plans must use the traditional individual entry age normal funding method.
There is also concern over the funding provisions of HB 1353. First, HB 1353 reduces the pension contribution collars to 3% for the
next five years which has the effect of deferring costs into the future. Second, a significant portion of the savings is derived from the
special funding for SERS and PSERS. While the special funding provides a savings to the Systems, there is the potential for there to be
a net cost to the Commonwealth. The idea of using pension obligation bonds to fund the Systems assumes the investments will earn a
higher return than the interest rate on the bonds, producing an overall net savings. In a transparent transaction the present value of the
two sets of cash flows, the funds deposited into the pension fund and the debt service of the funds for the Commonwealth are
equivalent. Therefore any stated savings from the transaction is a measure of the risk transfer by presumably investing funds at a higher
rate than the debt service. However the debt service is required and the investment rate in the pension fund is an expectati on not a
guarantee. There is the chance that the higher expectation over debt service will not materialize. The cash balance plan creates
additional risk since as previously mentioned, investments are typically invested conservatively. The Systems should consider preparing
a stochastic analysis to determine the risk associated with the additional one time lump sum and the potential for this transaction to
produce a net cost to the Commonwealth.
Regarding benefit security, the proposed CB plan design will provide lower retirement benefits for the new membership classes. Bucks
analysis showed that retirement benefits for Class T-G members will be approximately one-half of the benefits for Act 120 members
with similar service, salary and retirement ages. SERS should consider providing a similar analysis.
The potential projected savings, over the 30 year projection period is summarized in the following table. The results shown by Buck and
Hay reflect the benefit and funding provisions of HB 1353. Cheirons results are shown under two cash balance scenarios (both which
include the funding provisions of HB 1353). The first scenario assumes the investment return assumption remains at 7.50%. The second

July 27, 2014
Page 5
scenario assumes the investment return assumption is blended to reflect a gradual reduction of market risk that the fund is exposed to,
thereby gradually reducing the investment return assumption. In addition, the last scenario reflects only the special funding provision of
HB 1353.
Cost Savings (In Billions)
PSERS
SERS
Buck
$ 26.8
N/A
Hay
N/A
15.3
7.50%
$ 19.8
$ 10.7
Cheiron
Blended
$ 18.6
$
8.6
SpecFund
$
16.4
$
8.2
Below we provide a summary description of the CB plan, and projections of the implications of this new benefit structure on the funded
status of the Systems. From our projections the bulk of the savings is through cost reductions in the future, anticipated by the emerging
new entrant classes for each System.
Summary of the Cash Balance Retirement Plan

Amendment 07223 to House Bill 1353 (HB 1353) creates a new membership class for SERS (Class OB) and PSERS (Class T-G) for
employees hired on or after January 1, 2015 for SERS and July 1, 2015 for PSERS and for former active members returning to active
service. These new membership classes will be would be covered by a cash balance retirement plan (CB plan). However, State Police and
members of the judiciary hired on or after January 1, 2015 and former active State Police and members of the judiciary returning to active
service will remain in their current membership classes and be covered by the current legacy defined benefit plan (Legacy DB plan). In
addition, HB 1353 will revise certain funding provisions of SERS and PSERS.
In general, the following cash balance provisions would apply to Class OB and Class T-G members:
Member contributions 7% of compensation credited to the cash balance accounts.
Employer contributions 4% of compensation credited for service less than 15 years and 5% of compensation for 15 or more
years of service credited to the cash balance accounts.

July 27, 2014
Page 6
Statutory interest Accumulated balances in the cash balance accounts for non-annuitants are credited with 4% interest each year.
This is also the interest rate used to convert cash balance accounts into annuities.
Excess interest Beginning in 2018, active members are eligible to receive 50% of any excess interest earned by the Systems.
Excess interest is the five year average (phased in over the first five years) of the Systems actual investment returns over or below
5%. The excess interest is allocated proportionally between the cash balance accounts and the Legacy DB liabilities.
Eligibility for superannuation Age 55. The benefits paid on or after superannuation are monthly annuities that are actuarially
equivalent to the cash balance accounts. Actuarial equivalence for this purpose will be based on the 4% statutory interest rate.
Benefits paid out prior to superannuation are lump sum distributions of the members contributions with interest.
Eligibility for death benefits Immediate. Beneficiary receives a lump sum of the cash balance account.
Eligibility for disability benefits 5 years The benefits paid are monthly annuities that are actuarially equivalent to the cash
balance accounts.
In general, the following opt-in provisions would apply to current members of SERS and Class T-D members of PSERS who elect a
lower member contribution rate in exchange for lower Legacy DB benefits:
Member contributions Reduced by 1%.
Final average salary For Legacy DB plan, final average salary based on 5 years for all service.
Option 4 benefit Calculated using actuarial cost neutral factors. Members can still elect the Option 4 form of payment which
allows members to take a refund of member contributions with interest at retirement in exchange for a reduced monthly annuity.
HB 1353 changes the definition of actuarial equivalence for this purpose from the statutory 4% interest rate to the rate adopted by
the Board for actuarial valuation purposes.
In general, the following funding provisions will apply:
Contribution collars HB 1353, as written, reduces the pension contribution collars to 3% for fiscal years July 1, 2014 through
June 30, 2019. However, based on instructions from the Public Employee Retirement Commission, the contribution collars will be
delayed one year so that the 3% contribution collars will be effective for fiscal years July 1, 2015 through June 30, 2020. The
contribution collars will end the earlier of June 30, 2020 or when the required contribution is less than the collared contribution.

July 27, 2014
Page 7
For SERS, the change in liability resulting from the CB plan will be funded over 20 years as a level dollar amount. Future changes
in liability for SERS continue to be amortized over 30 years as a level dollar amount.
For PSERS, the 10 year asset smoothing method would be constrained to be within 30% of the market value of assets.
Authorization to apply for special funding HB 1353 allows SERS and PSERS to apply for additional funding of up to $3 billion
and $6 billion dollars, respectively. For PSERS, the additional funding is contingent on the percentage of members who make an
election to opt-in to the benefits described above. However, based on discussions with the Public Employee Retirement
Commission, this is a drafting oversight, and the special funding will not be conditioned on members opting-in to the benefits
described above.
Analysis
The implications of the CB plan are to change the cost of pension benefits over time and improve the funded status. To illustrate the
implications we were provided with the expected projected salary and benefit payouts from the SERS and PSERS actuaries to prepare our
own model projections. We did not have actual census data and our methodologies in projection will be different from the SERS and
PSERS actuaries which will result in numerical differences in values. However the projections are effective in providing insight into the
long term trends of the Systems, the implications of the CB plan and when the savings are anticipated. For PSERS the results exclude the
healthcare premium assistance. Our projections under the existing law are slightly different than what was shown in prior costs notes
since we refined our model based on available information we received subsequent to those cost notes; however, the changes are not
material.
Our first four graphs (Graphs 1A 1D) are to set the stage in projecting the assets and liabilities based on a stationary population and
assuming new members continue to participate in SERS and PSERS under the existing law. The first of two types of graphs we will be
using in our analysis represent the liabilities, shown as the bars, and assets, shown as the lines, over time. The numbers at the top of the
bars show the funded status as the actuarial assets divided by the liabilities over time. For example in the year 2020 SERS is projected to
be 63% funded if all of the assumptions including the current 7.5% investment return are exactly realized each year. This is also
predicated on the actuarially determined contribution being contributed each year. Our projections show SERS and PSERS reaching 98%
and 96% funded, respectively, by the end of the 30 year projection.

July 27, 2014
Page 8
Graph 1A - State Employees Retirement System Existing Law
Billions
$125
Actuarial Liability
Actuarial Assets
Market Assets
$105
$85
$65
$45
$25
$5
2015
($15)
2017
2019
2021
2023
2025
2027
2029
2031
2033
2035
2037
2039
2041
2043

July 27, 2014
Page 9
Graph 1B-Public School Employees Retirement System Existing Law
The next graphs in our analysis show the projection of contributions breaking out the member contributions and the employer
contributions each year under the existing law. The total normal cost rate represents the cost of the benefits earned each year as a
percent of payroll. The existing law rate represents the current employer total cost as a percent of payroll to provide a comparison with
projections that demonstrate costs under the hybrid plan.
For SERS, the total normal cost rate remains at 11.3% of pay over the projection period because SERS uses a variation of the entry age
normal cost method where the normal cost is based on the benefits and demographics of the new hires. For PSERS, the traditional
individual entry age normal cost method is used to calculate the normal cost. Therefore, for PSERS, the normal cost decreases slowly
over time as more members are covered under the Act 120 plan provisions.
The balance of the cost represents the amortization of the unfunded liability and the steep ramping up of costs initially is the application
of contribution collars which limit the contribution increase each year to no more than 4.5% until the actuarially determined
contribution rate is lower. At that point we project the employer costs will be approximately 30% of payroll for SERS and PSERS. On

July 27, 2014
Page 10
a projected basis this amount is expected to decrease each year for SERS as the unfunded liability is amortized as a level dollar amount.
For PSERS, the projected employer contribution is expected to increase slightly until the initial unfunded liability base is amortized
because the unfunded liability is being amortized over 24 years as a level percent of pay. In each System the costs drop off as the
current unfunded bases get amortized ultimately reducing the cost to the normal cost amounts.
Graph 1C - State Employees Retirement System Existing Law
60%
Member Rate
50%
Employer DB Rate
Total NC Rate
Existing Law Rate
40%
30%
Percent of Pay
20%
10%
0%
2015
2017
2019
2021
2023
2025
2027
2029
2031
2033
2035
2037
2039
2041
2043

July 27, 2014
Page 11
Graph 1D - Public School Employees Retirement System Existing Law
With the current status of SERS and PSERS as background we then apply the provisions of the CB plan for the new membership
classes. We have shown the results under two separate cash balance scenarios. In the first scenario we assumed a 7.5% discount rate
similar to the cost notes prepared by the Systems actuaries. This scenario assumes the entire excess interest will be provided to the cash
balance account, creating a total interest crediting rate of 5.25%.
In the second scenario we assumed the discount rate will be a blended discount rate, reflecting the proportion that the cash balance
liability is to the total liability of the plan. Therefore, the discount rate will start out at 7.5% and will decrease over time as more of the
liability is covered under the CB plan, ultimately reaching just over 4.0% when all of the members are covered under the CB plan. At
the end of the 30 year projection period, the discount rate for SERS and PSERS is approximately 6.3% and 6.7%, respectively. This
scenario assumes the excess interest will be approximately 0.75% on average with a total interest crediting rate of 4.75%.

July 27, 2014
Page 12
All other assumptions are implicitly based upon the assumptions used by Hay and Buck for their analysis, due to reliance upon the cash
flows, pay projections, liabilities, and normal cost information provided.
For simplicity, we assumed new members enter the CB plan each year based on the average entry age of the current Legacy DB plan
members and the average attained age of the members in the cash balance plan will increase each year until ultimately the attained age
in the cash balance plan reaches the same average attained age as in the Legacy DB plan. We assumed an average retirement age of 65
in the CB plan. For SERS we also assumed that current members would have a normal cost of 5.01%, which is the normal cost of the
Legacy DB structure. Both scenarios reflect the 3% collars under HB 1353 and assume $3 billion in special funding for SERS and $6
billion in special funding for PSERS in fiscal year 2015. Over the 30 year projection period there is a net cost savings for both SERS
and PSERS under both scenarios.
The following set of graphs show the funded status under the CB plan assuming a 7.5% discount rate.

July 27, 2014
Page 13
Graph 2A - State Employees Retirement System CB Plan 7.5%/Funding Reforms
Billions
$125
Actuarial Liability
Actuarial Assets
Market Assets
$105
$85
$65
$45
$25
$5
2015
($15)
2017
2019
2021
2023
2025
2027
2029
2031
2033
2035
2037
2039
2041
2043

July 27, 2014
Page 14
Graph 2B - Public School Employees Retirement System CB Plan 7.5%/Funding Reforms
Billions
$225
Actuarial Liability
Actuarial Assets
Market Assets
$175
$125
$75
$25
2015
2017
2019
2021
2023
2025
2027
2029
2031
2033
2035
2037
2039
2041
2043
($25)
Looking at the funding requirements we now add the emerging CB plan costs with the Legacy DB plan costs. By the end of the 30 year
projection, the employer contribution as a percent of total employee payroll is 3.3% and 4.6% for SERS and PSERS, respectively. The
black line shows the level of costs under existing law to illustrate how the cost savings is anticipated to emerge. Member contributions
include both the CB plan and Legacy DB plan member contributions. A significant part of the savings is attributable to the special
funding of $3 billion and $6 billion for SERS and PSERS, respectively.

July 27, 2014
Page 15
Graph 2C - State Employees Retirement System CB Plan 7.5%/Funding Reforms

July 27, 2014
Page 16
Graph 2D - Public School Employees Retirement System CB Plan 7.5%/Funding Reforms

July 27, 2014
Page 17
The next set of graphs assumes a blended discount rate that decreases over time. Using a lower discount rate will reduce the savings
over the 30 year period.
Graph 3A - State Employees Retirement System CB Plan Blended/Funding Reforms
Billions
$125
Actuarial Liability
Actuarial Assets
Market Assets
$105
$85
$65
$45
$25
$5
2015
($15)
2017
2019
2021
2023
2025
2027
2029
2031
2033
2035
2037
2039
2041
2043

July 27, 2014
Page 18
Graph 3B - Public School Employees Retirement System CB Plan Blended/Funding Reforms
Billions
$225
Actuarial Liability
Actuarial Assets
Market Assets
$175
$125
$75
$25
2015
($25)
2017
2019
2021
2023
2025
2027
2029
2031
2033
2035
2037
2039
2041
2043

July 27, 2014
Page 19
Graph 3C - State Employees Retirement System CB Plan Blended/Funding Reforms

July 27, 2014
Page 20
Graph 3D - Public School Employees Retirement System CB Plan Blended/Funding Reforms
The next set of graphs show the funded status and funding requirements under the current plan and funding provisions except that it was
assumed that there would be special funding of $3.0 billion and $6.0 billion for SERS and PSERS, respectively. As can be seen by the
projections, the special funding does not materially improve the funded ratio after 30 years because the net effect is to reduce the cost
over a 30 year period for SERS and a 24 year period for PSERS.

July 27, 2014
Page 21
Graph 4A - State Employees Retirement System Special Funding Only

`
$125
Actuarial Liability
Actuarial Assets
Market Assets
Billions
$105
$85
$65
$45
$25
$5
2015
($15)
2017
2019
2021
2023
2025
2027
2029
2031
2033
2035
2037
2039
2041
2043

July 27, 2014
Page 22
Graph 4B - Public School Employees Retirement System Special Funding Only
Billions
$225
Actuarial Liability
Actuarial Assets
Market Assets
$175
$125
$75
$25
2015
($25)
2017
2019
2021
2023
2025
2027
2029
2031
2033
2035
2037
2039
2041
2043

July 27, 2014
Page 23
Graph 4C - State Employees Retirement System Special Funding Only
60%
Percent of Pay
Member Rate
50%
Employer DB Rate
Total NC Rate
Existing Law Rate
40%
30%
20%
10%
0%
2015
2017
2019
2021
2023
2025
2027
2029
2031
2033
2035
2037
2039
2041
2043

July 27, 2014
Page 24
Graph 4D - Public School Employees Retirement System Special Funding Only
Percent of Pay
60%
Member Rate
Employer DB Rate
Total NC Rate
Existing Law Rate
50%
40%
30%
20%
10%
0%
2015
2017
2019
2021
2023
2025
2027
2029
2031
2033
2035
2037
2039
2041
2043
We have included tables at the end of this report showing the results in tabular form for comparative purposes.
Commentary on the Analysis Prepared by Hay and Buck
Hay prepared an analysis of the cost impact of the HB 1353 on SERS and Buck provided a similar analysis for PSERS. Cheiron
reviewed Hays cost note dated June 6, 2014 and Bucks cost note dated July 24, 2014.
The cost notes from Hay and Buck both showed cost savings under HB 1353. For the period 2015 through 2044, Hays results showed
cumulative savings of $15.3 billion for SERS and Bucks results showed cumulative savings of $26.8 billion for PSERS. A significant
part of the savings is due to the special funding of $3 billion and $6 billion for SERS and PSERS, respectively. However, the savings to
SERS and PSERS generated by the special funding will be offset by the interest the Commonwealth pays on the pension obligation

July 27, 2014
Page 25
bonds and this has not been reflected in the cost analysis. In addition, the savings due to the cash balance structure will be dependent on
the discount rate used by both Systems.
These results are estimates based on the underlying assumptions. Actual results will be based on the valuations performed each year by
the Systems actuaries. What is becoming increasingly apparent among public plans is the inability to respond to the risk volatility of
the underlying investments backing the benefit promises. This coupled with the increasing number of members eligible to retire in the
near future have contributed to the strain on resources. The projected cost savings that do not emerge for a number of years can be
impacted by the Systems experience. These analyses should be accompanied by projections that incorporate steps to lower the overall
risk profile of the Systems to better manage the potential long term expectations of the cash balance plan.
It can be anticipated that these new tiers will also change retirement patterns as they become a larger portion of the overall active
population. Therefore, when new tiers are added future experience studies should look at plan experience separately for these tiers and
consider using different termination and retirement assumptions if necessary.
Under existing law and the cash balance plan, it is the unfunded accrued liability that is driving the cost. The normal cost (i.e., the value
of the current benefit accruals) is low in comparison to the unfunded liability cost. Based on Hays analysis, the normal cost for SERS
at the end of the projection period is approximately 5.0% under the existing law and 0% under the CB plan. In Bucks analysis, the
normal cost for PSERS at the end of the projection period is approximately 3.25% under the existing law and 0% under the CB plan.
(The 0% normal cost is the result of using the statutory interest rate of 4% as the interest crediting rate and the conversion rate for the
cash balance plan compared the discount rate of 7.5%.) Therefore, what is driving the cost and the reason why contributions are high
and reaching over 25% for SERS and PSERS, is the cost of paying for the unfunded liability. The unfunded liability will need to be
paid regardless of the plan design.
Conclusions
Over the projection period studied, the results show anticipated savings under HB 1353. A significant part of the savings is due to the
special funding of $3 billion and $6 billion for SERS and PSERS, respectively. However, the savings to SERS and PSERS generated by
the special funding will be offset by the interest the Commonwealth pays on the pension obligation bonds and this has not been

July 27, 2014
Page 26
reflected in the analysis. In addition, the savings due to the cash balance structure will be dependent on the discount rate used for both
Systems. Alternative assumptions show material differences in the expected savings as demonstrated. Finally, there will be a significant
reduction in retirement security for members covered by the CB plan.
In summary HB 1353 does provide for future cost savings as new employees participate under the Systems because their retirement
benefits will be lower and less costly to the Commonwealth. The cost reductions are both explicit and slow to emerge because the cash
balance provisions apply to new members only and implicit as a portion of the savings is due to the difference between the statutory
interest rate of 4% as the interest crediting rate and the conversion rate for the cash balance plan compared to the discount rate of 7.5%.
The savings demonstrated by these benefit structures and funding structures is highly dependent on the success of the risk transfer
between the relationship of a guaranteed crediting rate and on the debt service of the Commonwealth versus the Systems investment
performance. If the investment performance is not realized over the long term or subject to a prolonged investment shock the likes of
what was experienced following the 2008 market decline, the net results will be higher costs then what is anticipated before these
changes.
The financial results shown here are illustrations of a number of likely scenarios of projected costs resulting from the CB plan.
However, actual future costs will be determined by future actuarial valuations. Consideration should be given, not only to the short
term cost savings, but also to the long term implications. In addition, given the long term nature of SERS and PSERS, it is imperative
to consider this analysis using conservative assumptions to determine the potential savings.
In preparing our projections we were provided anticipated future benefit streams and payroll projections for each covered group of
employees to allow us to isolate the implications under the CB plan. We were not working from original census data and relied on
generally accepted actuarial techniques in the development of the model to make our projections. Reliance on our projected values
should be for purposes of the nature of the long term trends and not the specific values as the nature of any projection has an increasing
degree of uncertainty the further into the future a projection is taken.
This analysis was prepared exclusively for the Public Employee Retirement Commission. It is not intended to benefit any third party
and Cheiron assumes no duty or liability to any such party.
As you know, this analysis was performed in an expedited manner, and until we perform an independent review, these numbers are best
estimates and are subject to change once the review process is completed.

July 27, 2014
Page 27
To the best of our knowledge, this report and its contents have been prepared in accordance with generally recognized and accepted
actuarial principles and practices which are consistent with the Code of Professional Conduct and applicable Actuarial Standards of
Practice set out by the Actuarial Standards Board. Furthermore, as credentialed actuaries we meet the Qualification Standards of the
American Academy of Actuaries to render the opinion contained in this report. This report does not address any contractual or legal
issues. We are not attorneys and our firm does not provide any legal services or advice.
Sincerely,
Cheiron, Inc.
Kenneth A. Kent, FSA, FCA

Principal Consulting Actuary
cc Tony Parisi
Janet Cranna, FSA, FCA

Principal Consulting Actuary

July 27, 2014
Page 28
Cash Balance Retirement Plan

Supplemental Statistics of Projected Financial Impact

July 27, 2014
Page 29
Fiscal
Year
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
2039
2040
2041
2042
2043
2044
Existing
Law
58.6%
58.5%
58.6%
60.2%
61.6%
63.0%
64.4%
65.8%
67.2%
68.6%
69.9%
71.3%
72.7%
74.2%
75.6%
77.1%
78.7%
80.3%
81.9%
83.5%
85.2%
87.0%
88.7%
90.5%
92.4%
94.2%
96.1%
97.3%
98.2%
98.5%
Cash Balance/Fund
7.50%
Blended
58.6%
58.6%
65.3%
65.3%
65.6%
65.6%
67.2%
67.2%
68.4%
68.4%
69.6%
69.6%
70.8%
70.8%
72.0%
72.0%
73.2%
73.2%
74.4%
74.5%
75.7%
75.7%
77.0%
77.0%
78.3%
78.2%
79.6%
79.5%
81.1%
80.9%
82.5%
82.3%
84.1%
83.6%
85.7%
85.1%
87.3%
86.5%
89.1%
88.0%
90.9%
89.5%
92.7%
91.0%
94.6%
92.5%
96.6%
94.0%
99.1%
96.0%
101.8%
98.0%
104.6%
100.1%
106.8%
101.6%
108.7%
102.7%
110.1%
103.2%
SpecFund
Only
58.6%
65.3%
65.9%
67.4%
68.6%
69.8%
70.9%
72.0%
73.2%
74.3%
75.4%
76.6%
77.7%
78.9%
80.1%
81.3%
82.6%
83.8%
85.2%
86.5%
87.9%
89.3%
90.7%
92.2%
93.7%
95.2%
96.7%
97.6%
98.1%
98.1%
Fiscal
Year
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
2039
2040
2041
2042
2043
2044

(in billions)
Existing
Cash Balance/Fund
Law
7.50%
Blended
$ 18.276
$ 18.276
$ 18.276
$ 18.773
$ 15.694
$ 15.690
$ 19.131
$ 15.898
$ 15.888
$ 18.814
$ 15.502
$ 15.483
$ 18.520
$ 15.235
$ 15.209
$ 18.207
$ 14.942
$ 14.908
$ 17.871
$ 14.618
$ 14.577
$ 17.511
$ 14.262
$ 14.215
$ 17.129
$ 13.874
$ 13.824
$ 16.720
$ 13.451
$ 13.400
$ 16.282
$ 12.990
$ 12.944
$ 15.814
$ 12.488
$ 12.453
$ 15.313
$ 11.942
$ 11.928
$ 14.777
$ 11.350
$ 11.369
$ 14.203
$ 10.709
$ 10.776
$ 13.589
$ 10.016
$ 10.148
$ 12.930
$ 9.274
$ 9.492
$ 12.225
$ 8.471
$ 8.800
$ 11.470
$ 7.607
$ 8.076
$ 10.660
$ 6.678
$ 7.321
$ 9.793
$ 5.681
$ 6.533
$ 8.864
$ 4.613
$ 5.713
$ 7.868
$ 3.469
$ 4.858
$ 6.800
$ 2.247
$ 3.966
$ 5.656
$ 0.598
$ 2.722
$ 4.429
$ (1.216)
$ 1.368
$ 3.113
$ (3.211)
$ (0.093)
$ 2.194
$ (4.910)
$ (1.178)
$ 1.577
$ (6.419)
$ (1.989)
$ 1.359
$ (7.655)
$ (2.440)
SpecFund
Only
$ 18.276
$ 15.662
$ 15.788
$ 15.401
$ 15.158
$ 14.900
$ 14.623
$ 14.327
$ 14.013
$ 13.677
$ 13.319
$ 12.936
$ 12.526
$ 12.088
$ 11.620
$ 11.118
$ 10.582
$ 10.008
$ 9.394
$ 8.736
$ 8.032
$ 7.277
$ 6.470
$ 5.604
$ 4.677
$ 3.684
$ 2.620
$ 1.971
$ 1.645
$ 1.739

July 27, 2014
Page 30

Fiscal
Year
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
2039
2040
2041
2042
2043
2044
Existing
Law
20.5%
25.0%
29.5%
30.4%
29.6%
28.9%
28.2%
27.5%
26.8%
26.2%
25.6%
25.0%
24.4%
23.8%
23.2%
22.7%
22.2%
21.7%
21.2%
20.7%
20.2%
19.8%
19.3%
18.9%
18.5%
18.1%
14.2%
11.3%
8.1%
6.2%
Cash Balance/Fund
7.50%
Blended
20.5%
20.5%
23.5%
23.5%
26.5%
26.5%
25.6%
25.6%
24.9%
24.9%
24.2%
24.2%
23.6%
23.5%
22.9%
22.8%
22.3%
22.2%
21.7%
21.6%
21.1%
21.0%
20.5%
20.5%
20.0%
20.0%
19.5%
19.5%
19.0%
19.0%
18.5%
18.6%
18.1%
18.3%
17.7%
17.9%
17.3%
17.7%
16.9%
17.4%
16.6%
17.2%
16.2%
17.0%
15.9%
16.8%
15.6%
16.7%
15.3%
16.6%
14.9%
16.5%
11.1%
12.9%
8.3%
10.4%
5.2%
7.7%
3.3%
6.1%
SpecFund
Only
20.5%
25.0%
26.8%
26.0%
25.3%
24.7%
24.2%
23.6%
23.0%
22.5%
22.0%
21.5%
21.0%
20.5%
20.1%
19.6%
19.2%
18.8%
18.4%
18.0%
17.6%
17.2%
16.8%
16.5%
16.2%
15.8%
12.0%
9.2%
6.1%
4.1%
Fiscal
Year
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
2039
2040
2041
2042
2043
2044
Total
Existing
Law
$ 1.254
$ 1.576
$ 1.917
$ 2.035
$ 2.045
$ 2.056
$ 2.066
$ 2.077
$ 2.089
$ 2.101
$ 2.113
$ 2.126
$ 2.139
$ 2.152
$ 2.166
$ 2.180
$ 2.195
$ 2.210
$ 2.225
$ 2.241
$ 2.258
$ 2.275
$ 2.293
$ 2.311
$ 2.329
$ 2.349
$ 1.894
$ 1.559
$ 1.155
$ 0.902

(in billions)
Cash Balance/Fund
7.5% Ret Inc./Dec.
Blended Inc./Dec.
$ 1.254 $
$ 1.254 $
$ 1.482 $ (0.095)
$ 1.482 $ (0.095)
$ 1.722 $ (0.195)
$ 1.722 $ (0.195)
$ 1.716 $ (0.319)
$ 1.713 $ (0.322)
$ 1.719 $ (0.326)
$ 1.715 $ (0.330)
$ 1.722 $ (0.333)
$ 1.718 $ (0.338)
$ 1.726 $ (0.341)
$ 1.721 $ (0.346)
$ 1.729 $ (0.348)
$ 1.724 $ (0.353)
$ 1.733 $ (0.356)
$ 1.728 $ (0.361)
$ 1.738 $ (0.363)
$ 1.733 $ (0.368)
$ 1.743 $ (0.370)
$ 1.739 $ (0.374)
$ 1.748 $ (0.377)
$ 1.746 $ (0.380)
$ 1.754 $ (0.384)
$ 1.754 $ (0.385)
$ 1.761 $ (0.391)
$ 1.763 $ (0.389)
$ 1.768 $ (0.398)
$ 1.775 $ (0.391)
$ 1.776 $ (0.404)
$ 1.788 $ (0.392)
$ 1.791 $ (0.404)
$ 1.809 $ (0.386)
$ 1.804 $ (0.406)
$ 1.830 $ (0.380)
$ 1.818 $ (0.408)
$ 1.855 $ (0.371)
$ 1.833 $ (0.409)
$ 1.883 $ (0.359)
$ 1.849 $ (0.409)
$ 1.915 $ (0.343)
$ 1.867 $ (0.408)
$ 1.952 $ (0.323)
$ 1.887 $ (0.406)
$ 1.993 $ (0.299)
$ 1.908 $ (0.403)
$ 2.041 $ (0.270)
$ 1.923 $ (0.406)
$ 2.087 $ (0.242)
$ 1.939 $ (0.410)
$ 2.139 $ (0.209)
$ 1.480 $ (0.414)
$ 1.724 $ (0.170)
$ 1.142 $ (0.417)
$ 1.436 $ (0.123)
$ 0.735 $ (0.421)
$ 1.086 $ (0.069)
$ 0.478 $ (0.424)
$ 0.895 $ (0.007)
$ (10.743)
$ (8.569)
SpecFund Inc./Dec.
Only
$ 1.254 $
$ 1.576 $
$ 1.742 $ (0.175)
$ 1.739 $ (0.296)
$ 1.749 $ (0.296)
$ 1.759 $ (0.296)
$ 1.770 $ (0.296)
$ 1.781 $ (0.296)
$ 1.793 $ (0.296)
$ 1.804 $ (0.296)
$ 1.817 $ (0.296)
$ 1.829 $ (0.296)
$ 1.842 $ (0.296)
$ 1.856 $ (0.296)
$ 1.869 $ (0.296)
$ 1.884 $ (0.296)
$ 1.898 $ (0.296)
$ 1.914 $ (0.296)
$ 1.929 $ (0.296)
$ 1.945 $ (0.296)
$ 1.962 $ (0.296)
$ 1.979 $ (0.296)
$ 1.996 $ (0.296)
$ 2.014 $ (0.296)
$ 2.033 $ (0.296)
$ 2.052 $ (0.296)
$ 1.598 $ (0.296)
$ 1.263 $ (0.296)
$ 0.859 $ (0.296)
$ 0.606 $ (0.296)
$ (8.175)

July 27, 2014
Page 31

Fiscal
Year
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
2039
2040
2041
2042
2043
2044
Existing
Law
59.8%
58.5%
57.1%
56.4%
57.7%
59.0%
59.9%
61.2%
62.7%
64.3%
66.0%
67.9%
70.0%
72.2%
74.5%
77.0%
79.6%
82.3%
85.2%
88.3%
91.6%
93.1%
94.2%
95.1%
95.9%
96.4%
96.7%
96.8%
96.7%
96.1%
Cash Balance/Fund
7.50%
Blended
59.8%
59.8%
64.6%
64.6%
63.3%
63.3%
62.4%
62.4%
63.5%
63.5%
64.6%
64.6%
65.4%
65.4%
66.5%
66.6%
67.8%
67.9%
69.3%
69.4%
71.0%
71.0%
72.8%
72.8%
74.7%
74.8%
76.9%
76.9%
79.1%
79.2%
81.6%
81.6%
84.2%
84.2%
87.1%
87.0%
90.1%
89.9%
93.4%
93.1%
96.9%
96.4%
98.5%
97.8%
99.6%
98.8%
100.6%
99.5%
101.7%
100.3%
102.7%
100.9%
103.5%
101.3%
104.8%
102.1%
105.9%
102.6%
107.0%
103.0%
SpecFund
Only
59.8%
64.8%
63.7%
62.9%
64.0%
65.1%
65.8%
67.0%
68.2%
69.6%
71.1%
72.8%
74.6%
76.5%
78.6%
80.8%
83.1%
85.5%
88.1%
90.8%
93.7%
94.8%
95.5%
95.9%
96.2%
96.2%
96.0%
96.0%
95.9%
95.3%
Fiscal
Year
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
2039
2040
2041
2042
2043
2044

(in billions)
Existing
Cash Balance/Fund
Law
7.50%
Blended
$ 38.458
$ 38.458
$ 38.458
$ 40.866
$ 34.856
$ 34.856
$ 43.418
$ 37.233
$ 37.228
$ 45.424
$ 39.230
$ 39.217
$ 45.438
$ 39.205
$ 39.182
$ 45.359
$ 39.073
$ 39.036
$ 45.615
$ 39.261
$ 39.209
$ 45.423
$ 38.973
$ 38.904
$ 45.011
$ 38.451
$ 38.365
$ 44.325
$ 37.641
$ 37.539
$ 43.355
$ 36.534
$ 36.419
$ 42.096
$ 35.123
$ 34.999
$ 40.521
$ 33.378
$ 33.252
$ 38.621
$ 31.285
$ 31.168
$ 36.376
$ 28.830
$ 28.737
$ 33.752
$ 25.984
$ 25.933
$ 30.725
$ 22.721
$ 22.736
$ 27.270
$ 19.026
$ 19.139
$ 23.349
$ 14.858
$ 15.106
$ 18.898
$ 10.154
$ 10.583
$ 13.896
$ 4.901
$ 5.566
$ 11.691
$ 2.451
$ 3.416
$ 10.088
$ 0.608
$ 1.948
$ 8.688
$ (1.019)
$ 0.777
$ 7.572
$ (2.904)
$ (0.564)
$ 6.789
$ (4.569)
$ (1.589)
$ 6.361
$ (6.008)
$ (2.255)
$ 6.270
$ (8.278)
$ (3.604)
$ 6.605
$ (10.354)
$ (4.592)
$ 8.018
$ (12.414)
$ (5.379)
SpecFund
Only
$ 38.458
$ 34.645
$ 36.731
$ 38.699
$ 38.689
$ 38.601
$ 38.865
$ 38.699
$ 38.335
$ 37.718
$ 36.844
$ 35.707
$ 34.286
$ 32.573
$ 30.552
$ 28.193
$ 25.475
$ 22.378
$ 18.867
$ 14.885
$ 10.415
$ 8.811
$ 7.884
$ 7.242
$ 6.974
$ 7.136
$ 7.758
$ 7.771
$ 8.219
$ 9.754

July 27, 2014
Page 32

Fiscal
Year
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
2039
2040
2041
2042
2043
2044
Existing
Law
20.5%
25.0%
28.1%
29.0%
30.1%
30.9%
30.8%
30.8%
31.1%
31.1%
31.2%
31.3%
31.4%
31.5%
31.6%
31.6%
31.7%
31.8%
31.9%
32.0%
32.1%
18.5%
15.1%
13.4%
11.6%
9.9%
8.3%
6.9%
5.5%
4.4%
Cash Balance/Fund
7.50%
Blended
20.5%
20.5%
23.5%
23.5%
26.5%
26.5%
25.9%
25.9%
26.8%
26.8%
27.4%
27.4%
27.2%
27.2%
27.1%
27.1%
27.2%
27.2%
27.2%
27.2%
27.2%
27.2%
27.2%
27.2%
27.2%
27.2%
27.3%
27.2%
27.3%
27.2%
27.3%
27.3%
27.4%
27.4%
27.5%
27.5%
27.6%
27.6%
27.8%
27.8%
28.0%
28.0%
14.5%
14.6%
11.1%
11.3%
9.6%
9.8%
7.9%
8.2%
6.2%
6.7%
4.8%
5.4%
7.1%
7.8%
5.6%
6.5%
4.6%
5.7%
SpecFund
Only
20.5%
25.0%
28.1%
26.0%
27.0%
27.8%
27.7%
27.7%
28.0%
28.0%
28.1%
28.2%
28.2%
28.3%
28.3%
28.4%
28.4%
28.5%
28.6%
28.6%
28.7%
15.1%
11.6%
9.9%
8.0%
6.2%
4.7%
6.9%
5.5%
4.4%
Fiscal
Year
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
2039
2040
2041
2042
2043
2044
Total
Existing
Law
$ 2.812
$ 3.520
$ 4.059
$ 4.314
$ 4.596
$ 4.856
$ 4.989
$ 5.138
$ 5.326
$ 5.498
$ 5.674
$ 5.848
$ 6.025
$ 6.201
$ 6.377
$ 6.556
$ 6.742
$ 6.929
$ 7.120
$ 7.317
$ 7.518
$ 4.447
$ 3.700
$ 3.381
$ 2.997
$ 2.606
$ 2.254
$ 1.935
$ 1.573
$ 1.282

(in billions)
Cash Balance/Fund
7.5% Ret Inc./Dec.
Blended Inc./Dec.
$ 2.812 $
$ 2.812 $
$ 3.309 $ (0.211)
$ 3.309 $ (0.211)
$ 3.832 $ (0.226)
$ 3.832 $ (0.226)
$ 3.847 $ (0.467)
$ 3.846 $ (0.469)
$ 4.101 $ (0.495)
$ 4.097 $ (0.499)
$ 4.317 $ (0.538)
$ 4.313 $ (0.543)
$ 4.409 $ (0.580)
$ 4.403 $ (0.586)
$ 4.518 $ (0.619)
$ 4.510 $ (0.627)
$ 4.669 $ (0.657)
$ 4.660 $ (0.666)
$ 4.804 $ (0.694)
$ 4.794 $ (0.704)
$ 4.944 $ (0.730)
$ 4.933 $ (0.741)
$ 5.084 $ (0.764)
$ 5.072 $ (0.776)
$ 5.226 $ (0.798)
$ 5.214 $ (0.811)
$ 5.370 $ (0.830)
$ 5.358 $ (0.843)
$ 5.516 $ (0.861)
$ 5.505 $ (0.872)
$ 5.667 $ (0.889)
$ 5.657 $ (0.899)
$ 5.825 $ (0.916)
$ 5.818 $ (0.924)
$ 5.989 $ (0.941)
$ 5.985 $ (0.944)
$ 6.165 $ (0.954)
$ 6.166 $ (0.953)
$ 6.351 $ (0.966)
$ 6.359 $ (0.958)
$ 6.544 $ (0.974)
$ 6.562 $ (0.956)
$ 3.470 $ (0.977)
$ 3.500 $ (0.947)
$ 2.723 $ (0.977)
$ 2.769 $ (0.931)
$ 2.409 $ (0.971)
$ 2.476 $ (0.905)
$ 2.035 $ (0.962)
$ 2.127 $ (0.870)
$ 1.645 $ (0.961)
$ 1.767 $ (0.839)
$ 1.295 $ (0.959)
$ 1.455 $ (0.799)
$ 1.968 $ 0.033
$ 2.173 $ 0.238
$ 1.607 $ 0.034
$ 1.867 $ 0.294
$ 1.354 $ 0.072
$ 1.679 $ 0.398
$ (19.778)
$ (18.568)
SpecFund Inc./Dec.
Only
$ 2.812 $
$ 3.520 $
$ 4.059 $
$ 3.866 $ (0.448)
$ 4.133 $ (0.463)
$ 4.376 $ (0.480)
$ 4.493 $ (0.496)
$ 4.624 $ (0.514)
$ 4.795 $ (0.532)
$ 4.948 $ (0.550)
$ 5.104 $ (0.570)
$ 5.258 $ (0.590)
$ 5.414 $ (0.610)
$ 5.569 $ (0.632)
$ 5.723 $ (0.654)
$ 5.879 $ (0.677)
$ 6.041 $ (0.700)
$ 6.205 $ (0.725)
$ 6.370 $ (0.750)
$ 6.541 $ (0.776)
$ 6.714 $ (0.803)
$ 3.615 $ (0.832)
$ 2.839 $ (0.861)
$ 2.490 $ (0.891)
$ 2.075 $ (0.922)
$ 1.652 $ (0.954)
$ 1.266 $ (0.988)
$ 1.935 $ 0.000
$ 1.573 $ 0.000
$ 1.282 $ 0.000
$ (16.416)
July 24, 2014

VIA E-MAIL to: jclay@pa.gov
Mr. Jeffrey B. Clay
Executive Director
Pennsylvania Public School Employees' Retirement System
5 North 5th Street
Re:
Addendum to House Bill No. 1353 (Printers No. 2152) as amended by A07223
Dear Jeff:
As requested, we are writing to provide estimates of the cost savings to the Public School
Employees Retirement System (PSERS) that would arise from a one-time cash infusion of
$6,000,000,000 on February 1, 2015, from bond proceeds issued by the Pennsylvania Economic
Development Financing Authority. We have assumed an amendment to House Bill No. 1353 would
be adopted that would eliminate the provision for application for bond proceeds to be contingent on
the percentage of Class T-D member elections.
In our cost note of July 22, 2014 (copy attached), the accumulated savings that would result from
House Bill No. 1353 through the fiscal year ending June 30, 2045, were estimated at $11,479
million. This estimate did not include any savings that would be achieved through the use of
pension obligations bonds authorized under the legislation, since the application for bond proceeds
in the version of the legislation we analyzed is contingent on the percentage of Class T-D member
elections. Our analysis assumed that no Class T-D members would elect the change in benefit
provisions for a 1% reduction in their employee contribution rate.
If we assume that i) the requirement that PSERSs application for bond proceeds be contingent on
the percentage of Class T-D member elections is eliminated, ii) PSERS receives a one-time cash
infusion of $6,000,000,000 from bond proceeds as of February 1, 2015, and iii) in accordance with
the legislation, the cash infusion is to be amortized as a level percentage of compensation over a
period of 24 years beginning with the pension contribution payable fiscal year ending June 30,
2017, our estimate of the total cumulative savings that would develop through June 30, 2045 is
$27,784 million, which represents an increase of $16,305 million or, approximately, a 142.0%
increase in estimated savings over the period analyzed compared to our earlier estimate that
excluded the effect of the one-time contribution of the proceeds of the bond issue. It is important to
note that the increased savings just cited are the cumulative, undiscounted expected reduction in
future contributions that would arise as a result of the one-time addition of $6,000,000,000 to
PSERSs assets. It also does not reflect any savings that might accrue to the Commonwealth of
Pennsylvania as a result of differences between the debt service costs associated with the bond
issue and the earnings on the invested proceeds placed in the PSERS trust.
The potential financial impact of this addendum to House Bill No. 1353 is presented in the attached
Tables 1 and 2. These results should be considered estimates of the likely pattern of emerging
costs and liabilities resulting from the proposed changes but should not be viewed as a guarantee
500 Plaza Drive Secaucus, NJ 07096-1533

201.902.2300 201.902.2450 fax
Mr. Jeffrey B. Clay

July 24, 2014
Page 2
of actual costs. Actual future funding obligations will be determined on the basis of actuarial
valuations made in future years and will likely differ from the estimates provided in these analyses.
The attached Table 1 illustrates the estimated savings arising under the legislation through the
2045 fiscal year. Table 1 compares projected employer contribution obligations under the current
benefit and funding provisions of PSERS with those projected to arise under the provisions of this
addendum to House Bill No. 1353.
Table 2 allocates the total projected cost/(savings) between pension benefit reforms, the change in
the collared rates and the one-time cash infusion of $6,000,000,000 to PSERS.
Please refer to our July 22, 2014, cost note for the assumptions and methods used in our
estimation of the cost savings of House Bill No. 1353. The same assumptions and methods were
used in making the updated estimate reported in this note. In addition, all caveats outlined in the
July 22, 2014, cost note also apply to this cost note.
I am a Fellow of the Society of Actuaries and a Member of the American Academy of Actuaries. I
meet the Qualification Standards of the Academy to render the actuarial opinions contained herein.
This analysis has been prepared in accordance with all applicable Actuarial Standards of Practice,
and I am available to answer questions concerning it.
Please let me know if you have any questions concerning these projections.
Very truly yours,
David L. Driscoll, FSA, MAAA, EA, FCA

Principal, Consulting Actuary
Enc.
R:\TOBIN\2014\July\PSERS07242014DLD - GrellProposalHB1353 Addendum_DLD3.docx
pc:
Brian Carl
Frank Ryder
Sal Nakar
Ed Quinn
Public School Employees' Retirement System of Pennsylvania

Projection of Contribution Rates and Funded Ratios As of June 30, 2013
Current PSERS vs. House Bill No. 1353 (Printers No. 2152) as amended by A07223
Pension Rate Floor
Employee Contribution Rate
Employer Normal Cost Rate
Fiscal
Year
Ending
June1
Appropriation
Payroll
(thousands)
Fiscal Year
Market Rate
of Return
2008
2012
2013
2014
$ 14,112,000
14,297,000
13,720,000
3.43 %
7.96
7.50
4.00 %
4.00
4.00
4.00 %
4.00
4.00
7.37
7.40
7.43
2015
2016
2017
2018
2019
13,482,000
13,841,530
14,214,689
14,613,842
15,028,322
7.50
7.50
7.50
7.50
7.50
4.00
4.00
8.03
7.84
7.66
4.00
4.00
8.03
7.68
7.35
7.46
7.47
7.48
7.48
7.49
7.46
7.47
7.48
7.46
7.45
8.46
8.23
8.03
7.84
7.66
2020
2021
2022
2023
2024
15,465,597
15,914,196
16,378,425
16,858,286
17,349,187
7.50
7.50
7.50
7.50
7.50
7.49
7.32
7.15
6.99
6.83
7.05
6.74
6.45
6.17
5.89
7.49
7.49
7.50
7.50
7.50
7.43
7.42
7.41
7.39
7.38
2025
2026
2027
2028
2029
17,847,579
18,351,727
18,853,322
19,356,695
19,860,487
7.50
7.50
7.50
7.50
7.50
6.67
6.50
6.34
6.17
5.99
5.61
5.34
5.05
4.75
4.46
7.50
7.50
7.50
7.50
7.51
2030
2031
2032
2033
2034
20,368,735
20,882,031
21,401,546
21,926,083
22,458,878
7.50
7.50
7.50
7.50
7.50
5.81
5.64
5.46
5.27
5.09
4.16
3.86
3.54
3.23
2.90
2035
2036
2037
2038
2039
23,006,865
23,571,108
24,148,309
24,742,748
25,356,078
7.50
7.50
7.50
7.50
7.50
4.90
4.71
4.53
4.34
4.16
2040
2041
2042
2043
2044
25,995,454
26,666,591
27,375,382
28,128,239
28,942,289
7.50
7.50
7.50
7.50
7.50
2045
29,816,329
7.50
HB1353
Health
Care
Contribution
Current
HB1353
10.15 %
12.99
15.25
10.15 %
12.99
15.25
18.27 %
21.65
23.82
18.27 %
21.65
23.82
0.65 %
0.86
0.93
8.46
8.23
8.03
7.68
7.35
17.51
19.05
20.41
21.59
22.83
17.51
19.05
17.37
18.64
19.86
25.97
27.28
28.44
29.43
30.49
25.97
27.28
25.40
26.32
27.21
7.49
7.32
7.15
6.99
6.83
7.05
6.74
6.45
6.17
5.89
23.81
23.93
24.12
24.50
24.75
20.82
20.93
21.10
21.47
21.71
31.30
31.25
31.27
31.49
31.58
7.37
7.35
7.34
7.33
7.31
6.67
6.50
6.34
6.17
5.99
5.61
5.34
5.05
4.75
4.46
25.00
25.24
25.49
25.74
26.00
21.95
22.18
22.41
22.63
22.86
7.51
7.51
7.51
7.51
7.51
7.30
7.28
7.27
7.25
7.24
5.81
5.64
5.46
5.27
5.09
4.16
3.86
3.54
3.23
2.90
26.26
26.53
26.81
27.09
27.39
2.58
2.25
1.93
1.60
1.28
7.51
7.51
7.51
7.51
7.51
7.22
7.21
7.19
7.18
7.16
4.90
4.71
4.53
4.34
4.16
2.58
2.25
1.93
1.60
1.28
3.98
3.81
3.64
3.49
3.36
0.96
0.65
0.36
0.08
0.00
7.51
7.51
7.51
7.51
7.51
7.14
7.13
7.11
7.10
7.08
3.98
3.81
3.64
3.49
3.36
3.24
0.00
7.51
7.07
3.24
Current
7.37
7.40
7.43
HB1353
Preliminary Employer
Pension Rate
HB1353
Current
HB1353
Employer Unfunded
Liability Rate
Current
8.12
8.66
8.57
HB1353
0.65 %
0.86
0.93
8.65 %
12.36
16.93
8.65
12.36
16.93
0.90
0.84
0.83
0.82
0.79
0.90
0.84
0.83
0.82
0.79
21.40
25.84
29.27
30.25
31.28
21.40
24.34
26.23
27.14
28.00
2,885,148
3,576,651
4,160,639
4,420,687
4,700,859
2,885,148
3,369,028
3,728,513
3,966,197
4,207,930
0
(207,623)
(432,127)
(454,490)
(492,929)
27.87
27.67
27.55
27.64
27.60
0.78
0.77
0.74
0.73
0.72
0.78
0.77
0.74
0.73
0.72
32.08
32.02
32.01
32.22
32.30
28.65
28.44
28.29
28.37
28.32
4,961,364
5,095,726
5,242,734
5,431,740
5,603,787
4,430,894
4,525,997
4,633,456
4,782,696
4,913,290
31.67
31.74
31.83
31.91
31.99
27.56
27.52
27.46
27.38
27.32
0.69
0.69
0.69
0.69
0.69
0.69
0.69
0.69
0.69
0.69
32.36
32.43
32.52
32.60
32.68
28.25
28.21
28.15
28.07
28.01
5,775,477
5,951,465
6,131,100
6,310,283
6,490,407
23.10
23.34
23.58
23.83
24.09
32.07
32.17
32.27
32.36
32.48
27.26
27.20
27.12
27.06
26.99
0.69
0.69
0.69
0.69
0.69
0.69
0.69
0.69
0.69
0.69
32.76
32.86
32.96
33.05
33.17
27.95
27.89
27.81
27.75
27.68
27.68
14.06
10.70
9.23
7.57
24.35
10.70
7.30
5.80
4.11
32.58
18.77
15.23
13.57
11.73
26.93
12.95
9.23
7.40
5.39
0.69
0.69
0.69
0.69
0.69
0.69
0.69
0.69
0.69
0.69
33.27
19.46
15.92
14.26
12.42
0.96
0.65
0.36
0.08
0.00
5.95
4.53
3.29
1.98
0.95
2.45
4.70
3.34
2.02
0.99
9.93
8.34
6.93
5.47
4.31
3.41
5.35
3.70
2.10
0.99
0.69
0.69
0.69
0.69
0.69
0.69
0.69
0.69
0.69
0.69
0.00
0.98
1.01
4.22
1.01
0.69
0.69
8.12
8.66
8.57
HB1353
Current
HB1353
Cash Flow Basis
Present Value as
of June 30, 2014
Current
Unfunded Accrued Liability

(millions)
HB1353
Current
HB1353
66.4 %
63.8
61.6
66.4 % $ 29,533.0
63.8
32,598.6
61.6
35,635.2
0
(179,663)
(347,845)
(340,323)
(343,354)
59.8
58.5
57.2
56.6
57.8
66.2
65.0
63.5
62.7
63.8
38,338.9
40,695.3
43,145.8
45,055.8
44,962.5
32,338.9
34,460.7
36,875.4
38,749.6
38,635.8
(530,470)
(569,728)
(609,277)
(649,044)
(690,498)
(343,724)
(343,406)
(341,623)
(338,531)
(335,025)
59.2
60.2
61.5
63.0
64.7
65.0
65.8
67.0
68.2
69.7
44,764.7
44,895.2
44,575.0
44,039.1
43,239.2
38,434.3
38,579.4
38,293.9
37,814.9
37,095.8
5,041,941
5,177,022
5,307,210
5,433,424
5,562,922
(733,535)
(774,443)
(823,890)
(876,858)
(927,485)
(331,076)
(325,153)
(321,780)
(318,574)
(313,458)
66.5
68.4
70.5
72.7
75.0
71.2
72.9
74.7
76.7
78.8
42,187.1
40,841.8
39,186.3
37,208.4
34,892.1
36,127.1
34,889.0
33,368.4
31,555.9
29,438.4
6,672,798
6,861,835
7,053,950
7,246,570
7,449,610
5,693,061
5,823,998
5,951,770
6,084,488
6,216,617
(979,736)
(1,037,837)
(1,102,180)
(1,162,082)
(1,232,992)
(308,016)
(303,519)
(299,847)
(294,087)
(290,263)
77.5
80.2
83.0
86.0
89.2
81.0
83.3
85.8
88.5
91.4
32,205.8
29,115.7
25,589.2
21,588.6
17,073.4
26,987.6
24,173.3
20,966.5
17,333.9
13,239.2
27.62
13.64
9.92
8.09
6.08
7,654,384
4,586,938
3,844,411
3,528,316
3,149,225
6,354,496
3,215,099
2,395,512
2,001,688
1,541,650
(1,299,888)
(1,371,838)
(1,448,899)
(1,526,628)
(1,607,575)
(284,661)
(279,458)
(274,564)
(269,110)
(263,609)
92.6
94.2
95.4
96.5
97.4
94.5
95.8
96.6
97.3
97.7
11,999.2
9,595.5
7,740.0
6,042.6
4,580.8
8,642.9
6,779.8
5,533.3
4,519.0
3,821.5
10.62
9.03
7.62
6.16
5.00
4.10
6.04
4.39
2.79
1.68
2,760,717
2,407,993
2,086,004
1,732,700
1,447,114
1,065,814
1,610,662
1,201,779
784,778
486,230
(1,694,904)
(797,331)
(884,225)
(947,922)
(960,884)
(258,538)
(113,138)
(116,715)
(116,393)
(109,753)
98.1
98.7
99.1
99.3
99.4
98.0
98.6
99.0
99.2
99.4
3,382.0
2,431.0
1,713.5
1,287.8
1,110.7
3,474.9
2,485.9
1,761.5
1,327.9
1,142.5
4.91
1.70
1,463,982
506,878
(101,694)
99.5
99.5
903.5
926.9
2,322,796
2,322,796
Total Cost/(Savings):
1. Results beginning with fiscal year ending 2013 (June 30, 2011 valuation) are based on the revised demographic and economic assumptions resulting from the 7/1/05 though 6/30/10 experience study.
Funded
Ratio
Total Employer Contribution (thousands)

Cost/(Savings)
Current
Current
Current
Total Employer Contribution

Rate
(957,104)
$
(27,784,422) $
(8,206,902)
$ 29,533.0
32,598.6
35,635.2
Table 2
Cost/(Savings) Allocation of Table 1 - Total Potential Projected Cost/(Savings)
Due to House Bill No. 1353 (Printers No. 2152) as amended by A07223
(Amounts in millions)
Cash Flow
Basis
Funding Reforms
Revised pension contribution rate collars
$6 billion cash infusion as of February 1, 2015
Benefit Reforms
Class T-G Cash Balance Plan
Total House Bill No. 1353 Cost/(Savings)
Present Value
as of June 30, 2014
838.7
(16,305.4)
Not determined
Not determined
(12,317.7)
Not determined
(27,784.4) $
(8,206.9)
Notes:
1 Cost allocation is dependent on the order in which the changes are implemented. If a different order is utilized, individual
results will vary. The cost allocation is based on the following order of reform recognition: 1)Revised pension contribution rate
collars, 2) Class T-G Cash Balance Plan and 3) $6 billion cash infusion as of February 1, 2015
July 22, 2014

VIA E-MAIL to: jclay@pa.gov
Mr. Jeffrey B. Clay
Executive Director
Pennsylvania Public School Employees' Retirement System
5 North 5th Street
Re:
House Bill No. 1353 (Printers No. 2152) as amended by A07223
Dear Jeff:
As requested, we have examined House Bill No. 1353, which would create a new class T-G
membership under the Pennsylvania Public School Employees Retirement System (PSERS) for
employees hired after June 30, 2015, and former active members of PSERS returning to active
service on or after July 1, 2015. The legislation will provide for a cash balance plan for all Class T-G
members.
Our understanding of the legislation is summarized below:
PSERS provisions applicable to Class T-G members
Eligible members would enroll in the System immediately upon qualifying employment or reemployment.
Members would contribute 7% of pay, which would be credited with interest at the statutory
interest rate of 4% per year. Currently, Class T-E members contribute 7.50% of
compensation.
Members would receive an annual employer credit of 4% of Class T-G compensation for
service less than 15 years and a 5% employer credit for service of 15 or more years of
service. Such amounts will be credited with statutory interest.
Active members would be eligible to receive 50% of any excess interest earned by the
System. Excess interest is the five-year average of the Systems annual investment return
above or below 5%. The averaging period is to be phased in over the first five years
following the effective date of the legislation. This additional annual employer credit will be
credited to the members accounts starting in the third year after the effective date of the
legislation. A member must be active on the June 30th of the fiscal year to receive the
additional employer credit.
Eligibility for superannuation would be reached at age 55. No benefits would be paid to a
member prior to superannuation. The benefits paid on or after superannuation would be
monthly annuities that are actuarially equivalent to the members accounts. However, a
member who terminates employment prior to eligibility for superannuation would be eligible
to elect to receive a refund. Such refund would exclude the employer credit amounts plus
500 Plaza Drive Secaucus, NJ 07096-1533

201.902.2300 201.902.2450 fax
Mr. Jeffrey B. Clay

July 22, 2014
Page 2
interest and any excess interest credited to the members account. No other benefits would
be payable to a member who terminates employment prior to superannuation and receives
a refund.
Members would be included in the definition of Eligible Annuitants and would therefore be
eligible for health insurance premium assistance.
Members would be eligible for a disability benefit after completion of five years of service.
Such disability benefit would be an immediate monthly benefit that is actuarially equivalent
to the members total account, including all employer credits plus interest and excess
interest credited at the time of disability. PSERS would be authorized to offer group disability
insurance coverage to be paid by the member.
The beneficiary of a member who dies in active service or as a vestee would receive a lump
sum payment of the balance of the members account, including all employer credits with
interest and excess interest credited to the account of the member.
For members who return to service after July 1, 2015, service as a Class T-G member will
count towards eligibility for any benefits earned as a non-Class T-G member.
PSERS provisions for non-Class T-G Members
No existing members would be allowed to elect into Class T-G membership.
Only Class T-D members with an effective date of retirement on or after July 1, 2015, would
be eligible to elect to (1) have their final average salary calculated as the average of their
highest 5 years of service, and (2) any lump sum elected under Option 4 calculated using
actuarially cost-neutral factors. Any Class T-D member who opts in to the above changes
would have their employee contribution rate reduced by 1% beginning July 1, 2015.
For T-D members who elected the benefit changes described above and have
superannuated by age as of July 1, 2015, or superannuate by age on or before June 30,
2017, their election would not be effective until July 1, 2017 and their Average Final Salary
(AFS) could not be less than their AFS calculated as of June 30, 2015.
PSERS funding provisions
The legislation provides for a change in the pension contribution rate collars effective for the
fiscal years beginning July 1, 2014 and ending June 30, 2019. However, per instructions
from PSERS, the change in the pension contribution rate collars is to be delayed one year
(i.e. effective for the fiscal years beginning July 1, 2015 and ending June 30, 2020). The
collared pension contribution rate would be no more than 3.0% greater than the prior year
pension contribution rate. Collars end when the required pension contribution rate is less
than the collared pension contribution rate but in no event will extend beyond June 30, 2020.
Costs associated with this change in collars will not be deemed to be costs added by
legislation and, therefore, will be subject to subsequent applicable pension contribution rate
collars.
Mr. Jeffrey B. Clay

July 22, 2014
Page 3
The actuarial value of assets would be restricted to a 30% corridor around the market value
of assets.
Miscellaneous provisions
The provision in section 13(1)(i) of the operative provision of Act 2010-120 that prevented an
executive agency or independent agency from issuing pension obligation bonds for the
benefit of PSERS is repealed.
The Commonwealth may issue bonds totaling up to $6 billion for PSERS. The bonds would
be issued through the Pennsylvania Economic Development Finance Agency. PSERS
could apply for the funds contingent on the percentage of T-D members who elect to opt in
to the changes outlined above, based on a schedule to be determined at the time the bonds
are authorized.
Any monies received from the bonds will be amortized in accordance with the Systems
current amortization method. Actual debt service on the bonds will be paid by the
Commonwealth.
The potential financial impact of House Bill No. 1353 is presented in the attached Tables 1 and 2.
These results should be considered estimates of the likely pattern of emerging costs and liabilities
resulting from the proposed changes but should not be viewed as a guarantee of actual costs.
Actual future funding obligations will be determined on the basis of actuarial valuations made in
future years and will likely differ from the estimates provided in these analyses.
The attached Table 1 illustrates the estimated savings arising under the legislation through the
2045 fiscal year. Table 1 compares projected employer contribution obligations under the current
benefit and funding provisions of PSERS with those projected to arise under the provisions of
House Bill No. 1353.
Table 2 allocates the total projected cost/(savings) between pension benefit reforms and the
change in the collared rates.
Please note that for the purpose of this cost note we have assumed that no Class T-D members
would elect the change in benefit provisions as outlined above for a 1% reduction in their employee
contribution rate. Although we believe that a 1% reduction in the employee contribution rate will
lead only a small percentage of the Class T-D membership to accept reduced benefits, additional
analysis should be performed to determine the effect of varying percentages of Class T-D members
electing the reduced benefits. Due to time constraints, this analysis has not been completed for this
cost note. Since the application for bond proceeds is contingent on the percentage of Class T-D
member elections, we also note that our projections do not reflect any savings that would be
achieved through the use of pension obligations bonds authorized under the legislation.
In addition, the legislation provides that the benefit payable to Class T-G members is a standard life
annuity as defined under Section 8102 of Title 24. Current PSERS benefit elections payable under
a single life annuity guarantee the return of their accumulated deductions. Therefore, for the
purpose of this cost note we have assumed the same form of payment for Class T-G members.
Mr. Jeffrey B. Clay

July 22, 2014
Page 4
Also, we have assumed that no Class T-G members who terminate prior to attainment of
superannuation would elect to receive a refund of their accumulated deductions due to the forfeiture
of the employer credit amounts plus interest and any excess interest credited to the account.
Finally, for purposes of simplifying the calculations, the excess interest credited to active Class TG members has been set equal to 5.25%. This rate is equal to the 4% statutory interest rate plus
1.25% in excess interest credit. The 1.25% is equal to 50% of the excess return of the assumed
7.50% asset return utilized for the cost note over 5.00%.
We feel we should note that a large proportion of the estimated savings generated by this proposal
arises from the conversion of members accounts to annuities using the statutory 4% annual rate of
interest at superannuation and valuing the resulting benefits using an assumed annual interest rate
of 7.5%. The availability of a partial lump-sum option under the proposed legislation and the
potential variability in the use of that option over varying economic climates should be considered in
assessing the likelihood that savings would emerge at the estimated levels in the event this
proposal is enacted.
In addition, attached as Table 3 are five benefit comparisons between the estimated current
benefits provided under PSERS for Class T-E members and proposed benefits under House Bill
1353 for hypothetical members who are eligible for immediate retirement.
Except where noted above, the calculations presented here are based on the data, methods and
assumptions used in the June 30, 2013 actuarial valuation of PSERS as well as the following
assumptions for the projected actuarial valuations:
The workforce size is assumed to remain constant over the projection period; and
Future new employees are assumed to have similar characteristics (age/gender/salary) to

new employees who joined the System in the period July 1, 2010 through June 30, 2013.
One difficulty we must note in the estimation of the cost impact of benefit changes is the potential
for changes in retirement patterns when benefit entitlements are reduced. In general, decreasing
the benefits of future retirees may lead affected members to retire at later ages than do members
subject to current provisions, since the total pension payable may not be sufficient to permit some
members to retire as early as they once might have. The extent and nature of these effects cannot
be identified until members start to retire under the proposed benefit designs and a formal
experience study is prepared. The results presented here are based on the assumption that there
will be no change in members' retirement patterns.
The estimates of the cost impact of the proposed legislation presented here are based on an
assumed 7.50% annual rate of return on System assets. It is possible that, under House Bill No.
1353, liquidity considerations may arise due to the shift in liability towards retirees, and that the
assumed annual rate of return on the Systems assets used in future valuations may change as a
result. If so, the estimated savings under the proposed legislation would change as well.
Future actuarial measurements may differ significantly from the current measurement presented in
this analysis due to such factors as: plan experience different from that anticipated by the economic
and demographic assumptions; increases or decreases expected as part of the natural operation of
the methodology used for these measurements; and changes in plan provisions or applicable law.
An analysis of the potential range of such future measurements is beyond the scope of this study.
Mr. Jeffrey B. Clay

July 22, 2014
Page 5
Accordingly, the results contained in this analysis should only be viewed as an estimate of the
potential impact of the alternative benefit reform proposals.
Care should be exercised in communicating any results to third parties to ensure that the above
caveats and underlying basis of the estimations are clearly communicated to any possible
recipients.
I am a Fellow of the Society of Actuaries and a Member of the American Academy of Actuaries. I
meet the Qualification Standards of the Academy to render the actuarial opinions contained herein.
This analysis has been prepared in accordance with all applicable Actuarial Standards of Practice,
and I am available to answer questions concerning it.
Please let me know if you have any questions concerning these projections.
Very truly yours,
David L. Driscoll, FSA, MAAA, EA, FCA

Principal, Consulting Actuary
Enc.
R:\TOBIN\2014\July\PSERS07212014DLD - GrellProposalHB1353.docx
pc:
Brian Carl
Frank Ryder
Sal Nakar
Ed Quinn

Projection of Contribution Rates and Funded Ratios As of June 30, 2013
Current PSERS vs. House Bill No. 1353 (Printers No. 2152) as amended by A07223
Pension Rate Floor
Employee Contribution Rate
Employer Normal Cost Rate
Fiscal
Year
Ending
June1
Appropriation
Payroll
(thousands)
Fiscal Year
Market Rate
of Return
2008
2012
2013
2014
$ 14,112,000
14,297,000
13,720,000
3.43 %
7.96
7.50
4.00 %
4.00
4.00
4.00 %
4.00
4.00
7.37
7.40
7.43
2015
2016
2017
2018
2019
13,482,000
13,841,530
14,214,689
14,613,842
15,028,322
7.50
7.50
7.50
7.50
7.50
4.00
4.00
8.03
7.84
7.66
4.00
4.00
4.00
7.68
7.35
7.46
7.47
7.48
7.48
7.49
7.46
7.47
7.48
7.46
7.45
8.46
8.23
8.03
7.84
7.66
2020
2021
2022
2023
2024
15,465,597
15,914,196
16,378,425
16,858,286
17,349,187
7.50
7.50
7.50
7.50
7.50
7.49
7.32
7.15
6.99
6.83
7.05
6.74
6.45
6.17
5.89
7.49
7.49
7.50
7.50
7.50
7.43
7.42
7.41
7.39
7.38
2025
2026
2027
2028
2029
17,847,579
18,351,727
18,853,322
19,356,695
19,860,487
7.50
7.50
7.50
7.50
7.50
6.67
6.50
6.34
6.17
5.99
5.61
5.34
5.05
4.75
4.46
7.50
7.50
7.50
7.50
7.51
2030
2031
2032
2033
2034
20,368,735
20,882,031
21,401,546
21,926,083
22,458,878
7.50
7.50
7.50
7.50
7.50
5.81
5.64
5.46
5.27
5.09
4.16
3.86
3.54
3.23
2.90
2035
2036
2037
2038
2039
23,006,865
23,571,108
24,148,309
24,742,748
25,356,078
7.50
7.50
7.50
7.50
7.50
4.90
4.71
4.53
4.34
4.16
2040
2041
2042
2043
2044
25,995,454
26,666,591
27,375,382
28,128,239
28,942,289
7.50
7.50
7.50
7.50
7.50
2045
29,816,329
7.50
HB1353
Health
Care
Contribution
Current
HB1353
10.15 %
12.99
15.25
10.15 %
12.99
15.25
18.27 %
21.65
23.82
18.27 %
21.65
23.82
0.65 %
0.86
0.93
8.46
8.23
8.03
7.68
7.35
17.51
19.05
20.41
21.59
22.83
17.51
19.05
20.41
21.69
23.07
25.97
27.28
28.44
29.43
30.49
25.97
27.28
28.44
29.37
30.42
7.49
7.32
7.15
6.99
6.83
7.05
6.74
6.45
6.17
5.89
23.81
23.93
24.12
24.50
24.75
24.06
24.18
24.37
24.76
25.02
31.30
31.25
31.27
31.49
31.58
7.37
7.35
7.34
7.33
7.31
6.67
6.50
6.34
6.17
5.99
5.61
5.34
5.05
4.75
4.46
25.00
25.24
25.49
25.74
26.00
25.28
25.53
25.78
26.03
26.29
7.51
7.51
7.51
7.51
7.51
7.30
7.28
7.27
7.25
7.24
5.81
5.64
5.46
5.27
5.09
4.16
3.86
3.54
3.23
2.90
26.26
26.53
26.81
27.09
27.39
2.58
2.25
1.93
1.60
1.28
7.51
7.51
7.51
7.51
7.51
7.22
7.21
7.19
7.18
7.16
4.90
4.71
4.53
4.34
4.16
2.58
2.25
1.93
1.60
1.28
3.98
3.81
3.64
3.49
3.36
0.96
0.65
0.36
0.08
0.00
7.51
7.51
7.51
7.51
7.51
7.14
7.13
7.11
7.10
7.08
3.98
3.81
3.64
3.49
3.36
3.24
0.00
7.51
7.07
3.24
Current
7.37
7.40
7.43
HB1353
Preliminary Employer
Pension Rate
HB1353
Current
HB1353
Employer Unfunded
Liability Rate
Current
8.12
8.66
8.57
HB1353
0.65 %
0.86
0.93
8.65 %
12.36
16.93
8.65
12.36
16.93
0.90
0.84
0.83
0.82
0.79
0.90
0.84
0.83
0.82
0.79
21.40
25.84
29.27
30.25
31.28
21.40
24.34
27.33
30.19
31.21
2,885,148
3,576,651
4,160,639
4,420,687
4,700,859
2,885,148
3,369,028
3,884,875
4,411,919
4,690,339
0
(207,623)
(275,765)
(8,768)
(10,520)
31.11
30.92
30.82
30.93
30.91
0.78
0.77
0.74
0.73
0.72
0.78
0.77
0.74
0.73
0.72
32.08
32.02
32.01
32.22
32.30
31.89
31.69
31.56
31.66
31.63
4,961,364
5,095,726
5,242,734
5,431,740
5,603,787
4,931,979
5,043,209
5,169,031
5,337,333
5,487,548
31.67
31.74
31.83
31.91
31.99
30.89
30.87
30.83
30.78
30.75
0.69
0.69
0.69
0.69
0.69
0.69
0.69
0.69
0.69
0.69
32.36
32.43
32.52
32.60
32.68
31.58
31.56
31.52
31.47
31.44
5,775,477
5,951,465
6,131,100
6,310,283
6,490,407
26.56
26.83
27.11
27.40
27.70
32.07
32.17
32.27
32.36
32.48
30.72
30.69
30.65
30.63
30.60
0.69
0.69
0.69
0.69
0.69
0.69
0.69
0.69
0.69
0.69
32.76
32.86
32.96
33.05
33.17
31.41
31.38
31.34
31.32
31.29
27.68
14.06
10.70
9.23
7.57
27.99
14.37
11.02
9.55
7.90
32.58
18.77
15.23
13.57
11.73
30.57
16.62
12.95
11.15
9.18
0.69
0.69
0.69
0.69
0.69
0.69
0.69
0.69
0.69
0.69
33.27
19.46
15.92
14.26
12.42
0.96
0.65
0.36
0.08
0.00
5.95
4.53
3.29
1.98
0.95
6.28
4.86
3.50
2.02
0.99
9.93
8.34
6.93
5.47
4.31
7.24
5.51
3.86
2.10
0.99
0.69
0.69
0.69
0.69
0.69
0.69
0.69
0.69
0.69
0.69
0.00
0.98
1.01
4.22
1.01
0.69
0.69
8.12
8.66
8.57
HB1353
Current
HB1353
Cash Flow Basis
Present Value as
of June 30, 2014
Current
Unfunded Accrued Liability

(millions)
HB1353
Current
HB1353
66.4 %
63.8
61.6
66.4 % $ 29,533.0
63.8
32,598.6
61.6
35,635.2
0
(179,663)
(221,980)
(6,566)
(7,328)
59.8
58.5
57.2
56.6
57.8
59.8
58.3
56.7
56.0
57.3
38,338.9
40,695.3
43,145.8
45,055.8
44,962.5
38,338.9
40,910.7
43,663.5
45,599.8
45,516.7
(29,385)
(52,517)
(73,703)
(94,406)
(116,240)
(19,040)
(31,655)
(41,325)
(49,241)
(56,399)
59.2
60.2
61.5
63.0
64.7
58.6
59.6
60.9
62.4
64.0
44,764.7
44,895.2
44,575.0
44,039.1
43,239.2
45,331.1
45,476.0
45,172.1
44,654.5
43,874.6
5,636,265
5,791,805
5,942,567
6,091,552
6,244,137
(139,211)
(159,660)
(188,533)
(218,731)
(246,270)
(62,832)
(67,034)
(73,634)
(79,468)
(83,231)
66.5
68.4
70.5
72.7
75.0
65.8
67.7
69.8
72.0
74.4
42,187.1
40,841.8
39,186.3
37,208.4
34,892.1
42,820.4
41,469.5
39,806.3
37,818.1
35,488.8
6,672,798
6,861,835
7,053,950
7,246,570
7,449,610
6,397,820
6,552,781
6,707,245
6,867,249
7,027,383
(274,978)
(309,054)
(346,705)
(379,321)
(422,227)
(86,449)
(90,384)
(94,321)
(95,994)
(99,398)
77.5
80.2
83.0
86.0
89.2
76.8
79.5
82.3
85.4
88.6
32,205.8
29,115.7
25,589.2
21,588.6
17,073.4
32,786.4
29,676.9
26,127.3
22,099.7
17,553.0
31.26
17.31
13.64
11.84
9.87
7,654,384
4,586,938
3,844,411
3,528,316
3,149,225
7,191,946
4,080,159
3,293,829
2,929,541
2,502,645
(462,438)
(506,779)
(550,581)
(598,775)
(646,580)
(101,269)
(103,236)
(104,334)
(105,550)
(106,026)
92.6
94.2
95.4
96.5
97.4
92.1
93.7
95.0
96.2
97.1
11,999.2
9,595.5
7,740.0
6,042.6
4,580.8
12,442.5
9,997.3
8,094.6
6,343.6
4,821.6
10.62
9.03
7.62
6.16
5.00
7.93
6.20
4.55
2.79
1.68
2,760,717
2,407,993
2,086,004
1,732,700
1,447,114
2,061,440
1,653,329
1,245,580
784,778
486,230
(699,278)
(754,665)
(840,424)
(947,922)
(960,884)
(106,667)
(107,084)
(110,933)
(116,393)
(109,753)
98.1
98.7
99.1
99.3
99.4
97.9
98.5
99.0
99.2
99.4
3,382.0
2,431.0
1,713.5
1,287.8
1,110.7
3,555.0
2,528.2
1,761.5
1,327.9
1,142.5
4.91
1.70
1,463,982
506,878
(101,694)
99.5
99.5
903.5
926.9
2,322,796
2,322,796
Total Cost/(Savings):
1. Results beginning with fiscal year ending 2013 (June 30, 2011 valuation) are based on the revised demographic and economic assumptions resulting from the 7/1/05 though 6/30/10 experience study.
Funded
Ratio
Total Employer Contribution (thousands)

Cost/(Savings)
Current
Current
Current
Total Employer Contribution

Rate
(957,104)
$
(11,479,046) $
(2,618,881)
$ 29,533.0
32,598.6
35,635.2
Table 2
Cost/(Savings) Allocation of Table 1 - Total Potential Projected Cost/(Savings)
Due to House Bill No. 1353 (Printers No. 2152) as amended by A07223
(Amounts in millions)
Cash Flow
Basis
Funding Reforms
Revised pension contribution rate collars
Benefit Reforms
Class T-G Cash Balance Plan
Total House Bill No. 1353 Cost/(Savings)
Present Value
as of June 30, 2014
838.7
(12,317.7)
$
(11,479.0) $
Not determined
Not determined
(2,618.9)
Notes:
1 Cost allocation is dependent on the order in which the changes are implemented. If a different order is utilized, individual
results will vary. The cost for the benefit reforms assumes that the funding reforms are reflected first.
Table 3
Comparison of Benefits Under Act 120 (Class T-E member) and Cash Balance Design (Class T-G member)
Employee
AQe at Hire
Age at Termination
Retirement Age
Salary at Termination
PSERS Benefit (Act 120)
Cash Balance Benefit
PSERS Benefit I Cash Balance Benefit
Cash Balance Design:
Member Contribution
Employer Credit
Statutory Interest Rate
Fund Return for All Future Years
Gain Share
$
$
$
A
30
65
65
31 ,111
21,000
10,532
199%
$
$
$
B
30
65
65
51 ,852
35,000
17,553
199%
$
$
$
30
65
65
72,592
49,000
24,574
199%
$
$
$
D
30
65
65
93,333
63,000
31,595
199%
$
$
$
E
40
65
65
51,852
25,000
12,519
200%
7.00%
4% for years 0 -14, 5% for years 15+
4.00%
7.50%
Members receive 50% share of market returns over 5.00% (the 4.00% statutory interest rate
+ the first 1.00% of excess earnings going to Fund).
buckconsultc:
Actuarial Cost Note Projected Impact of Cash Balance Design

Proposed by Representative Grell
As requested, in connection with a cash balance plan design proposed by Representative Glen
Grell, originally keyed to LRB Document No. 2013D07274 but subsequently amended by
amendment A07224 (hereafter, the amended Grell proposal), we have performed cost
projections to approximate the impact on the future funding of SERS if the amended Grell
proposal were to become law. Under the amended Grell proposal, with the exception of State
Police and members of the judiciary (discussed further below), employees who join SERS on or
after January 1, 2015 (or, in the case of legislators who are newly elected in November 2014,
those who join SERS on or after December 1, 2014) would no longer be covered by the current
SERS benefit provisions, but rather would be covered by a cash balance plan design, the key
features of which are described below.
Exemption for Pennsylvania State Police and Members of the Judiciary
Under the amended Grell proposal, Pennsylvania State Police and members of the judiciary
hired on or after January 1, 2015 would not be covered by the proposed new cash balance plan,
but rather would continue their SERS benefits as-is. References hereafter in this note to all
employees hired or rehired after the cash balance effective date being subject to the proposed
new Grell cash balance plan provisions should be understood, if not specifically excepted, to
exclude Pennsylvania State Police and members of the judiciary.
Impact on Current SERS Members
In general, the amended Grell proposal does not include any changes to the benefit provisions
applicable to current SERS members (or to upcoming members who join prior to the cash
balance effective date), unless such members are eligible for and timely opt into a very specific
set of changes in their individual benefit provisions. This note includes the results of our
analysis of the impact of this provision (the key aspects of which are described on page 3).
Because the amended Grell proposal calls for a new cash balance class of membership and tier
of defined benefits within the existent SERS defined benefit system, this new proposed benefit
structure will not be a separate plan and will not have a separate trust fund. Under this
proposal, SERS would remain open to new members post-2014; there would be no scheduled
closure of SERS to new members. Although the existing SERS funding provisions could
continue to apply, this proposal includes four proposed changes to the current SERS funding
provisions. This note also addresses the impact of these proposed changes (which are briefly
outlined on page 4).
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Cash Balance Plan Design

We understand that the key features of this proposed cash balance plan design would be as
follows:
1. Employee Contributions: All employees would contribute a mandatory 7.00 percent
of payroll.
2. Employer Contributions: All employees would have 4.00 percent of payroll credited
to their cash balance accounts until they have 15 years of cash balance service and
5.00 percent of payroll credited thereafter.
3. Statutory Interest: Accumulated balances in the cash balance accounts (including all
past contributions and interest) of all non-annuitant members, would be credited
with 4 percent statutory interest annually.
4. Excess Interest: Starting in 2018, accumulated balances in the cash balance
accounts of active (and certain inactive) members would be eligible for excess
interest credits approximately as follows:
a. Beginning with calendar 2015 and annually thereafter, to the extent that
actual investment returns earned by the SERS asset fund, net of investment
and administrative fees and costs, are above or below five percent of the total
fund, one half of the years resulting excess (gain) or shortage (loss),
adjusted downward in recognition of the remaining accrued actuarial liability
for SERS legacy DB benefits, will potentially become allocable to eligible
cash balance tier members.
b. The annual determinations of excess interest will occur as follows:
i. The first will occur in 2018, based upon the smoothed excess return,
if any, resulting from the three calendar years 2015 through 2017;
ii. The second will occur in 2019, based upon the smoothed excess
return, if any, resulting from the four calendar years 2015 through
2018;
iii. The third will occur in 2020, based upon the smoothed excess return,
if any, resulting from the five calendar years 2015 through 2019 and
iv. Subsequent determinations will occur annually in 2021 and
thereafter, based upon the smoothed excess return, if any, resulting
from the preceding five calendar years.
v. At the time of each annual determination, excess interest will be
granted only if the sum of the gains and losses for the years included
in the determination is positive.
c. The adjustment described in 4a above allocates excess interest proportionally
between cash balance accounts and pre-cash balance (legacy DB) liabilities.
Therefore, over time, as the aggregate amount in cash balance accounts
becomes larger relative to the legacy DB liabilities, excess interest will
increasingly be allocated to cash balance accounts/members.
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5. Vesting: Employees would vest immediately in their account balances, including all
past employee and employer contributions/credits and all interest (statutory and
excess) credited thereon.
6. Upon Separation From Service (except where small account balances would result
in mandatory cash outs):
a. After attaining age 55:
i. Members would be eligible to receive the value of their entire cash
balance account as a single life annuity, or as an optional form of
annuity based upon the same benefit payment options available to
pre-Act 120 legacy class members (except that Option 4 payments
would be determined on an actuarially neutral basis) or, alternatively,
ii. Members would be able to defer any distributions from their
accounts, thereby leaving their fully vested cash balance accounts to
continue to earn statutory interest (but not excess interest), until some
later date, upon which they request commencement of their annuity
benefits.
b. Before Attaining Age 55:
i. Members would be eligible to receive a lump sum distribution of
their own contributions and associated interest, in which case they
would forfeit the balance of employer contributions and associated
interest credited on their behalf or, alternatively,
ii. Members would be able to defer any distributions from their
accounts, thereby leaving their fully vested cash balance accounts to
continue to earn statutory interest (but not excess interest). Upon
attainment of age 55, members would thereafter be eligible to receive
the value of their entire cash balance account as an annuity as
described in 6ai above.
7. Upon Death (whether pre-separation or post-separation, but prior to becoming an
annuitant): Members would receive a lump sum distribution of the total value of
their cash balance savings account including all contributions and interest.
Benefit Provision Change Option - Available to Legacy DB Members
As noted, the amended Grell proposal includes a provision whereby legacy DB members (i.e.,
current SERS members and upcoming members who join prior to the cash balance effective
date, except those who are members of Class A-3 or Class A-4), may individually elect, within
specified time periods, the following three benefit provision changes, as a package, effective
(for most) January 1, 2016:
1. Reduction in the members contribution rate by 1.0 percent of payroll and
2. Revision from the benefit formula previously applicable to a new benefit formula
that utilizes a five-year final average salary (FAS) component with respect to all
years of service (not just service on or after January 1, 2015), provided however,
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that the FAS may not be less than it would have been had the member retired on
December 31, 2014, and
3. Revision from the Option 4 previously available to an actuarially neutral Option 4.
It should be noted that this benefit provision change option will also be extended to current and
new or returning employees from the State Police and judiciary groups that are exempt from the
proposed cash balance plan. Generally the individual elections would need to be made within
45 days of notice of eligibility to make the election.
Proposed Changes to Current SERS Funding Provisions
As noted, the amended Grell proposal calls for four changes to the current SERS funding
provisions, as follows:
1. Lowering of Employer Contribution Rate Collars: In lieu of the current employer
contribution rate collars of 4.5 percent of payroll, as prescribed in Act 2010-120
(hereafter, Act 120), the collars would instead be as follows:
a. For the five fiscal years, FY 2014/2015 through FY 2018/2019: 3.0 percent
of payroll
b. For fiscal years after FY 2018/2019: No Collars
As under current law, the collars would still be eliminated once the actuarially
determined contribution rate is below the collared contribution rate, even if this
were to occur prior to FY 2019/2020.
2. Authorization to Apply for Special Funding: The proposal authorizes the SERS
Board to apply to the Pennsylvania Economic Development Financing Authority
(PEDFA) for up to $3 billion in additional funds. For purposes of this cost note and
our attached cost projections, Hay Group has anticipated that the SERS fund will
receive a $1 billion cash infusion at the end of 2015 and a $2 billion cash infusion at
the end of 2016 and that the financing to obtain such funds will be handled outside
of the SERS fund.
3. Funding of Transition Liabilities: Any changes in SERS unfunded accrued
actuarial liability:
a. Resulting from the transition from the traditional defined benefit structure to
the cash balance benefit structure will be based upon a 20-year level dollar
amortization and
b. Resulting from the lower contribution rate collars (described in 1. above)
will be based upon a 30-year level dollar amortization.
4. Applicability of Contribution Rate Collars: Any increases in employer contribution
rates as a result of this proposal becoming law will not be deemed costs added by
legislation; therefore, such increases will be factored into the determination of the
employer contribution rate before the rates are limited by any applicable rate collar.
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Will Legacy DB Members Opt for Lower Employee Contributions (By 1.0 Percent of Pay)
In Exchange for Lower Benefits?
Based on our December 31, 2012 actuarial valuation, the average pay for the SERS
membership is about $52,000. A reduction in employee contributions of 1.0 percent per year
would save an average member $520 per year. Assuming 26 pay periods per employee, each
average member would save $20 per pay period before taxes. We do not believe that an
average member would make a decision that would adversely impact his or her future benefit
(as would both the five-year FAS and neutral Option 4 provisions) for what is likely to be a
savings of less than $20 per pay period when taxes are factored in. Members who are lower
paid may have greater financial needs, but their savings would be proportionately lower than
the $20 per pay period amount that is based on an average employee.
Based on the impact discussed above, we do not feel comfortable assuming any significant
percentage of the legacy DB active members will elect the lower contribution rate in exchange
for a reduction in their future benefit rights. Therefore, we have identified the portion of the
legacy DB active member population that is greater than 20 years from superannuation, totaling
approximately 15,800 members (or about 18 percent of the roughly 89,000 legacy DB active
members in total as of December 31, 2012). Out of this group, we estimate that maybe 50
percent, or about 7,900 members, will opt for the lower employee contribution for lower
future benefits package. This gives rise to a net savings for SERS, which is factored into our
attached amended Grell proposal cost results.
Cost of Cash Balance Plan
Based upon the employer normal cost calculation rule mandated by the State Employees
Retirement Code (SERC), which would not change under the amended Grell proposal, Hay
Group estimates that the net employer normal cost for the initial cash balance tier expected to
join SERS during calendar year 2015 will be 0 percent of payroll. Thereafter, this normal cost
will be redetermined with each annual actuarial valuation, reflecting changes that may occur
from year to year in both (i) the demographic characteristics of each years new entrant
population and (ii) the applicable actuarial valuation assumptions.
This 0 percent normal cost occurs as a result of a combination of two aspects of the proposed
cash balance design: (i) First, the SERS plan assets are assumed to earn an annual investment
return of 7.5 percent in all future years; however, under the amended Grell proposal,
conversions of cash balance account values into annuities will generally be based upon the
current 4 percent statutory interest rate. This spread in the interest rate underlying cash
balance-to-annuity conversions, results in gains that accrue to the employer and become a
significant source of cash balance funding. (ii) Second, the compounded effect of earning the
assumed annual investment return of 7.5 percent on all cash balance monies, while only
crediting accounts with 4 percent in statutory interest plus a maximum of 1.25 percent in excess
interest, results, on average, in at least a 2.25 percent annual excess investment return also
being available for employer funding.
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If the amended Grell proposal were to become law, effective in fiscal 2015/2016, the SERS
employer normal cost would be based upon the new cash balance (Class QB) new entrant
cohort and, as stated above, would decrease to 0 percent of payroll (down from 5.01 percent of
payroll determined in our December 31, 2012 valuation based upon Class A-3 new entrants).
At the same time (in conjunction with our projections to December 31, 2014), approximately $3
billion of SERS liability, previously scheduled to be funded via future employer normal cost
payments, would be added to the unfunded actuarial accrued liability, thereby causing the
SERS funded status to decrease by almost 4 percent. These changes are included in our cash
balance plan funding projections attached to this note. (Lest there be confusion, please note
that the $3 billion amount referred to in this paragraph is not related in any way to the $3 billion
cash infusion discussed on the preceding page.)
Projection of Future Costs for the Amended Grell Proposal
Based upon the census data, asset data and actuarial assumptions underlying our December 31,
2012 actuarial valuation (including an assumed investment return of 7.5 percent per year,
compounded annually) and incorporating the new cash balance plan design outlined above for
most new entrants to SERS on or after January 1, 2015 and assuming approximately 9 percent
of the legacy DB active members of SERS who will be eligible to opt in to the proposed
reduced employee contribution/benefit provisions will do so and reflecting the four proposed
changes in funding provisions described above, Hay Group has projected the future employer
contributions required to fund SERS.
For purposes of these projections, given our 7.5 percent investment return assumption, we
assume that there will be cash balance excess interest earned in every year; however we are also
assuming that a significant portion of this excess will be used to pay down the SERS legacy
unfunded liability over coming years. Therefore, our projections reflect, not the maximum
possible excess interest of 1.25%, but rather an assumed 0.75% of excess interest credit. Thus,
when combined with the statutory interest rate of 4.0%, we are assuming a total annual cash
balance interest credit of 4.75%.
Schedules Attached to This Cost Note
We have attached to this note the results of our funding projections and other relevant cost
information, as follows:
Amended Grell Proposal: Cash Balance Plan For Post-2014 New Entrants, Exempting
State Police & Judiciary; Current SERS Benefit Provisions for Pre-2015 Hires; Four
Changes to Current SERS Funding Provisions, as Stated Above. This table presents
our projection of future SERS funding through fiscal year 2051/2052, all of which
reflects the impact of (i) the proposed change to a cash balance plan design (as outlined
on pages 2 and 3 above) for most new entrants to SERS on or after January 1, 2015, (ii)
the proposed reduced employee contribution/benefit provisions (into which legacy DB
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members may elect) and (iii) the proposed revisions to the current SERS funding
provisions, as described above.
Baseline Projection: This table presents, for purposes of comparison, the results of our
December 31, 2012 actuarial valuation and our projection of future funding through
fiscal year 2051/2052, assuming no changes to any of the current SERS benefit
provisions or funding methodologies.
Our Cost Results in Brief
Primarily as a result of the 0 percent future employer normal cost rate that becomes effective in
fiscal 2015/2016 under the proposed cash balance design, the amended Grell proposal, if it
became law, would result in significant cumulative savings in future SERS funding.
Specifically, our projections show estimated cumulative savings through fiscal year 2051/2052
of approximately $23.0 billion. These projections also show that the highest level of employer
contribution rate projected for any future fiscal year is 27.37 percent for fiscal year 2017/2018.
Important Notes
Please note the following regarding our handling of the attached funding projections:
1. Hay Groups past convention of showing results for employer cost projections such as these
as percentages of payroll to two decimal places may be somewhat misleading. This level of
precision is not really possible for estimates of this nature.
2. All of these projections are based upon the expectation that (i) for all years after 2012, the
actual economic and demographic experience of SERS will be consistent with the
underlying actuarial valuation assumptions and (ii) all employer contribution amounts shown
in the Expected FY Contribution column will, in fact, be contributed.
3. The attached projection schedules include two columns of information that may warrant
further explanation:
a. (Savings) / Cost Relative to Current Law Contribution shows the projected cumulative
cost or savings in employer contributions (in millions of dollars) that would result under
the amended Grell cash balance plan design proposal versus under the current law
(Baseline).
b. GASB Compliant (Fiscal Year Contribution) shows for each future fiscal year either
N, meaning No, or Y, meaning Yes, in response to the question as to whether the
Expected FY Contribution is equal to or greater than the Annual Required Contribution
(ARC) under Governmental Accounting Standards Board (GASB) Statement No. 25.
Basis for Above Cost Estimates
The cost estimates included herein were based upon our December 31, 2012 actuarial valuation
results, including the underlying census data, assets and actuarial assumptions.
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To the best of our knowledge, this actuarial cost note is complete and accurate, and all costs
and liabilities have been determined in conformance with generally accepted actuarial
principles and on the basis of actuarial assumptions and methods which are reasonable (taking
into account the past experience of SERS and reasonable expectations) and which represent our
best estimate of anticipated experience under the plan.
The actuaries certifying to these valuation results are members of the Society of Actuaries or
other professional actuarial organizations, and meet the General Qualification Standards of the
American Academy of Actuaries for purposes of issuing Statements of Actuarial Opinion.
Please let us know if you have any questions on any of this.
Respectfully submitted,
Hay Group, Inc.
By: ______________________________
Brent M. Mowery, F.S.A.
Member American Academy of Actuaries
Enrolled Actuary No. 14-3885
By: ______________________________
Craig R. Graby
Member American Academy of Actuaries
Enrolled Actuary No. 14-7319
June 6, 2014
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SERS Projected Employer Contributions

(Based Upon Final December 31, 2012 Valuation)
6/6/2014
Current Entry Age Funding Method; Level Dollar Amortization; 5-Year Smoothing of Assets; 4.50% FY 14 Collar;
4.50% FY 15 Collar; 4.50% FY 16 Collar; 4.50% FY 17 Collar; 4.50% FY 18 Collar; 4.50% FY 19 Collar; 4.50% FY 20
Collar; 4.50% FY 21+ Collar; No Asset Fresh Start; Act 120 Benefit Provisions; 7.50% Liability Interest Rate
Assumption; No Liability Fresh Start
Projected
Expected FY
Expected FY
(Savings) / Cost GASB Compliant Funded
UAL
Funded
Fiscal
Ceiling
Floor
Percent
Payroll
Contribution
Relative to Current
(Fiscal Year
Ratio
($ in
Ratio
Year
Contribution Contribution Contribution ($ in millions) ($ in millions)
Law Contribution
Contribution)
(AV%) billions) (MV%)
2009/2010
NA
4.00%
4.00
5,660.3
226.4
N
89.0
3.80
66.2
2010/2011
NA
4.00%
5.00
5,936.0
296.8
N
84.4
5.59
68.9
2011/2012
NA
4.08%
8.00
5,851.7
468.1
N
75.1
9.76
66.0
2012/2013
NA
5.10%
11.50
5,890.7
677.4
N
65.3
14.69
57.6
2013/2014
NA
5.01%
16.00
5,836.4
933.8
N
58.7
17.78
58.9
Year
2008
2009
2010
2011
2012
Investment
Return
approx -30%
approx 9%
approx 12%
2.70%
12.00%
2013
2014
2015
2016
2017
7.50%
7.50%
7.50%
7.50%
7.50%
2014/2015
2015/2016
2016/2017
2017/2018
2018/2019
NA
NA
NA
NA
NA
5.01%
5.01%
5.01%
5.01%
5.01%
20.50
25.00
29.50
31.43
30.82
6,014.4
6,197.9
6,386.9
6,581.7
6,782.4
1,233.0
1,549.5
1,884.1
2,068.9
2,090.6
N
Y
Y
Y
Y
58.6
58.0
57.6
58.6
59.7
18.15
18.84
19.41
19.34
19.19
58.4
57.9
57.9
58.6
59.7
2018
2019
2020
2021
2022
7.50%
7.50%
7.50%
7.50%
7.50%
2019/2020
2020/2021
2021/2022
2022/2023
2023/2024
NA
NA
NA
NA
NA
5.01%
5.01%
5.01%
5.01%
5.01%
30.13
29.45
28.80
28.16
27.55
6,989.3
7,202.5
7,422.1
7,648.5
7,881.8
2,105.8
2,121.3
2,137.3
2,153.9
2,171.1
Y
Y
Y
Y
Y
61.0
62.2
63.4
64.7
65.9
18.93
18.66
18.35
18.03
17.67
61.0
62.2
63.4
64.7
65.9
2023
2024
2025
2026
2027
7.50%
7.50%
7.50%
7.50%
7.50%
2024/2025
2025/2026
2026/2027
2027/2028
2028/2029
NA
NA
NA
NA
NA
5.01%
5.01%
5.01%
5.01%
5.01%
26.95
26.37
25.81
25.26
24.73
8,122.2
8,369.9
8,625.2
8,888.3
9,159.4
2,188.8
2,207.1
2,225.9
2,245.4
2,265.4
Y
Y
Y
Y
Y
67.1
68.3
69.5
70.8
72.1
17.29
16.87
16.42
15.93
15.41
67.1
68.3
69.5
70.8
72.1
2028
2029
2030
2031
2032
7.50%
7.50%
7.50%
7.50%
7.50%
2029/2030
2030/2031
2031/2032
2032/2033
2033/2034
NA
NA
NA
NA
NA
5.01%
5.01%
5.01%
5.01%
5.01%
24.22
23.72
23.24
22.77
22.32
9,438.7
9,726.6
10,023.3
10,329.0
10,644.0
2,286.1
2,307.4
2,329.4
2,352.1
2,375.5
Y
Y
Y
Y
Y
73.4
74.7
76.2
77.6
79.2
14.83
14.21
13.54
12.82
12.04
73.4
74.7
76.2
77.6
79.2
2033
2034
2035
2036
2037
7.50%
7.50%
7.50%
7.50%
7.50%
2034/2035
2035/2036
2036/2037
2037/2038
2038/2039
NA
NA
NA
NA
NA
5.01%
5.01%
5.01%
5.01%
5.01%
21.88
21.45
21.04
20.63
20.24
10,968.6
11,303.2
11,647.9
12,003.2
12,369.3
2,399.6
2,424.5
2,450.2
2,476.6
2,503.9
Y
Y
Y
Y
Y
80.8
82.5
84.3
86.1
88.1
11.19
10.28
9.29
8.22
7.07
80.8
82.5
84.3
86.1
88.1
2038
2039
2040
2041
2042
7.50%
7.50%
7.50%
7.50%
7.50%
2039/2040
2040/2041
2041/2042
2042/2043
2043/2044
NA
NA
NA
NA
NA
5.01%
5.01%
5.01%
5.01%
5.01%
19.86
15.89
13.01
9.80
7.82
12,746.6
13,135.3
13,536.0
13,948.8
14,374.2
2,532.1
2,086.8
1,761.4
1,367.4
1,124.5
Y
Y
Y
Y
Y
90.3
92.5
94.2
95.4
96.0
5.82
4.48
3.50
2.80
2.47
90.3
92.5
94.2
95.4
96.0
2043
2044
2045
2046
2047
7.50%
7.50%
7.50%
7.50%
7.50%
2044/2045
2045/2046
2046/2047
2047/2048
2048/2049
NA
NA
NA
NA
NA
5.01%
5.01%
5.01%
5.01%
5.01%
7.49
6.99
6.57
6.49
6.45
14,812.7
15,264.4
15,730.0
16,209.8
16,704.2
1,109.6
1,066.5
1,032.8
1,052.2
1,077.7
Y
Y
Y
Y
Y
96.1
96.2
96.2
96.0
95.9
2.38
2.32
2.33
2.40
2.49
96.1
96.2
96.2
96.0
95.9
2048
2049
2050
7.50%
7.50%
7.50%
2049/2050
2050/2051
2051/2052
NA
NA
NA
5.01%
5.01%
5.01%
6.46
6.46
6.46
17,213.7
17,738.7
18,279.7
1,111.3
1,145.9
1,181.8
Y
Y
Y
95.7
95.5
95.2
2.58
2.68
2.79
95.7
95.5
95.2
SERS Projected Employer Contributions

(Based Upon Final December 31, 2012 Valuation)
6/6/2014
Current Entry Age Funding Method; Level Dollar Amortization; 5-Year Smoothing of Assets; 4.50% FY 14 Collar;
3.00% FY 15 Collar; 3.00% FY 16 Collar; 3.00% FY 17 Collar; 3.00% FY 18 Collar; 3.00% FY 19 Collar; No FY 20
Collar; No FY 21+ Collar; No Asset Fresh Start; $1 Billion Cash Infusion on December 31, 2015 Amortized Over 30
Years; $2 Billion Cash Infusion on December 31, 2016 Amortized Over 30 Years; Original Grell Design; 7.50%
Liability Interest Rate Assumption; No Liability Fresh Start
Projected
Expected FY
Expected FY
(Savings) / Cost GASB Compliant Funded
UAL
Funded
Fiscal
Ceiling
Floor
Percent
Payroll
Contribution
Relative to Current
(Fiscal Year
Ratio
($ in
Ratio
Year
Contribution Contribution Contribution ($ in millions) ($ in millions)
Law Contribution
Contribution)
(AV%) billions) (MV%)
2009/2010
NA
4.00%
4.00
5,660.3
226.4
N
89.0
3.80
66.2
2010/2011
NA
4.00%
5.00
5,936.0
296.8
N
84.4
5.59
68.9
2011/2012
NA
4.08%
8.00
5,851.7
468.1
N
75.1
9.76
66.0
2012/2013
NA
5.10%
11.50
5,890.7
677.4
N
65.3
14.69
57.6
2013/2014
NA
5.01%
16.00
5,836.4
933.8
N
58.7
17.78
58.9
Year
2008
2009
2010
2011
2012
Investment
Return
approx -30%
approx 9%
approx 12%
2.70%
12.00%
2013
2014
2015
2016
2017
7.50%
7.50%
7.50%
7.50%
7.50%
2014/2015
2015/2016
2016/2017
2017/2018
2018/2019
NA
NA
NA
NA
NA
5.01%
0.00%
0.00%
0.00%
0.00%
19.00
22.00
25.00
27.37
26.84
6,014.4
6,197.9
6,386.9
6,581.7
6,782.4
1,142.7
1,363.5
1,596.7
1,801.3
1,820.1
(90.3)
(276.3)
(563.7)
(831.3)
(1,101.8)
N
Y
Y
Y
Y
58.6
54.3
55.9
60.6
61.5
18.15
21.82
21.44
19.48
19.36
58.4
54.2
56.2
60.6
61.6
2018
2019
2020
2021
2022
7.50%
7.50%
7.50%
7.50%
7.50%
2019/2020
2020/2021
2021/2022
2022/2023
2023/2024
NA
NA
NA
NA
NA
0.00%
0.00%
0.00%
0.00%
0.00%
26.09
25.37
24.67
23.99
23.33
6,989.3
7,202.5
7,422.1
7,648.5
7,881.8
1,823.7
1,827.3
1,830.9
1,834.9
1,839.1
(1,383.9)
(1,677.9)
(1,984.3)
(2,303.3)
(2,635.3)
Y
Y
Y
Y
Y
62.7
63.9
65.1
66.3
67.4
19.03
18.68
18.30
17.88
17.44
62.8
63.9
65.1
66.3
67.4
2023
2024
2025
2026
2027
7.50%
7.50%
7.50%
7.50%
7.50%
2024/2025
2025/2026
2026/2027
2027/2028
2028/2029
NA
NA
NA
NA
NA
0.00%
0.00%
0.00%
0.00%
0.00%
22.69
22.08
21.48
20.89
20.33
8,122.2
8,369.9
8,625.2
8,888.3
9,159.4
1,843.3
1,847.7
1,852.3
1,857.0
1,861.9
(2,980.8)
(3,340.2)
(3,713.8)
(4,102.2)
(4,505.7)
Y
Y
Y
Y
Y
68.6
69.8
71.0
72.3
73.6
16.96
16.44
15.88
15.27
14.62
68.6
69.8
71.0
72.3
73.6
2028
2029
2030
2031
2032
7.50%
7.50%
7.50%
7.50%
7.50%
2029/2030
2030/2031
2031/2032
2032/2033
2033/2034
NA
NA
NA
NA
NA
0.00%
0.00%
0.00%
0.00%
0.00%
19.78
19.25
18.73
18.23
17.75
9,438.7
9,726.6
10,023.3
10,329.0
10,644.0
1,866.9
1,872.1
1,877.5
1,883.1
1,888.8
(4,924.9)
(5,360.2)
(5,812.1)
(6,281.1)
(6,767.8)
Y
Y
Y
Y
Y
75.0
76.4
77.9
79.5
81.2
13.91
13.15
12.33
11.44
10.48
75.0
76.4
77.9
79.5
81.2
2033
2034
2035
2036
2037
7.50%
7.50%
7.50%
7.50%
7.50%
2034/2035
2035/2036
2036/2037
2037/2038
2038/2039
NA
NA
NA
NA
NA
0.00%
0.00%
0.00%
0.00%
0.00%
17.27
14.27
13.91
13.55
13.20
10,968.6
11,303.2
11,647.9
12,003.2
12,369.3
1,894.7
1,613.4
1,619.7
1,626.2
1,633.0
(7,272.7)
(8,083.8)
(8,914.3)
(9,764.7)
(10,635.6)
Y
Y
Y
Y
Y
83.0
85.0
86.6
88.3
90.2
9.45
8.34
7.42
6.44
5.37
83.0
85.0
86.6
88.3
90.2
2038
2039
2040
2041
2042
7.50%
7.50%
7.50%
7.50%
7.50%
2039/2040
2040/2041
2041/2042
2042/2043
2043/2044
NA
NA
NA
NA
NA
0.00%
0.00%
0.00%
0.00%
0.00%
12.87
8.93
6.09
2.92
0.98
12,746.6
13,135.3
13,536.0
13,948.8
14,374.2
1,640.0
1,172.8
824.9
407.7
141.0
(11,527.7)
(12,441.7)
(13,378.2)
(14,337.9)
(15,321.4)
Y
Y
Y
Y
Y
92.2
94.4
96.0
97.1
97.4
4.23
2.99
2.13
1.55
1.35
92.2
94.4
96.0
97.1
97.4
2043
2044
2045
2046
2047
7.50%
7.50%
7.50%
7.50%
7.50%
2044/2045
2045/2046
2046/2047
2047/2048
2048/2049
NA
NA
NA
NA
NA
0.00%
0.00%
0.00%
0.00%
0.00%
0.68
0.19
0.28
1.18
1.09
14,812.7
15,264.4
15,730.0
16,209.8
16,704.2
101.4
28.9
43.5
190.8
181.4
(16,329.6)
(17,367.2)
(18,356.5)
(19,217.9)
(20,114.2)
Y
Y
Y
Y
Y
97.3
97.0
96.6
96.1
95.9
1.41
1.52
1.70
1.90
1.96
97.3
97.0
96.6
96.1
95.9
2048
2049
2050
7.50%
7.50%
7.50%
2049/2050
2050/2051
2051/2052
NA
NA
NA
0.00%
0.00%
0.00%
1.09
1.09
1.10
17,213.7
17,738.7
18,279.7
187.4
193.8
200.4
(21,038.1)
(21,990.2)
(22,971.6)
Y
Y
Y
95.6
95.3
95.0
2.04
2.12
2.21
95.6
95.3
95.0
COMMONWEALTH OF PENNSYLVANIA
GOVERNOR'S OFFICE OF THE BUDGET
HARRISBURG
Date:
July 29, 2014
To:
Secretary Charles Zogby
From:
Steve Heuer
Subject:
Pension Obligation Bonds
s+r
Approximately three months ago, the Office of the Budget met with Public Financial Management to review
the costs associated with the issuance of $9 billion in pension obligation bonds (POB). The attached matrix
estimates what the long-term costs would be to the Commonwealth of Pennsylvania. As you can see from the
matrix (middle column), the interest cost to the Commonwealth over 30 and 20 years would be $10.4 and $5.7
billion, respectively. POB's are issued at a taxable rate, and these estimates are based upon PA's prior debt
ratings. Pennsylvania was recently downgraded one notch by Moody's rating service. Downgrades generally
increase the cost to borrow.
The estimated annual debt service cost to the General Fund for a $9 billion POB is between $600 to $750
million.
Consideration should also be given to the following with the issuance of a POB:
Commonwealth will be locked into a hard debt (could be at least 10 years)

Would the pension systems invest all the funds in equity-oriented, i.e. higher returning strategies or
diversify into lower-returning strategies (borrowing at POB rate of six percent and then investing in
asset classes that return less than six percent)
Will the pension systems be able to invest and return more than the cost of the POB
POB would count towards the debt load of the Commonwealth
The ratings impact could be positive or negative depending on broader reform
The overall economic cycle should be considered (are the equity markets at the beginning or the
end of expansion)
Also attached are two sheets analyzing windows of opportunities for issuance of POB's. As you can see, timing
has a lot to do with whether or not a POB is successful. A window in which to issue debt is generally only
quantifiable in hindsight. A number of issuers had good timing (City of Oakland) and some had bad timing
(New Orleans and Stockton). Of course, it takes many years to determine success or failure.
All avenues of funding the pension systems should be reviewed prior to making any decision which could entail
locking the Commonwealth into a long-term debt obligation.
Attachments
30 Year Level OS
Taxable
General Obli ation
Scenario
----- -- .. ........T'?.~!:J.<:bt_::>~'.'1~~ - l~!l,.~.~?.,.?~?,~o_o
$547,614,225
Avera eAnnual Debt Service
Scenario
30 Year.Level OS
Taxable
Pension Obli ation
. . J.~_9,:<!Q4,~89.?.1. 3_
$639,364,014
30 Year Level OS
5/o
Cou on I Yields
... ....~.:!?2.~~9,.~,?3.Q
$579,195,658
20 Year Level OS
Taxable
20 Year Level OS
Taxable
20 Year Level OS
General Obli ation
Pension Obli ation
Cou on I Yields
Principal
---?ro'ecfi'liii'i:ioe c,sif ---
$9,000,000,000
$9,000,000,000
$9.000,000,000
$14,658,938,328
$14,441,065,000
3.96% . ,. ,. . .......... -.5.23%
- --- . . 5.07%
$a:S47:~foo:aoo
------$a,94i.'soa:Ooii .. -:fo'.947;-i;O'ifooo
$13,129, 122,378
Total Debt Service
5%
--------;;v;;r;;-;;A.ililliaToeilt'service --------$649-:S'f;;crsa --c:--s12s:s24:4s7 s'f11-;-ifo3.ir50

All-In TIC
. . crte . ,..
..... ~ .... - ..... ~ ....... " ......... w" .......... ,. .. Avera~ie
1;1~so
~,-~
,-~
11~~9s -.,~
,.12~09
Assumptions:
- Sale Date= 111512014
- Costs of Issuance= $7,500,000
- Underwrite~s Discount= $5.00 I Bond
Preliminary, Subject to Change

Prepared by Public Financial Management, Inc.
3/1712014
The period of time an issuer of benefits bonds can most reasonably expect to
invest bond proceeds in the stock market without witnessing lower stock prices
in the subsequent economic recession.
-
Measured from the

bottom of the stock
market (which typically
corresponds to the
trough of an economic
business cycle) until the
stock market 'breakeven'
>
level with the subsequent E
stock market bottom.
g
Theoretically, the period
in which the risk of
subsequent cycle loss is
<50%.
r-'""".
, ,, .._, t"" ,
j Recovery ~, Prosperity
~
4 4 ' """
Quantifiable only in
hindsight.
No one can ever predict

in real-time when there is
a bottom.
2013 PFM Asset Management LLC
'
Peak
Benefits
Bonds
r.u
Window
.
.'l>
.if
~~~J.
Time
50
S&P 500
1,soo 1
I
1,600
~-- .... - -------------
1,400 ~ - - -- . ----City of New Orleans

1,200 -!-------
1,000
800
City of Oakland
600
400
~1----------------
----------------------------------- ---------
----------------- -- ....
200
-1--- -----
- - - - - - - - -----
' .
-,-- --.-i -----.-------- --,--- --,
***~~~**~~~~~~~~~~~~~~~~~~~~~
-
--.--.----~~----
#############~###############
Source: Bloomberg
201~ PubJic Financial Management, Inc.
52
H1353B2152A07223
MSP:NLH 06/02/14
#90
A07223
AMENDMENTS TO HOUSE BILL NO. 1353

Sponsor: REPRESENTATIVE GRELL
Printer's No. 2152
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Amend Bill, page 1, lines 1 through 11, by striking out all

of said lines and inserting
Amending Titles 24 (Education) and 71 (State Government) of the
Pennsylvania Consolidated Statutes, providing for a cash
balance defined benefit pension plan by:
In retirement for school employees:
Further providing for definitions, for construction of
part, for mandatory and optional membership, for credited
school service, for eligibility points for retention and
reinstatement of service credits, for creditable nonschool
service, for classes of service and for election to become a
Class T-F member.
Providing for Class T-D opt-in election.
Further providing for eligibility points, for eligibility
for annuities, for eligibility for vesting, for eligibility
for death benefits, for member contributions for creditable
school service, for actuarial cost method, for maximum single
life annuity, for disability annuities and for member's
options.
Providing for accumulated deductions resulting from more
than one class of service.
Further providing for termination of annuities, for death
benefits, for payment of benefits and for administrative
duties of board.
Providing for long-term disability group insurance
program.
Further providing for duties of board regarding
applications and elections of members, for duties of
employers, for rights and duties of school employees and
members, for members' savings account and for State
accumulation account.
Authorizing pension funding bonds.
In retirement for State employees and officers:
Further providing for definitions, for mandatory and
optional membership, for credited State service, for
retention and reinstatement of service credits, for
creditable nonstate service, for Social Security
integration credits, for eligibility for actuarial
2014/90MSP/HB1353A07223
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increase factor, for classes of service, for election to

become a Class A-4 member.
Providing for election to reduce member
contributions, change final average salary and change
benefit payment options.
Further providing for eligibility points, for
eligibility for annuities, for eligibility for vesting,
for eligibility for refunds, for regular member
contributions for current service, for Social Security
integration member contributions, for waiver of regular
member contributions and Social Security integration
member contributions, for pickup contributions, for
member contributions for the purchase of credit for
previous State service or to become a full coverage
member, for contributions for the purchase of credit for
creditable nonstate service, for contributions by the
Commonwealth and other employers, for actuarial cost
method, for appropriations and assessments by the
Commonwealth, for return of total accumulated deductions,
for maximum single life annuity, for disability
annuities, for member's options, for payment of
accumulated deductions resulting from Class A-3 and Class
A-4, for termination of annuities, for death benefits,
for payment of benefits, for administrative duties of the
board, for duties of the board to advise and report to
heads of departments and members, for duties of the board
regarding applications and elections of members, for
installment payments of accumulated deductions, for
duties of heads of departments, for rights and duties of
State employees and members, for management of fund and
accounts, for State Employees' Retirement Fund, for
members' savings account, for State accumulation account,
for annuity reserve account, for State Police benefit
account and for enforcement officers' benefit account.
Providing for cash balance savings account.
Further providing for construction of part.
Making related repeal
38
Amend Bill, page 1, lines 14 through 20; pages 2 through 169,
39
lines 1 through 30; page 170, lines 1 through 27, by striking
40
out all of said lines on said pages and inserting
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ARTICLE I
TITLE 24
AMENDMENTS
Section 101. The definitions of "accumulated deductions,"
"approved leave of absence," "basic contribution rate," "final
average salary," "multiple service," "standard single life
annuity," "superannuation or normal retirement age" and "vestee"
in section 8102 of Title 24 of the Pennsylvania Consolidated
2014/90MSP/HB1353A07223
- 2 -
1 Statutes, are amended and the section is amended by adding

2 definitions to read:
3 8102. Definitions.
4
The following words and phrases when used in this part shall
5 have, unless the context clearly indicates otherwise, the
6 meanings given to them in this section:
7
"Accumulated deductions." The total of pickup contributions
8 [and], eligible roll-ins made pursuant to section 8507(1)
9 (relating to rights and duties of school employees and members),
10 the contributions paid into the fund by the member on account of
11 current school service, previous school service, or creditable
12 nonschool service, excess interest awarded under section 8523(d)
13 (relating to members' savings account) on member contributions
14 and the statutory interest credited on all such contributions.
15
* * *
16
"Annualized service credit." For purposes of determining
17 final average salary of a member. the amount of service credit
18 the member would have earned if the member worked the number of
19 months that the employer typically expects a full-time employee
20 in the same position or with the same contract to work during a
21 fiscal year. If the member worked fewer months than the number
22 of months for the position or contract, the term means an amount
23 equal to the ratio of the number of months for the position or
24 contract over the number of months the member worked, multiplied
25 by the actual service credit for the year, and the product
26 thereof rounded to two decimals such that the amount does not
27 exceed 1.00.
28
* * *
29
"Approved leave of absence." A leave of absence for
30 activated military service or which has been approved by the
31 employer for sabbatical leave, service as an exchange teacher,
32 service with a collective bargaining organization or
33 professional study. As applied to Class T-G members, a leave of
34 absence which has been approved as a contributory leave by the
35 employer for sabbatical leave. service as an exchange teacher or
36 service with a collective bargaining organization.
37
''Basic contribution rate.'' For Class T-A, T-B and T-C
38 service, the rate of 6 1/4%. For Class T-D service, the rate of
39 7 1/2%. For all active members on the effective date of this
40 provision who are currently paying 5 1/4% and elect Class T-D
41 service, the rate of 6 1/2%. For Class T-E service, the rate of
42 7 1/2%. For Class T-F service, the rate of 10.30%. For Class T-G
43 service, the rate of 7%.
* * *
44
45
''Excess interest." The investment earnings attributable to
46 Class T-G members, calculated in accordance with section 8523
47
(d) (relating to members' savings account).
48
"Final average salary." The highest average compensation
49 received as an active member, other than as a Class T-G member,
50 during any three nonoverlapping periods of 12 consecutive months
51 with the compensation for part-time service being annualized on
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the basis of the fractional portion of the school year for which
credit is received; except, if the employee was not a member for
three such periods, the total compensation received as an active
member. other than as a Class T-G member. annualized in the case
of part-time service divided by the number of such periods of
membership; in the case of a member with multiple service
credit, the final average salary shall be determined by
reference to compensation received by him as a school employee
or a State employee or both. excluding compensation received for
service performed as a member of Class T-G or Class QB in the
State Employees' Retirement System; and, in the case of a
noneligible member, subject to the application of the provisions
of section 8325.1 (relating to annual compensation limit under
IRC 40l(a) (17)). Final average salary shall be determined by
including in compensation, payments deemed to have been made to
a member reemployed from USERRA leave to the extent member
contributions have been made as provided in section 8302(d) (2)
(relating to credited school service) and payments made to a
member on leave of absence under 51 Pa.C.S. 4102 (relating to
leaves of absence for certain government employees) as provided
in section 8302(d) (6). As applied to T-D members who elect to
opt in under section 8305.3 (relating to class T-D opt-in
election), with an effective date of retirement on or after July
1. 2015. the highest average compensation received as an active
member other than as a Class T-G member or Class OB in the State
Employees' Retirement System during any five nonoverlapping
periods of 12 consecutive months. with the compensation for
part-tim~ service being annualized on the basis of the
fractional portion of the school year for which credit is
received; except. if the employee was not a member for five such
periods, the total compensation received as an active member.
other than as a Class T-G member or Class OB in the State
Employees' Retirement System. annualized in the case of part' number of such periods of
time service divided by the
membership; in the case of a member with multiple service
credit, the final average salary shall be determined by
reference to compensation received by him as a school employee
or a State employee. or both. excluding compensation received
for service performed as a member of Class T-G or Class OB in
the State Employees' Retirement System; and, in the case of a
noneligible member. subiect to the application of the provisions
of section 8325.1 (relating to annual compensation limit under
IRC 40l(a) (17)).
* * *
"Multiple service." Credited service of a member. other than

a Class T-G member or Class QB member in the State Employees'
Retirement System. who has elected to combine his credited
service in both the Public School Employees' Retirement System
and the State Employees' Retirement System.
* * *
''Standard single life annuity.''
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credited service of a member, an annuity equal to 2% of the

final average salary, multiplied by the total number of years
and fractional part of a year of credited service of a member.
For Class T-D credited service of a member, an annuity equal to
2.5% of the final average salary, multiplied by the total number
of years and fractional part of a year of credited service. For
Class T-E credited service of a member, an annuity equal to 2%
of the final average salary, multiplied by the total number of
years and fractional part of a year of credited service of a
member. For Class T-F credited service of a member, an annuity
equal to 2.5% of the final average salary, multiplied by the
total number of years and fractional part of a year of credited
service of a member. For Class T-G credited service of a member,
an annuity that is actually eguivalent to the balance of the
member's savings account.
* * *
"Superannuation or normal retirement age."
Age
Class of service
T-A
62 or any age upon accrual of
35 eligibility points
T-B
62
T-C and T-D
62 or age 60 provided the
member has at least 30
eligibility points or any
age upon accrual of 35
eligibility points
T-E and T-F
65 with accrual of at least
three eligibility points
or a combination of age
and eligibility points
totaling 92, provided the
member has accrued at
least 35 eligibility
points
* * *
"Vestee." A member with five or more eligibility points who
has terminated school service, has left his accumulated
deductions in the fund and is deferring filing of an application
for receipt of an annuity. For Class T-E and Class T-F members,
a member with ten or more eligibility points who has terminated
school service, has left his accumulated deductions in the fund
and is deferring filing of an application for receipt of an
annuity. For Class T-G members, a member who has terminated
school service, is eligible to leave his accumulated deductions
in the fund and is deferring filing of an application for
receipt of annuity.
Section 102. Section 8103 of Title 24 is amended by adding
subsections to read:
8103.
Construction of part.
* * *
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(c)
Pension rights.--Notwithstanding any other provision of
law, no collective bargaining agreement nor any arbitration
award between a school employer and its employees or their
collective bargaining representatives shall be construed to
change any of the provisions in this part. to require the board
to administer pension or retirement benefits not set forth under
this part or to require action by any other government body
pertaining to pension or retirement benefits or rights of school
employees.
(d)
References.--References in this part to the IRC or
USERRA. including administrative regulations promulgated under
the IRC or USERRA. are intended to include laws and regulations:
(1)
In effect on the effective date of this subsection.
(2) Amended, supplemented or supplanted on and after the
effective date of this subsection.
(el Adverse inference.--Nothing in this act shall be
construed or deemed to imply that, but for the expressed
applications of the limitations on benefits or other
requirements under section 401(a) of the IRC or applicable
provisions of the IRC. those limitations would not otherwise
apply to members of the system and the benefits payable under
this part.
Section 103. Sections 8301 (a) (2) and (4) and 8302 (b) and (c)
of Title 24 are amended to read:
8301.
Mandatory and optional membership.
(a) Mandatory membership.--Membership in the system shall be
mandatory as of the effective date of employment for all school
employees except the following:
* * *
(2) Any school employee, other than a school employee
eligible for Class T-G membership, who is not a member of the
system and who is employed on a per diem or hourly basis for
less than 80 full-day sessions or 500 hours in any fiscal
year or annuitant who returns to school service under the
provisions of section 8346(b) (relating to termination of
annuities).
* * *
(4) Any part-time school employee, other than a school
employee eligible for Class T-G membership, who has an
individual retirement account pursuant to the [Federal act of
September 2, 1974 (Public Law 93-406, 88 Stat. 829), known as
the) Employee Retirement Income Security Act of 1974 (Public
Law 93-406, 88 Stat. 829).
* * *
8302.
Credited school service.
* * *
(b) Approved leaves of absence.--An active member shall
receive credit for an approved leave of absence provided that:
(1) the member returns for a period at least equal to
the length of the leave or one year, whichever is less, to
the school district which granted his leave, unless such
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condition is waived by the employer; and

(2) the proper contributions are made by the member and
the employer. In the case of a Class T-G member, the proper
contributions must be made during the leave.
* * *
6
(c) Cancellation of credited service.--All credited service
7 shall be [cancelled] canceled if a member withdraws his
8 accumulated deductions[.], except that:
9
(1) A member with Class T-G service credit and service
10
credit in one or more other classes of service shall not have
11
the service credit in the classes of service other than Class
12
T-G canceled when the member receives a lump sum payment of
13
accumulated deductions relating to Class T-G service.
14
(2) A member with Class T-G service credit and service
15
credit in one or more other classes of service shall not have
16
the service credit as a member of Class T-G canceled when the
17
member receives a lump sum payment of accumulated deductions
18
relating to the other classes of service.
19
* * *
20
Section 104. Section 8303(c) of Title 24 is amended and the
21 section is amended by adding a subsection to read:
22 8303. Eligibility points for retention and reinstatement of
23
service credits.
24
* * *
25
(c)
Purchase of previous creditable service.--Every active
26 member of the system, other than a Class T-G member, or a
27 multiple service member who is an active member of the State
28 Employees' Betirement System and not a member of Class QB, on or
29 after the effective date of this part may purchase credit and
30 receive eligibility points:
31
(1) as a member of Class T-C, Class T-E or Class T-F for
32
previous creditable school service or creditable nonschool
33
service; or
34
(2) as a member of Class T-D for previous creditable
35
school service, provided the member elects to become a Class
36
T-D member pursuant to section 8305.1 (relating to election
37
to become a Class T-D member);
38 upon written agreement by the member and the board as to the
39 manner of payment of the amount due for credit for such service;
40 except, that any purchase for reinstatement of service credit
41 shall be for all service previously credited.
42
* * *
43
(e) Limitations.--Notwithstanding any other provision of
44 this part, a Class T-G member shall be permitted to receive
45 service credit for:
46
(1) previous creditable school service performed as a
47
Class T-G member;
48
12) USERRA leave; and
49
(3) an approved leave of absence for sabbatical,
50
exchange teacher and service with a collective bargaining
51
organization, provided such leaves are contributory leaves.
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Section 105. Section 8304(a) of Title 24 is amended to read:

8304. Creditable nonschool service.
(a)
Eligibility.--An active member. other than a Class T-G
member, or a multiple service member who is an active member of
the State Employees' Retirement System, other than a Class OB
member. shall be eligible to receive Class T-C, Class T-E or
Class T-F service credit for creditable nonschool service and
Class T-D, Class T-E or Class T-F service for intervening
military service, provided the member becomes a Class T-D member
pursuant to section 8305.1 (relating to election to become a
Class T-D member) or Class T-F member pursuant to section 8305.2
(relating to election to become a Class T-F member) or 8305
(relating to classes of service), as set forth in subsection (b)
provided that he is not entitled to receive, eligible to receive
now or in the future, or is receiving retirement benefits for
such service under a retirement system administered and wholly
or partially paid for by any other governmental agency or by any
private employer, or a retirement program approved by the
employer in accordance with section 8301(a) (1) (relating to
mandatory and optional membership), and further provided that
such service is certified by the previous employer and the
manner of payment of the amount due is agreed upon by the
member, the employer, and the board.
* * *
Section 106.
Section 8305(d) and (e) of Title 24 are amended
and the section is amended by adding a subsection to read:
8305.
Classes of service.
* * *
(d)
Class T-E membership.--Notwithstanding any other
provision, a person who first becomes a school employee and an
active member, or a person who first becomes a multiple service
member who is a State employee and a member of the State
Employees' Retirement System, on or after [the effective date of
this subsection) July l, 2011, and prior to July l, 2015, shall
be classified as a Class T-E member upon payment of regular
member contributions and the shared-risk contributions.
(e)
Class T-F membership.--Notwithstanding any other
provision, a person who first becomes a school employee and an
active member, or a person who first becomes a multiple service
Employees' Retirement System, on or after [the effective date of
this subsection) July 1. 2011, and prior to July l, 2015. and
who is eligible to become a Class T-E member shall have the
right to elect into Class T-F membership, provided the person
elects to become a Class T-F member pursuant to section 8305.2
(relating to election to become a Class T-F member), upon
written election filed with the board and payment of regular
member contributions and the shared-risk contributions.
(fl
Class T-G membership.--Notwithstanding any other
provision of this part. a person who first becomes a school
employee and an active member on or after July l, 2015. and a
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person who returns to service on or after July l, 2015, after a

termination of service, shall be classified as a Class T-G
member upon payment of regular member contributions.
Section 107. Section 8305.2(c) of Title 24 is amended to
read:
8305.2.
Election to become a Class T-F member.
* * *
(c) Effect of election.--An election to become a Class T-F

member shall be irrevocable and shall commence from the original
date of eligibility. A member who elects Class T-F membership
shall receive Class T-F service credit on any and all future
service that otherwise would not be credited as Class T-G
service, regardless of whether the member terminates service or
has a break in service.
* * *
Section 108. Title 24 is amended by adding a section to

read:
8305.3.
Class T-D opt-in election.
(a) General rule.--A person who:
(1) is a member of the system or a multiple service
Employees' Retirement System; and
(2) on the effective date of this section is eligible
for Class T-D membership, may make a one-time and irrevocable
election to opt-in to changes to the member's final average
salary provisions under section 8102 {relating to
definitions) and to the Option 4 neutrality provisions under
section 8345 (a.) (4) (relating to member's options).
{bl Time for making election.-(1) A member must elect to opt-in by filing a written
notice with the board on or before June 30, 2015, or before
the termination of school service or State service, as
applicable, whichever first occurs. The election period for a
person who becomes a school employee on or after June 1,
2015, and before July l, 2015, shall expire 45 days after
first becoming a school employee.
(2) A member who begins USERRA leave during the election
period without having made the election may make the election
by the later of June 30, 2015, or 45 days after being
reemployed from USERRA leave.
(c) Effect of election.-(1) An election to opt-in to the changes shall be
irrevocable, even if filed before the expiration of the
election period, and shall remain in effect for all
subsequent school service other than Class T-E, T-F or T-G
regardless of whether the member terminates service or
returns to school service.
(2) Those Class T-D members who, on the effective date
of this section, contribute at the basic contribution rate of
7.5% shall be deemed to have accepted the basic contribution
rate of 6.5% for all Class T-D service performed on or after
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July l, 2015.
(3)
If a member who makes the election has attained
superannuation age or is within two years of attaining
superannuation in the class of service in which the member is
employed on June 30. 2015, then the election under this
section shall be effective July l, 2017. For purposes of
determining if a member is within two years of superannuation
age on June 30, 2015, only eligibility points actually
accrued as of June 30, 2015. may be included. without regard
to any future service that might be performed or eligibility
points that might be earned before July l, 2017. provided
further, such member has a final average salary no lower than
what it would have been as if calculated on June 30, 2015.
(d)
Effect of failure to make election.--If a member fails
to timely file an election to opt-in to the changes. then all of
the member's Class T-D school service shall be credited as Class
T-D service without the changes and the class T-D member shall
not be eligible for the reduction in the basic contribution
rate. The member may not be eligible to make another election
for either past or future school service.
Section 109. Section 8306(a) of Title 24 is amended and the
section is amended by adding a subsection to read:
8306.
Eligibility points.
(a) General rule.--An active member of the system shall
accrue one eligibility point for each year of credited service
as a member of the [school or State retirement system.] Public
School Employees' Retirement System and if a multiple service
member and a member of the State Employees' Retirement System.
A member shall accrue an additional two-thirds of an eligibility
point for each year of Class D-3 credited service under the
State Employees' Retirement System. In the case of a fractional
part of a year of credited service, a member shall accrue the
corresponding fractional portion of an eligibility point.
* * *
(cl
Transitional rule for Class T-G members.-(ll Eligibility points earned as a result of credited
service in Class T-G shall be included in determining if a
member who has service credit in classes of service other
than T-G is eligible for an annuity under this section or
eligible for other rights and benefits under this part,
unless provided otherwise.
(2) Eligibility points earned by a multiple service
member as a result of credited service in the State
Employees' Retirement System similarly shall be included if
eligibility points for state service in the State Employees'
Retirement System are used to determine eligibility.
(3) Eligibility points earned as a result of credited
service in classes other than Class T-G shall not be included
in determining if a Class T-G member has the 15 eligibility
points required under section 8502(m.1) (relating to
administrative duties of board).
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(4) Nothing in this subsection shall be construed as

amending or waiving any other requirement to be eligible for
an annuity or other benefit.
Section 110. Sections 8307(a) and (b), 8308 and 8309 of
Title 24 are amended to read:
8307.
Eligibility for annuities.
(a)
Superannuation annuity.-l.ll An active or an inactive member who attains
superannuation age shall be entitled to receive a
superannuation annuity upon termination of service and filing
of a proper application.
(2) A member may not receive an annuity on Class T-G
credited service unless the member has attained age 55 on the
effective date of retirement, regardless of whether the
member has attained superannuation age for other classes of
service.
(b) Withdrawal annuity.--A vestee in Class T-C or Class T-D
with five or more eligibility points or an active or inactive
Class T-C or Class T-D member who terminates school service
having five or more eligibility points shall, upon filing a
proper application, be entitled to receive an early annuity. A
vestee in Class T-E or Class T-F with ten or more eligibility
points or an active or inactive Class T-E or Class T-F member
who terminates school service having ten or more eligibility
points shall, upon filing a proper application, be entitled to
receive an early annuity. A Class T-G member shall not be
eligible for an early annuity.
* * *
8308. Eligibility for vesting.
(a) General rule.--Any Class T-C or Class T-D member who
terminates school service with five or more eligibility points
shall be entitled to vest his retirement benefits until
attainment of superannuation age. Any Class T-E or Class T-F
member who terminates school service with ten or more
eligibility points shall be entitled to vest his retirement
benefits until attainment of superannuation age. Any Class T-G
member who terminates school service shall be eligible to vest
his retirement benefits until attainment of superannuation age,
provided the balance of his members' savings account exceeds the
requirements of a de minimis account under section 8349(d)
(relating to payment of benefits).
(b) Multiple classes of service.--A member with more than
one class of service who vests his retirement benefits in any
class of service may not receive distributions from other
classes of service until his effective date of retirement,
regardless of whether his benefits resulting from such other
classes of service are vested or he is eligible to receive an
annuity. A member with service credited in more than one class
of service may not separately vest those benefits and receive
annuities from different classes of service with different
effective dates.
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8309. Eligibility for death benefits.

In the event of the death of a member who is eligible for an
annuity in accordance with section 8307(a) or (b) (relating to
eligibility for annuities) his beneficiary shall be entitled to
a death benefit as provided in section 8347 (relating to death
benefits) . In the event of the death of a member not eligible
for an annuity his beneficiary shall receive the accumulated
deductions standing to the member's credit in the fund. In the
event of the death of a Class T-G member. his beneficiary shall
be entitled to a death benefit as provided in section 8347(e).
8323.
Member contributions for creditable school service.
* * *
(c) Approved leave of absence other than sabbatical leave
and activated military service leave.--The contributions to be
paid by an active member for credit for an approved leave of
absence, other than sabbatical leave and activated military
service leave, shall be sufficient to transfer his membership to
Class T-C or to Class T-D if the member is a Class T-D member,
to Class T-E if the member is a Class T-E member or to Class T-F
if the member is a Class T-F member or to Class T-G if the
member is a Class T-G member and further to provide an annuity
as a Class T-C member or Class T-D member if the member is a
Class T-D member, to Class T-E if the member is a Class T-E
member or to Class T-F if the member is a Class T-F member or to
Class T-G if the member is a Class T-G member for such
additional credited service. Such amount shall be the sum of the
amount required in accordance with the provisions of subsection
(b) and an amount determined as the sum of the member's basic
contribution rate and the normal contribution rate as provided
in section 8328 (relating to actuarial cost method) during such
period multiplied by the compensation which was received or
which would have been received during such period and with
statutory interest during all periods of subsequent school and
State service up to the date of purchase.
* * *
(el Class T-G membership.--The contributions to be paid by
an active member for credit for the reinstatement of all
previously credited Class T-G school service shall include the
present value of the member's savings account received by the
member attributable to such Class T-G service credit. together
with statutory interest during all periods of subsequent school
service up to the date of reinstatement. Any amounts forfeited
as a result of a withdrawal by the member under section 8310
(relating to eligibility for refunds) or section 834l(b)
(relating to return of accumulated deductions) shall be
reinstated to the member's savings account. together with
statutory interest during all periods of subsequent school
service up to the date of reinstatement.
Section 112. Section 8328 (c) (4), (e) and (g) (2), 8342 (a,
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8344(a) and 8345(a) of Title 24 are amended to read:

8328.
Actuarial cost method.
* * *
(c)
* * *
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Accrued liability contribution rate.--
(4) For the fiscal year beginning July 1, 2011, the

accrued liability contribution rate shall be computed as the
rate of total compensation of all active members which shall
be certified by the actuary as sufficient to fund as a level
percentage of compensation over a period of 24 years from
July 1, 2011, the present value of the liabilities for all
prospective benefits calculated as of June 30, 2010,
including the supplemental benefits as provided in sections
8348, 8348.1, 8348.2, 8348.3, 8348.4, 8348.5, 8348.6 and
8348.7, in excess of the actuarially calculated assets in the
fund (calculated recognizing all realized and unrealized
investment gains and losses each year in level annual
installments over a ten-year period provided that the
resulting actuarially calculated assets are constrained
within a range of 70% to 130% of market value) . In the event
that the accrued liability is increased by legislation
enacted subsequent to June 30, 2010, such additional
liability shall be funded as a level percentage of
compensation over a period of ten years from the July 1
second succeeding the date such legislation is enacted.
* * *
(e)
Experience adjustment factor.-(1) For each year after the establishment of the accrued
liability contribution rate for the fiscal year beginning
July 1, 2011, any increase or decrease in the unfunded
accrued liability, excluding the gains or losses on the
assets of the health insurance account, due to actual
experience differing from assumed experience, changes in
actuarial assumptions, money provided to the board as a
result of an application to the Pennsylvania Economic
Development Financing Authority for a total of up to
$6,000.000.000. pursuant to the agency's program guidelines,
changes in contributions caused by the final contribution
rate being different from the actuarially required
contribution rate, active members making shared-risk
contributions or changes in the terms and conditions of the
benefits provided by the system by judicial, administrative
or other processes other than legislation, including, but not
limited to, reinterpretation of the provisions of this part,
shall be amortized as a level percentage of compensation over
a period of 24 years beginning with the July 1 second
succeeding the actuarial valuation determining said increases
or decreases.
(2)
(Reserved) .
* * *
(g)
Temporary application of collared contribution rate.--
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(2)
If, for any of the fiscal years beginning July 1,
2011, July 1, 2012, [and on or after] July 1, 2013, July 1.
2014, July l, 2015, July 1, 2016, July l, 2017, and July 1,
2018, the actuarially required contribution rate, calculated
without regard for the costs added by legislation, is more
than 3%, 3.5% [and]L 4.5%, 3%, 3%, 3%, 3% and 3%
respectively, of the total compensation of all active members
greater than the prior year's final contribution rate, then
the collared contribution rate shall be applied and be equal
to the prior year's final contribution rate increased by 3%,
3.5% [and]L 4.5%, 3%. 3%, 3%. 3% and 3% respectively, of
total compensation of all active members. Otherwise, and for
all other fiscal years, the collared contribution rate shall
not be applicable. In no case shall the collared contribution
rate be less than 4% of the total compensation of all active
members.
* * *
8342. Maximum single life annuity.
(a) General rule.--Upon termination of service, any full
coverage member who is eligible to receive an annuity pursuant
to the provisions of section 8307(a) or (b) (relating to
eligibility for annuities) and has made an application in
accordance with the provisions of section 8507(f) (relating to
rights and duties of school employees and members) shall be
entitled to receive a maximum single life annuity attributable
to his credited service and equal to the sum of the following
single life annuities beginning at the eff,ective date of
retirement and, in case the member on the effective date of
retirement is under superannuation age, multiplied by a
reduction factor calculated to provide benefits actuarially
equivalent to an annuity starting at superannuation age:
Provided however, That on or after July 1, 1976, in the case of
any member who has attained age 55 and has 25 or more
eligibility points such sum of single life annuities shall be
reduced by a percentage determined by multiplying the number of
months, including a fraction of a month as a full month, by
which the effective date of retirement precedes superannuation
age by 1/4%: Further provided, In no event shall a Class T-E or
Class T-F member receive an annual benefit, calculated as of the
effective date of retirement, greater than the member's final
average salary:
(1) A standard single life annuity multiplied by the
class of service multiplier and calculated on the basis of
the number of years of credited school service other than
concurrent service and other than service credited as a
member of Class T-G.
(2) A standard single life annuity multiplied by the
class of service multiplier and calculated on the basis of
the number of years of concurrent service other than service
credited as a member of Class T-G and multiplied by the ratio
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of total compensation received in the school system other

than compensation received as a member of Class T-G or State
service as a member of Class OB during the period of
concurrent service to the total compensation received during
such period.
(3) A supplemental annuity such that the total annuity
prior to any optional modification or any reduction due to
retirement prior to superannuation age shall be at least $100
for each full year of credited service.
(4) If eligible, a standard single life annuity based on
service credited as a Class T-G member.
* * *
8344.
Disability annuities.
(a) Amount of annuity.-11.l A member who has credit in classes of service other
than Class T-G, has made application for a disability annuity
as provided in section 8507(k) (relating to rights and duties
of school employees and members) and has been found to be
eligible in accordance with the provisions of sections
8307(c) (relating to eligibility for annuities) and 8505{c)
(1) (relating to duties of board regarding applications and
elections of members) shall receive a disability annuity
payable from the effective date of disability and continued
until a subsequent determination by the board that the
annuitant is no longer entitled to a disability annuity. The
disability annuity shall be equal to a standard single life
annuity if the total number of years of credited service is
greater than 16.667, otherwise the standard single life
annuity shall be multiplied by the lesser of the following
ratios:
Y*/Y or 16.667/Y
where Y = number of years of credited service and Y* = total
years of credited service if the member were to continue as a
school employee until attaining superannuation age for
classes of service other than Class T-G, or if the member has
attained superannuation age for classes of service other than
Class T-G then the number of years of credited service. In no
event shall the disability annuity plus any cost-of-living
increases be less than $100 for each full year of credited
service. [The member shall be entitled to the election of a
joint and survivor annuity on that portion of the disability
annuity to which he is entitled under section 8342 (relating
to maximum single life annuity).)
(2) A member who has Class T-G service credit shall be
eligible to receive a disability annuity provided under this
part without regard as to whether the member has attained age 55
on the effective date of disability, but such disability shall
be limited to a maximum single life annuity with a present value
equal to the balance of the members' savings account maintained
in accordance with section 8523 (relating to members' savings
account) standing to his credit as of his effective date of
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retirement. Class T-G members shall also be eligible to

participate in any long-term disability group insurance program
established by the board in accordance with section 8502.3
(relating to long-term disability group insurance program) .
(3)
The member shall be entitled to the election of a ioint
and survivor annuity on that portion of the disability annuity
to which he is entitled under section 8342 (relating to maximum
single life annuity).
* * *
(a)
General rule.--Any Class T-C or Class T-D member who is
a vestee with five or more eligibility points, any Class T-E or
Class T-F member who is a vestee with ten or more eligibility
points, any Class T-G member who has attained age 55, or any
other eligible member upon termination of school service who has
not withdrawn his accumulated deductions as provided in section
8341 (relating to return of accumulated deductions) may apply
for and elect to receive either a maximum single life annuity,
as calculated in accordance with the provisions of section 8342
(relating to maximum single life annuity), or a reduced annuity
certified by the actuary to be actuarially equivalent to the
maximum single life annuity and in accordance with one of the
following options, except that no member shall elect an annuity
payable to one or more survivor annuitants other than his spouse
or alternate payee of such a magnitude that the present value of
the annuity payable to him for life plus any lump sum payment he
may have elected to receive is less than 50% of the present
value of his maximum single life annuity. In no event shall a
Class T-E or Class T-F member receive an annual benef.it,
calculated as of the effective date of retirement, greater than
the member's final average salary.
(1) Option 1.--A life annuity to the member with a
guaranteed total payment equal to the present value of the
maximum single life annuity on the effective date of
retirement with the provision that, if, at his death, he has
received less than such present value, the unpaid balance
shall be payable to his beneficiary.
(2) Option 2.--A joint and survivor annuity payable
during the lifetime of the member with the full amount of
such annuity payable thereafter to his survivor annuitant, if
living at his death.
(3) Option 3.--A joint and fifty percent (50%) survivor
annuity payable during the lifetime of the member with onehalf of such annuity payable thereafter to his survivor
annuitant, if living at his death.
(4) Option 4.--Some other benefit which shall be
maximum single life annuity, subject to the following
restrictions:
(i) Any annuity shall be payable without reduction
during the lifetime of the member.
(ii)
The sum of all annuities payable to the
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designated survivor annuitants shall not be greater than

one and one-half times the annuity payable to the member.
(iii) A portion of the benefit may be payable as a
lump sum, except that such lump sum payment shall not
exceed an amount equal to the accumulated deductions
standing to the credit of the member. The balance of the
present value of the maximum single life annuity adjusted
in accordance with section 8342(b) shall be paid in the
form of an annuity with a guaranteed total payment, a
single life annuity, or a joint and survivor annuity or
any combination thereof but subject to the restrictions
of subparagraphs (i) and (ii) of this paragraph. This
subparagraph shall not apply to a Class T-E or Class T-F
member. For purposes of this subparagraph only, the term
"actuarially equivalent," as applied to any lump sum
withdrawal attributable to accumulated deductions
credited to the members' savings account of a Class T-G
member for service performed as a Class T-G member or a
withdrawal attributable to a Class T-D member who has
made an election under section 8305.3 (relating to Class
T-D opt-in election), shall mean equal present values.
computed on the basis of the interest rate and such
mortality and other tables as adopted by the board
pursuant to section 8328(b) (relating to actuarial cost
method) in effect on the effective date of retirement of
such member. The reduction in the maximum single life
annuity under this paragraph shall apply before the
election and calculation of any reduced annuities payable
under subsection (a) .
* * *
read:
8345.1.
Accumulated deductions resulting from more than one
class of service.
Any annuitant who:
(1) Is receiving an annuity as a result of credited
service, other than service as a member of Class T-G who has
not attained age 55 on the effective date of retirement, and
who has accumulated deductions standing to his credit in the
member's savings account attributable to Class T-G service,
shall receive in a lump sum at the time of his retirement. in
addition to any other annuity or lump sum payment which he
may elect, the accumulated deductions attributable to his
Class T-G service. Payment of such accumulated deductions
resulting from Class T-G service credit shall not be eligible
for installment payments under section 8505.1 (relating to
installment payments of accumulated deductions), but shall be
considered a lump sum payment for purposes of section
8505.l(d).
(2) Is a member with Class T-G service credit and one or
more other classes of service credit who is receiving an
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annuity based on his Class T-G service, but who is not

eligible to receive an annuity based on his service credited
in one or more of his other classes of service, shall receive
in a lump sum at the time of his retirement. in addition to
any other annuity which he may elect for his Class T-G
service, his accumulated deductions resulting from his
service credit in classes of service other than Class T-G.
Payment of such accumulated deductions resulting from service
credit in classes of service other than Class T-G shall not
be eligible for installment payments under section 8505.1.
but shall be considered a lump sum payment for purposes of
section 8505.l(d).
Section 114. Section 8346(a), (a.l), (c) and (d) (1) and (3)
of Title 24 are amended to read:
8346.
Termination of annuities.
(a)
General rule.--If an annuitant returns to school service
or enters or has entered State service and elects multiple
service membership, any annuity payable to him under this part
shall cease effective upon the date of his return to school
service or entering State service and in the case of an annuity
other than a disability annuity the present value of such
annuity other than the portion of the annuity being paid under
section 8342(a) (4) (relating to maximum single life annuity),
adjusted for full coverage in the case of a joint coverage
member who makes the appropriate back contributions for full
coverage, shall be frozen as of the date such annuity ceases and
the present value of the annuity being paid under section
8342(a) (4) shall be transferred to the members' savings account.
An annuitant who is credited with an additional 10% of
membership service as provided in section 8302(b.2) (relating to
credited school service) and who returns to school service,
except as provided in subsection (b), shall forfeit such
credited service and shall have his frozen present value
adjusted as if his 10% retirement incentive had not been applied
to his account. In the event that the cost-of-living increase
enacted December 18, 1979, occurred during the period of such
State or school employment, the frozen present value shall be
increased, on or after the member attains superannuation age, by
the percent applicable had he not returned to service.
(a.l)
Return of benefits.--In the event an annuitant, other
than a Class T-G annuitant. whose annuity ceases pursuant to
this section receives any annuity payment, including a lump sum
payment pursuant to section 8345 (relating to member's options)
on or after the date of his return to school service or entering
State service, the annuitant shall return to the board the
amount so received plus statutory interest. The amount payable
shall be certified in each case by the board in accordance with
methods approved by the actuary and shall be paid in a lump sum
within 90 days or in the case of an active member or a State
employee who is an active member of the State Employees'
Retirement System may be amortized with statutory interest
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through salary deductions in amounts agreed upon by the member

and the board. The salary deduction amortization plans agreed to
by the member and the board may include a deferral of payment
amounts and statutory interest until the termination of school
service or State service as the board in its sole discretion
decides to allow. The board may limit salary deduction
amortization plans to such terms as the board in its sole
discretion determines. In the case of a State employee who is an
active member of the State Employees' Retirement System, the
agreed upon salary deductions shall be remitted to the State
Employees' Retirement Board, which shall certify and transfer to
the board the amounts paid.
* * *
(c) Subsequent discontinuance of service.--Upon subsequent
discontinuance of service, such member other than a former
annuitant who had the effect of his frozen present value
eliminated in accordance with subsection (d) [or]L a former
disability annuitant shall be entitled to an annuity which is
actuarially equivalent to the sum of~
l1.l the frozen present value as determined under
subsection (a) [and]L
J.1j_ the present value of a maximum single life annuity
calculated excluding any annuity payable under section
8342(al (4) based on years of service credited subsequent to
reentry in the system and his final average salary computed
by reference to his compensation other than as a member of
Class T-G or Class OB during his entire period of school and
State service[.]; and
(3)
If eligible. an annuitv payable under section
8342(a) (4) based on the balance of the members' savings
account standing to his credit as of his effective date of
retirement.
(d) Elimination of the effect of frozen present value.-(1) An annuitant who returns to school service and earns
three eligibility points by performing credited school
service or reemployment from USERRA leave following the most
recent period of receipt of an annuity under this part, or an
annuitant who enters State service and:
(i)
is a multiple service member; or
(ii) who elects multiple service membership, and
earns three eligibility points by performing credited
State service, reemployment from USERRA leave or credited
school service following the most recent period of
receipt of an annuity under this part, and who had the
present value of his annuity frozen in accordance with
subsection (a), shall qualify to have the effect of the
frozen present value resulting from all previous periods
of retirement eliminated, provided that all lump sum
payments under Option 4 other than lump sum payments
attributable to Class T-G service and annuity payments
except those made under section 8342(al (4) payable during
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previous periods of retirement plus interest as set forth

in paragraph (3) shall be returned to the fund in the
form of an actuarial adjustment to his subsequent
benefits or in such form as the board may otherwise
direct.
* * *
(3)
In addition to any other adjustment to the present
value of the maximum single life annuity that a member may be
entitled to receive that occurs as a result of any other
provision of law, the present value of the maximum single
life annuity shall be reduced by all amounts paid or payable
to him during all previous periods of retirement. except
those made under section 8342(a) (4), plus interest on these
amounts until the date of subsequent retirement. The interest
for each year shall be calculated based upon the annual
interest rate adopted for that school year by the board for
the calculation of the normal contribution rate pursuant to
section 8328(b) (relating to actuarial cost method).
Section 115. Section 8347(a), (b) and (c) of Title 24 are
amended and the section is amended by adding subsections to
read:
8347.
Death benefits.
(a) Members eligible for annuities.--Any member or former
member on USERRA leave, other than an annuitant, who dies. does
not have Class T-G service credit and was eligible for an
annuity in accordance with section 8307(a) or (b) (relating to
eligibility for annuities) shall be considered as having applied
for an annuity to become effective the day before his death;
and, in the event he has not elected an option, it shall be
assumed that he elected Option 1 and assigned as beneficiary
that person last designated in writing to the board.
(b) Members ineligible for annuities.--In the event of the
death of any member or former member on USERRA leave, other than
an annuitant, who does not have Class T-G service credit and who
is not entitled to a death benefit as provided in subsection
(a), his designated beneficiary shall be paid the full amount of
his accumulated deductions.
(c)
Disability annuitants.--In the event of the death of a
disability annuitant who has elected to receive a maximum
disability before he has received in annuity payments. excluding
any disability payments under section 8344 (a) (4) (relating to
disability annuities), an amount equal to the percent value, on
the effective date of disability, of the benefits to which he
would have been entitled under subsection (a) had died while in
school service, the balance of such amount shall be paid to his
designated beneficiary, except that in the event of the death of
a disability annuitant who was not entitled to receive benefits
under subsection (a), his beneficiary shall be paid the
accumulated deductions standing to his credit on the effective
date of disability less the total payments received on account
of his member's annuity.
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* * *
(e) Class T-G members.--Notwithstanding subsection (al, (b),
(cl or (d), in the event of the death of any member or former
member on USERRA leave who has Class T-G service credit, his
beneficiary shall receive the balance of the members' savings
account regardless of whether the member has attained
superannuation retirement age, in addition to any other payments
he would otherwise be eligible to receive under subsection (a),
(b) or (c), calculated without regard to any annuity payable
under section 8342 (a) (4) (relating to maximum single life
annuity) .
Section 116. Sections 8349 and 8502 of Title 24 are amended
by adding subsections to read:
8349.
Payment of benefits.
* * *
(d)
De minimis accounts.--A member with only Class T-G
service credit who terminates school service and whose balance
in the members' savings account is $5,000 or less as of the date
of termination of service, or such other higher amount as may be
permitted under IRC 411 (a) (lll or 417 (e), shall receive the
balance in one lump sum payment as provided in IRC 401(a) (311.
The balance shall not be eligible for installment payments under
section 8505.1 (relating to installment payments of accumulated
deductions), but shall be considered a lump sum payment for
purposes of section 8505.l(d).
8502.
Administrative duties of board.
* * *
(m.ll Amounts credited to members' savings account for Class
T-G members.-(ll The board shall credit to each Class T-G member's
individual members' savings account and shall separately
account for the following amounts of such Class T-G member's
compensation:
(i)
four percent of the compensation for each Class
T-G member who, on the immediately preceding June 30, had
less than 15 eligibility points earned as a member of
Class T-G; and
(iil five percent of the compensation for each T-G
member who, on the immediately preceding June 30, had 15
or more eligibility points earned as a member of Class Tfu_
(2) Such amounts shall be credited with statutory

interest. Such amounts shall also be credited with excess
interest, if such excess interest is awarded.
* * *
(ql Excess interest.-(1) The board may allow excess interest to be credited
to the members' savings account for active Class T-G members
as provided under section 8523(d) (relating to members'
savings account).
(2) The crediting of excess interest shall be made with
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the advice of the actuary employing actuarial assumptions

which reflect the nature of the liability.
(r) Application for bond proceeds.--The board is authorized
to apply to the Pennsylvania Economic Development Financing
Authority for a total of up to $6.000,000,000. contingent on the
percentage of Class T-D members who opt-in to the changes set
forth in section 8305.3 (relating to Class T-D opt-in election)
pursuant to the program guidelines of the Pennsylvania Economic
Development Financing Authority.
read:
8502.3.
Long-term disability group insurance program.
(a) Authority.--The board may sponsor a participant-funded
long-term disability group insurance program to be funded by and
for Class T-G members. The board may administer the program
itself or through any legal entity authorized by law to do so.
The program may also be administered in whole or in part on a
fully insured or self-funded basis at the board's sole
discretion. The board may establish accounts, adopt any policy
statement or promulgate regulations as may be required for the
proper administration of the long-term disability group
insurance program.
(bl Hold harmless.-(1) Neither the Commonwealth nor the board, including
their respective officers, directors and employees, shall be
liable for any claims. demands, actions or liability of any
nature. including, but not limited to, attorney fees and
court costs, based upon or arising out of the operation of
the program. whether incurred directly or indirectly.
(2) The participants who enroll and participate in the
program shall be deemed to agree, on behalf of themselves and
their heirs. successors and assigns. to hold harmless the
Commonwealth and the board. including their respective
officers, directors and employees, from any claims, demands,
actions or liability of any nature. whether directly or
indirectly, including attorney fees and court costs. based
upon or arising out of the operation of the program.
(c) No recourse.--Under no circumstances shall the assets of
the Commonwealth or those that comprise the Public School
Employees' Retirement Fund as set forth in section 8522
(relating to Public School Employees' Retirement Fund) be liable
for or used to pay any claims, demands. actions or liability of
any nature, whether directly or indirectly, including, but not
limited to, attorney fees and court costs. based upon or arising
out of the operation of the program.
(d)
Reservation of immunities.--Nothing contained in this
part shall be construed as a waiver of the Commonwealth's or
board's immunities, defenses. rights or actions arising out of
their sovereign status or from the eleventh amendment to the
Constitution of the United States.
(e) Nature of rights.--
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(1) Any termination or other modification of the
2
program. including, but not limited to, a change in benefit
3
options or structure or insurance providers, shall not give
4
rise to any contractual rights or claims by any eligible
5
persons or any other person claiming an interest, either
6
directly or indirectly, in the program.
7
(2) No provision of this part nor any rule or regulation
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adopted pursuant to this part shall create in any person a
contractual right in that provision.
9
10
(f) Additional requirements.-11
(1) The assets of the fund shall not be liable or
12
utilized for payment of any expenses of claims incurred by
13
the long-term disability group insurance program.
14
(2) The program shall not be subject to the provisions
15
of section 8531 (relating to State guarantee) .
16
Section 118. Section 8505(b), (c) and (k) and 8506(g) and
17 (h) of Title 24 are amended to read:
18 8505. Duties of board regarding applications and elections of
19
members.
20
* * *
21
(b) State employees electing multiple service status.--Upon
22 receipt of notification from the State Employees' Retirement
23 Board that a former school employee has become an active member
24 in the State Employees' Retirement System and has elected to
25 become a member with multiple service status, the board shall:
26
(1)
In case of a member who is receiving an annuity from
27
the system:
28
(i)
Discontinue payments, transfer the present value
29
of the member's annuity derived from classes of service
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other than Class T-G and the present value of the annuity
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paid under section 8342(a) (4) (relating to maximum single
32
life annuity) at the time of entering State service, plus
33
the amount withdrawn in a lump sum payment, on or after
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the date of entering State service, pursuant to section
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8345 (relating to member's options), with statutory
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interest to date of transfer, minus the amount to be
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returned to the board on account of return to service
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that the board has determined is to be credited in the
39
members' savings account, from the annuity reserve
40
account to the members' savings account and resume
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crediting of statutory interest on the amount restored to
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his credit.
43
(ii) Transfer the balance of the present value of
44
the total annuity, minus the amount to be returned to the
45
board on account of return to service that the board has
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determined is to be credited in the State accumulation
47
account, from the annuity reserve account to the State
48
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(iii) Certify to the member the amount of lump sum
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and annuity payments with statutory interest the member
51
is to return to the board and, of those amounts, which
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amount shall be credited to the members' savings account

and credited with statutory interest as such payments are
returned and which amount shall be credited to the State
(2) In case of a member who is not receiving an annuity
from the system and who has not withdrawn his accumulated
deductions, continue or resume the crediting of statutory
interest on his accumulated deductions.
(3) In case of a member who is not receiving an annuity
from the system and his accumulated deductions were
withdrawn, certify to the member the accumulated deductions
as they would have been at the time of his separation had he
been a full coverage member together with statutory interest
for all periods of subsequent State and school service to the
date of repayment. Such amount shall be restored by him and
shall be credited with statutory interest as such payments
are restored.
(c) Disability annuities.--In every case where the board has
received an application duly executed by the member or by a
person legally authorized to act in his behalf for a disability
annuity based upon the member's physical or mental incapacity
for the performance of the job for which he is employed, the
board shall:
(1) Through the medical examiner, have the application
and any supporting medical records and other documentation
submitted with the application reviewed and, on the basis of
said review and the subsequent recommendation by the medical
examiner regarding the applicant's medical qualification for
a disability annuity along with such other recommendations
which he may make with respect to the permanency of
disability or the need for subsequent reviews, make a finding
of disability or nondisability and, in the case of
disability, establish an effective date of disability and the
terms and conditions regarding subsequent reviews.
(2) Upon the recommendation of the medical examiner on
the basis of a review of subsequent medical reports submitted
with an application for continuance of disability, make a
finding of disability or nondisability and, in the case of a
finding of nondisability, establish the date of termination
of disability and at that time discontinue any annuity
payments in excess of any annuity to which he may be
otherwise entitled under section 8342 [(relating to maximum
single life annuity)].
(3) Upon receipt of a written statement from a
disability annuitant of his earned income of the previous
year, adjust the payments of the disability annuity for the
following year in accordance with the provisions for a
reduction of disability payments of section 8344 (relating to
disability annuities).
* * *
(k)
School employees electing multiple service status.--Upon
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receipt of notification from the State Employees' Retirement

Board that a member who has elected multiple service membership
has elected to restore State service or purchase creditable
nonstate service in the State Employees' Retirement System or is
obligated to return benefits to the State Employees' Retirement
Board on account of electing multiple service membership has
elected to pay all or part of the amount due to the State
Employees' Retirement Board by salary deductions, the board
shall collect from the employee the amounts certified by the
State Employees' Retirement Board as due and owing by the member
and shall certify and transfer to the State Employees'
Retirement Board the amounts so collected. A Class T-G member or
a school employee whose service credit in the State Employees'
Retirement System consists solely of Class OB service, shall not
be eligible to elect multiple service membership.
* * *
8506.
Duties of employers.
* * *
(g)
Former State employee contributors.-ll.l The employer shall, upon the employment of a former
member of the State Employees' Retirement System who is not
an annuitant of the State Employees' Retirement System,
advise such employee of his right to elect multiple service
membership within 365 days of entry into the system and, in
the case any such employee who so elects has withdrawn his
accumulated deductions, require him to restore his
accumulated deductions as they would have been at the time of
his separation had he been a full coverage member, together
with statutory interest for all periods of subsequent State
and school service to date of repayment. The employer shall
advise the board of such election.
(2) This subsection shall not apply to a school employee
who is an active member in Class T-G or who has only Class OB
service credit in the State Employees' Retirement System.
(h)
Former State employee annuitants.-ll.l The employer shall, upon the employment of an
annuitant of the State Employees' Retirement System who
applies for membership in the system, advise such employee
that he may elect multiple service membership within 365 days
of entry into the system and that if he so elects his annuity
from the State Employees' Retirement System will be
discontinued effective upon the date of his return to school
service and, upon termination of school service and
application for an annuity, the annuity will be adjusted in
accordance with section 8346 (relating to termination of
annuities). The employer shall advise the board of such
election.
(2) This subsection shall not apply to a school employee
who is an active member in Class T-G or who has only Class OB
service credit in the State Employees' Retirement System.
* * *
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8507.
Rights and duties of school employees and members.
* * *
(c) Multiple service membership.--Any school employee who is

an active member, in a class of service other than a Class T-G
and who was formerly an active member in the State Employees'
Retirement System in a class of service other than Class OB. may
elect to become a multiple service member. Such election shall
occur no later than 365 days after becoming an active member in
this system. A school employee who is eligible to elect to
become a multiple service member and who begins USERRA leave
during the election period without having elected multiple
service membership may make the election within 365 days after
being reemployed from USERRA leave.
* * *
(ll
Eligible roll-in.--An active Class T-G member may
transfer money received in an eligible rollover distribution to
the members' savings account to purchase USERRA leave to the
extent allowed by IRC 402. Such rollover shall be made in a
form and manner as determined by the board. shall be credited to
the Class T-G member's accumulated deductions and shall be
separately accounted for by the board.
Section 120. Sections 8523 and 8524 of Title 24 are amended
to read:
8523.
Members' savings account.
(a)
Credits to account.--The members' savings account shall
be the ledger account to which shall be credited the amounts of
the pickup contributions made by the employer and contributions
or lump sum payments made by active members in accordance with
the provisions of Chapter 83 (relating to membership,
contributions and benefits)[.], section 8507(1) (relating to
rights and duties of school employees and members). and amounts
credited in accordance with subsection (d) and section 8502(m.ll
(relating to administrative duties of board) .
(b)
Interest and transfers from account.--The individual
member accounts to which interest is payable shall be credited
with statutory interest. The accumulated deductions credited to
the account of a member. including amounts credited in
accordance with subsection (d) and section 8502(m.ll (relating
to administrative duties of board), who dies in service or whose
application for an annuity has been approved shall be
transferred from the members' savings account to the annuity
reserve account provided for in section 8525 (relating to
annuity reserve account).
(c)
Charges to account.--Upon the election of a member to
withdraw his accumulated deductions, the payment of such amount
shall be charged to the members' savings account.
(d)
Determination of excess interest.-(ll As part of the annual actuarial valuation performed
under subsection 8502!il (relating to administrative duties
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of board) for fiscal year 2015, and for each subsequent

fiscal year, the board shall determine the amount potentially
available from that year for distribution as excess interest.
That amount shall be one-half of the investment gains and
losses, net of investment and administrative fees and costs,
above or below a rate of return of 5% of the total assets in
the fund multiplied by the ratio of the total amount credited
in the active members' saving account of Class T-G members to
the sum of the total amount credited in the members' savings
account plus the accrued actuarial liability of all benefits
derived from all the service of all members in all classes of
service other than Class T-G. This product shall be available
in equal annual installments over five years.
(2) After the actuarial valuation made for fiscal year
2017 and after the actuarial valuations for each subsequent
fiscal year. the board shall determine if excess interest is
to be awarded to those active members who have Class T-G
service credit on the date of the applicable actuarial
valuations.
(3)
For each determination period identified in
paragraph (4), excess interest shall be granted if the sum of
the amounts determined under paragraph (1) for all the years
of the determination period is positive. If so, then the
percentage rate of excess interest shall be determined by
dividing this sum by the total amount credited in the
members' savings account attributable to Class T-G service
credit on the last day of the determination period. Each
member who has Class T-G service credit on the last day of
the determination period and who is an active member on the
next following June 30 shall have excess interest at this
rate credited to his total members' savings account balance
attributable to Class T-G service credit.
(4) The determination period for the period ending with
the actuarial valuation for fiscal year 2017 shall be fiscal
years 2015. 2016 and 2017. The determination period for the
period ending with the actuarial valuation for fiscal year
2018 shall be fiscal years 2015, 2016, 2017 and 2018. The
determination period for the periods ending with fiscal year
2019 and subsequent years shall be the ending year and the
four immediately previous fiscal years.
8524.
State accumulation account.
(a) General rule.--The State accumulation account shall be
the ledger account to which shall be credited all contributions
of the Commonwealth and other employers as well as the earnings
of the fund, except the premium assistance contributions and
earnings thereon in the health insurance account. Valuation
interest shall be allowed on the total amount of such account
less any earnings of the fund credited during the year. The
reserves necessary for the payment of annuities and death
benefits as approved by the board and as provided in Chapter 83
(relating to membership, contributions and benefits) shall be
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transferred from the State accumulation account to the annuity

reserve account. At the end of each year the required interest
shall be transferred from the State accumulation account to the
credit of the members' savings account and the annuity reserve
account. The administrative expenses of the board shall be
charged to the State accumulation account. Amounts credited to
the members' savings account as provided in sections 8502(m.1)
(relating to administrative duties of board) and 8523/d)
(relating to members' savings account) shall be transferred from
the State accumulation account. All amounts received by the fund
as a result of an application under section 8502(r) shall be
credited to the State accumulation account.
(b) Refund.--In the event a Class T-G member elects a refund
under section 8341/b) (relating to return of accumulated.
deductions), thereby forfeiting the amounts credited in
accordance with section 8502(m.1), such forfeited amount.
including interest thereon. shall be transferred to the State
ARTICLE III
TITLE 71
AMENDMENTS
Section 301. The definitions of ''class of service
multiplier," "final average salary," "inactive member,"
"member's annuity," "multiple service," "pickup contributions,"
"regular member contributions," "standard single life annuity,"
"superannuation age," "total accumulated deductions," "valuation
interest'' and ''vestee'' in section 5102 of Title 71 of the
Pennsylvania Consolidated Statutes are amended and the section
is amended by adding definitions to read:
5102.
Definitions.
The following words and phrases as used in this part, unless
a different meaning is plainly required by the context, shall
have the following meanings:
* * *
''Cash balance member accumulated deductions.'' The total of
the cash balance member contributions paid into the fund on
account of a member's service as a member of Class OB together
with the statutory interest and excess interest thereon until
the date of termination of service. In the case of a vestee,
statutory interest, but not excess interest, shall be credited
until the effective date of retirement.
"Cash balance member contributions." The product of the
basic contribution rate. the class of service multiplier if
greater than one and the compensation of the member for service
credited as Class OB.
"Class of service multiplier."
Class of Service
Multiplier
A
1
AA
for all purposes
except
calculating
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AA
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32
A-3
A-3
A-4
33
34
35
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37
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41
42
43
44
45
46
47
48
49
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A-4
regular member
contributions on
compensation
paid prior to
January 1, 2002
for purposes of
calculating
regular member
contributions
on compensation
paid prior to
January 1, 2002
for all purposes
except the
calculation of
regular member
contributions
and
contributions
for creditable
nonstate service
for purposes of
calculating
regular member
contributions
and
contributions
for creditable
nonstate service
for all purposes
except the
calculation of
regular member
contributions
for purposes of
calculating
regular member
contributions
c
D
D-1
D-1
D-2
D-2
prior to January
1, 1973
on and
subsequent to
January 1, 1973
prior to January
1, 1973
on and
subsequent to
January 1, 1973
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1. 25
1. 25
1. 86
. 625
1
1. 25
1. 875
1. 731
2.5
1. 731
D-3
2
3
4
5
6
7
8
9
D-3
prior to January
1, 197 3
on and
subsequent to
January 1, 1973
3. 75
1. 731
10
11
12
13
14
15
3.75
D-4
16
17
18
19
20
21
22
23
24
25
D-4
26
27
28
29
30
31
32
E, E-1
for all purposes

except
calculating
regular member
contributions
on compensation
paid prior to
July 1, 2001
for purposes of
calculating
regular member
contributions on
compensation
paid prior to
July 1, 2001
prior to January
1, 1973
1. 5
33
34
35
1. 5
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
except prior to
December 1, 1974
as applied to
any additional
legislative
compensation as
an officer of
the General
Assembly
E, E-1
on and
subsequent to
January 1, 1973
1. 50
1.125
E-2
prior to
September 1,
1973
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for each of the

first ten years
of judicial
service, and
for each
subsequent year
of judicial
service
for each of the
first ten years
of judicial
service and
for each
subsequent year
of judicial
service
1
2
3
4
5
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7
8
9
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22
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E-2
on and
subsequent to
September 1,
1973
1.125
0.417
0.500
0.625
0.714
0.834
1.000
1.100
1. 250
G
H
I
J
K
L
M
N
Q!L
for all purposes

except
calculating cash
balance member
contributions
1
for purposes of
calculating cash
balance member
contributions
1. 4
T-C (Public School
[1]
Employees'
Retirement Code)
1
T-E (Public School
[1)
Employees'
Retirement Code)
1
T-F (Public School
[1)
Employees'
Retirement Code)
1
"Class QB exempt employee." Any of the following:
(1)
A sworn police officer.
(2) A member of the iudiciary.
(3) An arraignment court magistrate.
* * *
"Final average salary." The highest average compensation

received as a member during any three nonoverlapping periods of
four consecutive calendar quarters during which the member was a
State employee, excluding compensation received for State
service credited as a member of Class OB, with the compensation
for part-time service being annualized on the basis of the
fractional portion of the year for which credit is received;
except if the employee was not a member of one or more classes
of service other than Class OB for three nonoverlapping periods
of four consecutive calendar quarters, the total compensation
received as a member for State service credited other than as a
member of Class OB, annualized in the case of part-time service,
divided by the number of nonoverlapping periods of four
consecutive calendar quarters of membership in classes of
service other than Class OB; in the case of a member with
multiple service, the final average salary shall be determined
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on the basis of the compensation received by him as a State

employee or as a school employee, or both, excluding
compensation received for service performed as a member of Class
OB or Class T-G in the Public School Employees' Retirement
System; in the case of a member with Class A-3 or Class A-4
service and service in one or more other classes of service, the
final average salary shall be determined on the basis of the
compensation received by him in all classes of State service
other than Class OB; and, in the case of a member who first
became a member on or after January 1, 1996, the final average
salary shall be determined as hereinabove provided but subject
to the application of the provisions of section 5506.l(a)
(relating to annual compensation limit under IRC 40l(a) (17)).
Final average salary shall be determined by including in
compensation payments deemed to have been made to a member
reemployed from USERRA leave to the extent member contributions
have been made as provided in section 5302(f) (2) (relating to
credited State service) and payments made to a member on leave
of absence under 51 Pa.C.S. 4102 (relating to leaves of
absence for certain government employees) as provided in section
5302(f) (6). In the case of a member who has made an election
under section 5306.4 (relating to election to reduce member
contributions. change final average salary and change benefit
payment options), the final average salary shall be determined
as provided in this definition. but subject to the use of any
five nonoverlapping periods of four consecutive calendar
quarters. provided that no member shall have a final average
salary lower than the final average salary that would have been
determined had the member terminated State service on the
December 31 immediately preceding the effective date of the
election.
* * *
"Inactive member." A member for whom no pickup contributions
are being made, except in the case of an active member for whom
such contributions otherwise required for current State service
are not being made solely by reason of section 5502.1 (relating
to waiver of regular member contributions and Social Security
integration member contributions) or any provision of this part
relating to the limitations under section 40l(a) (17) or 415(b)
of the Internal Revenue Code of 1986 (Public Law 99-514, 26
U.S.C. 40l(a) (17) or 415(b)), but who has accumulated
deductions or cash balance member accumulated deductions
standing to his credit in the fund and who is not eligible to
become or has not elected to become a vestee or has not filed an
application for an annuity.
* * *
"Member's annuity." The single life annuity which is
actuarially equivalent, at the effective date of retirement, to
the sum of the regular accumulated deductions, shared-risk
accumulated deductions, the additional accumulated deductions.L......
cash balance member accumulated deductions and the social
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9
10
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19
20
. ., 21
22
23
24
25
26
27
2.8
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
security integration accumulated deductions standing to the

member's credit in the members' savings account.
* * *
"Multiple service." Credited service of a member, other than
as a Class OB member or Class T-G member in the Public School
Employees' Retirement System, who has elected to combine his
credited service in both the State Employees' Retirement System
and the Public School Employees' Retirement System.
"Pickup contributions." Regular or joint coverage member
contributions, shared risk member contributions, social security
integration contributions, cash member balance contributions and
additional member contributions which are made by the
Commonwealth or other employer for active members for current
service on and after January 1, 1982.
* * *
"Regular member contributions."
[The] In the case of a
member who has not made an election under section 5306.4
(relating to election to reduce member contributions, change
final average salary and change benefit payment options), or who
has made an election but before the date the election is
effective, the product of the basic contribution rate, the class
of service multiplier if greater than one and the compensation
of the member[.] for service in a class other than Class OB. In
the case of a member who has made an election under section
5306.4, the regular member contributions on and after the
effective date of the section shall be 1.0% of compensation
lower than they would be if the election had not been made.
* * *
''Standard single life annuity.'' An annuity equal to 2% of
the final average salary, multiplied by the total number of
years and fractional part of a year of credited service of a
member other than service credited as a member of Class OB.
* * *
''Superannuation age.'' For classes of service other than
Class A-3 [and]L Class A-4 and Class OB, any age upon accrual of
35 eligibility points or age 60, except for a member of the
General Assembly, an enforcement officer, a correction officer,
a psychiatric security aide, a Delaware River Port Authority
policeman or an officer of the Pennsylvania State Police, age
50, and, except for a member with Class G, Class H, Class I,
Class J, Class K, Class L, Class M or Class N service, age 55
upon accrual of 20 eligibility points. For Class A-3 and Class
A-4 service, any age upon attainment of a superannuation score
of 92, provided the member has accrued 35 eligibility points, or
age 65, or for park rangers or capitol police officers, age 55
with 20 years of service as a park ranger or capitol police
officer, except for a member of the General Assembly, an
enforcement officer, a correction officer, a psychiatric
security aide, a Delaware River Port Authority policeman or an
officer of the Pennsylvania State Police, age 55. For Class OB
service, age 55. A vestee with Class A-3 or Class A-4 service
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3
4
5
6
7
8
9
10
11
12
13
14
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16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
credit attains superannuation age on the birthday the vestee

attains the age resulting in a superannuation score of 92,
provided that the vestee has at least 35 eligibility points, or
attains another applicable superannuation age, whichever occurs
first.
* * *
''Sworn police officer.'' A State police officer who is

employed and serving as an officer of the Pennsylvania State
Police.
* * *
"Total accumulated deductions." The sum of the regular
accumulated deductions, additional accumulated deductions, the
social security integration accumulated deductions, shared-risk
member contributions and all other contributions other than cash
balance member contributions and other amounts credited to the
cash balance savings account paid into the fund for the
purchase, transfer or conversion of credit for service or other
coverage together with all statutory interest credited thereon
until the date of termination of service. In the case of a
vestee or a special vestee, statutory interest shall be credited
until the effective date of retirement. A member's account shall
not be credited with statutory interest for more than two years
during a leave without pay.
"Total cash balance accumulated deductions." The sum of the
cash balance member accumulated deductions and amounts credited
by the board as provided by section 5902(p) (relating to
administrative duties of the board) together with all statutory
interest a~d excess interest thereon credited to a member's cash
balance savings account until the date of termination of
service. In the case of a vestee, statutory interest, but not
excess interest, shall be credited until the effective date of
retirement.
* * *
"Valuation interest." Interest at 5 1/2% per annum
compounded annually and applied to all accounts other than the
members' savings account and the cash balance savings account.
"Vestee." A member with five or more eligibility points in a
class of service other than Class A-3 or Class A-4 or Class T-E
or Class T-F in the Public School Employees' Retirement System,
a member with Class G, Class H, Class I, Class J, Class K, Class
L, Class M or Class N service with five or more eligibility
points, or a member with Class A-3 or Class A-4 service with ten
or more eligibility points, or a member with Class OB service
who has terminated State service and has elected to leave his
total accumulated deductions and cash balance member accumulated
deductions in the fund and to defer receipt of an annuity.
Section 302. Sections 5301 (a) and (b) and 5302 (b) (1), (e)
and (f) (2) (ii) of Title 71 are amended to read:
5301.
Mandatory and optional membership.
(a) Mandatory membership.--Membership in the system shall be
mandatory as of the effective date of employment for all State
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2
(1) Governor.
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(2) Lieutenant Governor.
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(3) Members of the General Assembly.
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(4) Heads or deputy heads of administrative departments.
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(5) Members of any independent administrative board or
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commission.
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(6) Members of any departmental board or commission.
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(7) Members of any advisory board or commission.
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(8) Secretary to the Governor.
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(9) Budget Secretary.
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(10) Legislative employees who. if they were active
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members. would be in a class of service other than Class OB.
14
(11) School employees who have elected membership in the
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Public School Employees' Retirement System.
16
(12) School employees who have elected membership in an
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independent retirement program approved by the employer,
18
provided that in no case, except as hereinafter provided,
19
shall the employer contribute on account of such elected
20
membership at a rate greater than the employer normal
21
contribution rate as determined in section 5508(b) (relating
22
to actuarial cost method). For the fiscal year 1986-1987 an
23
employer may contribute on account of such elected membership
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at a rate which is the greater of 7% or the employer normal
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contribution rate as determined in section 5508(b) and for
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the fiscal year 1992-1993 and all years after that at a rate
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of 9.29%.
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(13)
Persons who have elected to retain membership in
29
the retirement system of the political subdivision by which
30
they were employed prior to becoming eligible for membership
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in the State Employees' Retirement System.
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(14)
Persons who are not members of the system and are
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employed on a per diem or hourly basis for less than 100 days
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or 750 hours in a 12-month period unless they would be
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members of Class OB if an active member.
36
(15) Employees of the Philadelphia Regional Port
37
Authority who have elected to retain membership in the
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pension plan or retirement system in which they were enrolled
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as employees of the predecessor Philadelphia Port Corporation
40
prior to the creation of the Philadelphia Regional Port
41
Authority.
42
(16) Employees of the Juvenile Court Judges' Commission
43
who, before the effective date of this paragraph, were
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transferred from the State System of Higher Education to the
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Juvenile Court Judges' Commission as a result of an
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interagency transfer of staff approved by the Office of
47
Administration and who, while employees of the State System
48
of Higher Education, had elected membership in an independent
49
retirement program approved by the employer.
50
(b) Optional membership.--The State employees listed in
51 subsection (a) (1) through (11) shall have the right to elect
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membership in the system; once such election is exercised,

membership shall be effective from the effective date of
employment if a member of a class of service other than Class OB
and from the date of election if a member of Class OB and shall
continue until the termination of State service.
* * *
5302.
Credited State service.
* * *
(b)
Creditable leaves of absence.-(1) A member on leave without pay who is studying under
a Federal grant approved by the head of his department or who
is engaged up to a maximum of two years of temporary service
with the United States Government, another state or a local
government under the Intergovernmental Personnel Act of 1970
(5 U.S.C. 1304, 3371-3376; 42 U.S.C. 4701-4772) shall
be eligible for credit for such service: Provided, That
contributions are made in accordance with sections 5501
(relating to regular member contributions and cash balance
member contributions for current service), 5501.1 (relating
to shared-risk member contributions for Class A-3 and Class
A-4 service), 5505.1 (relating to additional member
contributions) and 5507 (relating to contributions by the
Commonwealth and other employers), the member returns from
leave without pay to active State service for a period of at
least one year, and he is not entitled to retirement benefits
for such service under a retirement system administered by
any other governmental agency.
* * *
(e) Cancellation of credited service.--All credited service
shall be cancelled if a member withdraws his total accumulated
deductions and cash balance member accumulated deductions,
except that_;_
11.l. a member with Class A-3 or Class A-4 service credit
and one or more other classes of service credit shall not
have his service credit as a member of any classes of service
other than as a member of Class A-3 or Class A-4 cancelled
when the member receives a lump sum payment of accumulated
deductions resulting from Class A-3 or Class A-4 service
pursuant to section [5705.1] 5705.l(a) (relating to payment
of accumulated deductions resulting from [Class A-3 and Class
A-4] more than one class of service)[.]_;_
(2) a member with Class OB service credit and one or
more other classes of service credit shall not have his
service credit in the classes of service other than Class OB
cancelled when the member receives a lump sum payment of cash
balance member accumulated deductions pursuant to section
5705.l(b)(ll;and
(3) a member with Class OB service credit and one or
more other classes of service credit shall not have his
service credit as a member of Class OB cancelled when the
member receives a lump sum payment of total accumulated
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3
deductions resulting from the other classes of service

pursuant to section 5705.l(b) (21.
(f) Credit for military service.--
* * *
5
6
7
(2) A State employee who has performed USERRA leave may

receive credit as provided by this paragraph. The following
shall apply:
* * *
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(ii)
For purposes of determining whether a State
employee has made the required employee contributions for
State service credit for USERRA leave, if an employee who
is reemployed from USERRA leave terminates State service
or dies in State service before the expiration of the
allowed payment period, then State service credit for the
USERRA leave will be granted as if the required member
contributions were paid the day before termination or
death. The amount of the required member contributions
will be treated as an incomplete payment subject to the
provisions of section 5506 (relating to incomplete
payments) . Upon a subsequent return to State service or
to school service as a multiple service member, the
required member contributions treated as incomplete
payments shall be treated as member contributions that
were either withdrawn in a lump sum at termination or
paid as a lump sum pursuant to section 5705(a) (4) or
(a.ll (relating to member's options), as the case may be.
* * *
Section 303. Section 5303(b) (1) and (2) of Title 71 are
amended and the section is a amended by adding a subsection to
read:
5303.
Retention and reinstatement of service credits.
* * *
(b)
Eligibility points for prospective credited service.-(1) Every active member of the system or a multiple
service member who is a school employee and a member of the
Public School Employees' Retirement System on or after the
effective date of this part shall receive eligibility points
in accordance with section 5307 for current State service,
previous State service, or creditable nonstate service upon
compliance with sections 5501 (relating to regular member
contributions and cash balance member contributions for
current service), 5501.1 (relating to shared-risk
contributions for Class A-3 and Class A-4 service), 5504
(relating to member contributions for the purchase of credit
for previous State service or to become a full coverage
member), 5505 (relating to contributions for the purchase of
credit for creditable nonstate service), 5505.1 (relating to
additional member contributions) or 5506 (relating to
incomplete payments). Subject to the limitations in
subsection (i) and sections 5306.1 (relating to election to
become a Class AA member) and 5306.2 (relating to elections
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by members of the General Assembly), the class or classes of

service in which the member may be credited for previous
State service prior to the effective date of this part shall
be the class or classes in which he was or could have at any
time elected to be credited for such service, except that a
State employee who first becomes a member of the system on or
after January 1, 2011, or on or after December 1, 2010, as a
member of the General Assembly and:
(i)
is credited with Class A-3 service for such
membership, shall be credited only with Class A-3 service
for previous State service performed before January 1,
2011, that was not previously credited in the system; or
(ii)
is credited with Class A-4 service for such
membership, shall be credited only with Class A-4 service
for previous State service performed before January 1,
2011, that was not previously credited in the system.
The class of service in which a member shall be credited for
service subsequent to the effective date of this part shall
be determined in accordance with section 5306 (relating to
classes of service) .
* * *
(2)
A special vestee or person otherwise eligible to be
a special vestee who returns to State service or withdraws
his accumulated deductions pursuant to section.5311 (relating
to eligibility for refunds) or 5701 (relating to return of
total accumulated deductions and cash balance member
accumulated deductions) shall receive or retain eligibility
points in accordanqe with paragraph (1) but upon subsequent
termination of State service shall only be eligible to be an
annuitant vestee or inactive member without regard to
previous status as a special vestee and without regard to the
provisions of this part providing for special vestees.
* * *
(i)
Ineligibility to ourchase orevious State service
credit.--An active member of Class OB or a multiple service
member who is an active member of Class T-G in the Public School
Employees' Retirement System shall not be eligible to purchase
service credit for previous State service. except to the extent
that any other provision of law requires or allows the crediting
of any period of leave to be purchased as State service after
the member returns from the leave to State service as an active
member, and shall not be eligible to purchase creditable
nonstate service; provided that a member who is concurrently
performing service as a Class OB exempt employee and service as
a member of Class OB may purchase State service previously
credited in a class of service other than Class OB and
creditable nonstate service as otherwise provided in this part.
Section 304.
Section 5304 (a), (b) and (c.1) of Title 71 are
amended to read:
5304.
Creditable nonstate service.
(a)
Eligibility.--
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(1) An active member who first becomes an active member

before January 1, 2011, or before December 1, 2010, as a
member of the General Assembly, or a multiple service member
who first becomes an active member before January 1, 2011, or
before December 1, 2010, as a member of the General Assembly,
and who is a school employee and an active member of the
Public School Employees' Retirement System shall be eligible
for Class A service credit for creditable nonstate service as
set forth in subsections (b) and (c) except that intervening
military service shall be credited in the class of service
for which the member was eligible at the time of entering
into military service and for which he makes the required
contributions and except that a multiple service member who
is a school employee and an active member of the Public
School Employees' Retirement System shall not be eligible to
purchase service credit for creditable nonstate service set
forth in subsection (c) (5).
(2) An active member who first becomes an active member
on or after January 1, 2011, and is not an active member of
Class OB. or on or after December 1, 2010, as a member of the
General Assembly and is not an active member of Class OB, or
a multiple service member who first becomes an active member
on or after January 1, 2011, and is not an active member of
Class OB. or on or after December 1, 2010, as a member of the
General Assembly and is not an active member of Class OB, and
who is a school employee and an active member of the Public
School Employees' Retirement System in a class of service
other than.Class T-G shall be eligible for Class A-3 service
credit for creditable nonstate service as set forth in
subsections (b) and (c) except that intervening military
service shall be credited in the class of service for which
the member was eligible at the time of entering into military
service and for which he makes the required contributions and
except that a multiple service member who is a school
employee and an active member of the Public School Employees'
Retirement System shall not be eligible to purchase service
credit for creditable nonstate service set forth in
subsection (c) (5).
(3) Not withstanding paragraphs (1) and (2), an active
member of Class OB or a multiple service member who is an
active member of Class T-G in the Public School Employees'
Retirement System is not eligible for credit for nonstate
service.
(4) Notwithstanding paragraph (2) and subsection (bl. an
active member who is performing service as a Class OB exempt
employee who also has Class QB service credit or is
concurrently performing Class OB service. shall be eligible
for credit for nonstate service as provided in this part to
the extent that the member would be otherwise eligible based
solely on the member's service in classes other than Class
Qli....
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* * *
(b) Limitations on eligibility.--An active member who is not
an active member of Class OB or a multiple service member who is
a school employee and an active member of the Public School
Employees' Retirement System and is not an active member of
Class T-G shall be eligible to receive credit for nonstate
service provided that he does not have credit for such service
in the system or in the [school system] Public School Employees'
Retirement System and is not entitled to receive, eligible to
receive now or in the future, or is receiving retirement
benefits for such service in the system or under a retirement
system administered and wholly or partially paid for by any
other governmental agency or by any private employer, or a
retirement program approved by the employer in accordance with
section 5301(a) (12) (relating to mandatory and optional
membership), and further provided, that such service is
certified by the previous employer and contributions are agreed
upon and made in accordance with section 5505 (relating to
contributions for the purchase of credit for creditable nonstate
service).
* * *
(c.1) Nonstate service exception.--Notwithstanding the
limitations on eligibility enumerated in subsection (c) (3), any
person who was an officer or employee in the Office of the
Chancellor of the State System of Higher Education at any time
between July 1, 1983, and August 4, 1991, inclusive, and was an
active member during that period or has continued as an active
member without interruption.of service since August 4, 1991,
shall be eligible to purchase creditable nonstate service under
this section, subject to the same terms, conditions and
limitations, including the calculation of the amount and method
of paying for the purchase, as was enjoyed by officers and
employees of the Department of Education between July 1, 1983,
and August 4, 1991[.], except that any purchase made by a member
who has made an election under section 5306.4 (relating to
election to reduce member contributions. change final average
salary and change benefit payment options) on or after the
effective date of the election. shall be subject to the change
in the member contribution rates applicable as a result of the
election. Service rendered in the Chancellor's Office for
purposes of the purchase of creditable nonstate service under
this subsection shall be deemed to be service as an officer or
employee in the Department of Education.
* * *
Section 305.
Section 5305(b) of Title 71 is amended and the
5305.
Social security integration credits.
* * *
(b) Accrual of subsequent credits.--Any member who has
social security integration accumulated deductions to his credit
or is receiving a benefit on account of social security
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integration credits may accrue one social security integrat"ion

credit for each year of service as a State employee on or
subsequent to March 1, 1974 and a fractional credit for a
corresponding fractional year of service provided that
contributions are made, or would have been made but for section
5502.1 (relating to waiver of regular member contributions and
Social Security integration member contributions) or the
limitations under IRC 401(a) (17) or 415(b), in accordance with
section 5502 (relating to Social Security integration member
contributions), and he:
(1)
continues subsequent to March 1, 1974 as an active
member in either the [State or school system;] svstem in a
class of service other than Class OB or, if a multiple
service member, as an active member in the Public School
Employees' Retirement System in a class of service other than
Class T-G;
(2) terminates such continuous service in the State or
school system and returns to active membership in the State
system in a class of service other than Class OB within six
months; or
(3) terminates his status as a vestee or an annuitant
and returns to State service in a class of service other than
Class OB.
* * *
(el Class OB service ineligible for credit.--No social
security integration credits shall accrue for any service
performed or credited as Class OB service.
Section 306. Section 5305.1 of Title 71 is amended to read:
5305.1.
Eligibility for actuarial increase factor.
A person who has credit for a class of service other than
Class OB and is:
(1) an active member;
(2) an inactive member on leave without pay; or
(3) a multiple service member who is a school employee
and an active member of the Public School Employees'
Retirement System;
who terminates State service or school service, as the case may
be, after attaining age 70 and who applies for a superannuation
annuity with an effective date of retirement the day after the
date of termination of State service or school service shall
have that person's maximum single life annuity calculated
pursuant to section 5702(a.l) (relating to maximum single life
annuity).
Section 307. Section 5306(a), (a.1), (a.2), (a.3) and (b) of
Title 71 are amended and the section is amended by adding a
subsection to read:
5306.
Classes of service.
(a)
Class A and Class A-3 membership.-(1) A State employee who is a member of Class A on the
effective date of this part or who first becomes a member of
the system subsequent to the effective date of this part and
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member of the General Assembly, shall be classified as a
Class A member and receive credit for Class A service upon
payment of regular and additional member contributions for
Class A service, provided that the State employee does not
become a member of Class AA pursuant to subsection (a.l) or a
member of Class D-4 pursuant to subsection (a.2) or a member
of Class OB.
(2) A State employee who first becomes a member of the
system on or after January 1, 2011, or on or after December
1, 2010, as a member of the General Assembly, and, unless a
Class OB exempt employee, before January l, 2015, shall be
classified as a Class A-3 member and receive credit for Class
A-3 service upon payment of regular member contributions and
shared-risk member contributions for Class A-3 service
provided that the State employee does not become a member of
Class A-4 pursuant to subsection (a.3), except that a member
of the judiciary shall be classified as a member of such
other class of service for which the member of the judiciary
is eligible, shall elect and make regular member
contributions and further provided that the State employee
does not become a member of Class OB.
(a.l) Class AA membership.-(1) A person who becomes a State employee and an active
member of the system after June 30, 2001, and who first
became an active member before January 1, 2011, or before
December 1, 2010, as a member of the General Assembly, and
who is not a State police officer and not employed in a
position for which a class of service other than Class A is
credited or could be elected shall be classified as a Class
AA member and receive credit for Class AA State service upon
payment of regular member contributions for Class AA service
and, subject to the limitations contained in paragraph (7)
and section 5303(i) (relating to retention and reinstatement
of service credJtsl, if previously a member of Class A or
previously employed in a position for which Class A service
could have been earned, shall have all Class A State service
(other than State service performed as a State police officer
or for which a class of service other than Class A was earned
or could have been elected) classified as Class AA service.
(2) A person who is a State employee on June 30, 2001,
and July 1, 2001, but is not an active member of the system
because membership in the system is optional or prohibited
pursuant to section 5301 (relating to mandatory and optional
membership) and who first becomes an active member after June
30, 2001, and before January 1, 2011, or before December 1,
2010, as a member of the General Assembly, and who is not a
State police officer and not employed in a position for which
a class of service other than Class A is credited or could be
elected shall be classified as a Class AA member and receive
credit for Class AA State service upon payment of regular
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member contributions for Class AA service and, subject to the

limitations contained in paragraph (7) and section 5303(il,
if previously a member of Class A or previously employed in a
position for which Class A service could have been earned,
shall have all Class A State service (other than State
service performed as a State Police officer or for which a
class of service other than Class A was earned or could have
been elected) classified as Class AA service.
(3)
Provided that an election to become a Class AA
member is made pursuant to section 5306.1 (relating to
election to become a Class AA member), a State employee,
other than a State employee who is a State police officer on
or after July 1, 1989, who on June 30, 2001, and July 1,
2001, is:
(i)
a member of Class A, other than a member of
Class A who could have elected membership in a Class C,
Class D-3, Class E-1 or Class E-2; or
(ii)
an inactive member on a leave without pay from
a position in which the State employee would be a Class A
active member if the employee was not on leave without
pay, other than a position in which the State employee
could elect membership in Class C, Class D-3, Class E-1
or Class E-2;
shall be classified as a Class AA member and receive
credit for Class AA State service performed after June 30,
2001, upon payment of regular member contributions for Class
AA service and, subject to the limitations contained in
paragraph (7) and section 5303(i), shall receive Class AA
service credit for all Class A State service, other than
State service performed as a State police officer or as a
State employee in a position for which the member could have
elected membership in Class C, Class D-3, Class E-1 or Class
E-2, performed before July 1, 2001.
(4)
Provided that an election to become a Class AA
member is made pursuant to section 5306.1, a former State
employee, other than a former State employee who was a State
police officer on or after July 1, 1989, who on June 30,
2001, and July 1, 2001, is a multiple service member and a
school employee and a member of the Public School Employees'
Retirement System, subject to the limitations contained in
paragraph (7) and section 5303(il, shall receive Class AA
service credit for all Class A State service, other than
State service performed as a State police officer or as a
State employee in a position in which the former State
employee could have elected a class of service other than
Class A, performed before July 1, 2001.
(5) A former State employee who first becomes a member
member of the General Assembly, other than a former State
employee who was a State police officer on or after July 1,
1989, who is a school employee and who on or after July 1,
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2001, becomes a multiple service member, subject to the
2
limitations contained in paragraph (7) and section 5303(il,
3
shall receive Class AA service credit for all Class A State
4
service other than State service performed as a State
5
employee in a position in which the former State employee
6
could have elected a class of service other than Class A.
7
(6) A State employee who after June 30, 2001, becomes a
8
State police officer or who is employed in a position in
9
which the member could elect membership in a class of service
10
other than Class AA or Class D-4 shall retain any Class AA
11
service credited prior to becoming a State police officer or
12
being so employed but shall be ineligible to receive Class AA
13
credit thereafter and instead shall receive Class A credit
14
for service as a member of the judiciary or if he first
15
became a member before January 1, 2011, or December 1, 2010,
16
as a member of the General Assembly, or Class A-3 credit for
17
service other than as a member of the judiciary if the
18
nonjudicial service is as a Class OB exempt employee or
19
begins before January l, 2015, and he first became a member
20
on or after January 1, 2011, or December 1, 2010, as a member
of the General Assembly, unless a class of membership other
21
22
than Class A is elected.
23
(7)
(i) State service performed as Class A service
24
before July 1, 2001, and State service for which Class A
service could have been credited but was not credited
25
26
because membership in the system was optional or
27
prohibited pursuant to section 5301 shall be credited as
28
Class AA service only upon the completion of all acts
29
necessary for the State service to be credited as Class A
30
service had this subsection not been enacted and upon
31
payment of required Class AA member contributions as
32
provided in section 5504 (relating to member
33
contributions for the purchase of credit for previous
34
State service or to become a full coverage member) .
35
(ii) A person who is not a State employee or a
36
school employee on June 30, 2001, and July 1, 2001, and
37
who has previous State service (except a disability
38
annuitant who returns to State service after June 30,
39
2001, upon termination of the disability annuity) shall
40
not receive Class AA service credit for State service
41
performed before July 1, 2001, until such person becomes
42
an active member, or an active member of the Public
43
School Employees' Retirement System and a multiple
44
service member, and earns three eligibility points by
45
performing credited State service in a class of service
46
other than Class OB or credited school service in a class
47
of service other than Class T-G after June 30, 2001.
48
(a.2) Class of membership for members of the General
49 Assembly.-50
(1) A person who:
.. <-".
51
(i) becomes a member of the General Assembly and an
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active member of the system after June 30, 2001, and

before December 1, 2010; or
(ii)
is a member of the General Assembly on July 1,
2001, but is not an active member of the system because
membership in the system is optional pursuant to section
5301 and who becomes an active member after June 30,
2001, and before December 1, 2010;
and who was not a State police officer on or after July 1,
1989, shall be classified as a Class D-4 member and unless he
later becomes a member of Class OB receive credit as a Class
D-4 member for all State service performed as a member of the
General Assembly upon payment of regular member contributions
for Class D-4 service and, subject to the limitations
contained in subsection (a.1) (7), if previously a member of
Class A or employed in a position for which Class A service
could have been earned, shall receive Class AA service credit
for all Class A State service, other than State service
performed as a State police officer or for which a class of
service other than Class A or Class D-4 was or could have
been elected or credited.
(2)
Provided an election to become a Class D-4 member is
made pursuant to section 5306.2 (relating to elections by
members of the General Assembly), a State employee who was
not a State police officer on or after July 1, 1989, who on
July 1, 2001, is a member of the General Assembly and an
active member of the system and not a member of Class D-3
shall be classified as a Class D-4 member and unless he later
becomes a member of Class QB receive credit as a Class D-4
member for all State service performed as a member of the
General Assembly not credited as another class other than
Class A upon payment of regular member contributions for
Class D-4 service and, subject to the limitations contained
in paragraph (a.1) (7), shall receive Class AA service credit
for all Class A State service, other than State service
performed as a State police officer or as a State employee in
a position in which the member could have elected a class of
service other than Class A, performed before July 1, 2001.
(3) A member of the General Assembly who after June 30,
2001, becomes a State police officer shall retain any Class
AA service or Class D-4 service credited prior to becoming a
State police officer or being so employed but shall be
ineligible to receive Class AA or Class D-4 credit thereafter
and instead shall receive Class A credit or Class A-3 credit
if he first becomes a member of the system on or after
January 1, 2011.
(4) Notwithstanding the provisions of this subsection,
no service as a member of the General Assembly performed
before December 1, 2010, that is not credited as Class D-4
service on November 30, 2010, shall be credited as Class D-4
service, unless such service was previously credited in the
system as Class D-4 service and the member withdrew his total
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accumulated deductions as provided in section 5311 (relating

to eligibility for refunds) or 5701 (relating to return of
total accumulated deductions and cash balance member
accumulated deductions). No service as a member of the
General Assembly performed on or after December 1, 2010,
shall be credited as Class D-4 service unless the member
previously was credited with Class D-4 service credits.
(a.3) Class A-4 membership.--Provided that an election to
become a Class A-4 member is made pursuant to section 5306.3
(relating to election to become a Class A-4 member), a State
employee who otherwise would be a member of Class A-3 shall be
classified as a Class A-4 member and receive Class A-4 credit
for all creditable State service performed after the effective
date of membership in the system, except as a member of the
judiciary, upon payment of regular member contributions and
shared-risk member contributions for Class A-4 service[.]_,_
provided that the member does not terminate service and then on
or after January l, 2015, return to the State service in a
position that is not as a Class OB exempt employee.
(a.4) Class OB membership.-(1) A State employee who begins State service or becomes
a member of the system on or after January l, 2015, other
than as a Class OB exempt employee, shall be classified as a
Class OB member and shall receive credit for Class OB service
upon payment of cash balance member contributions for Class
OB service.
(2) The provisions of this part regarding the
establishment of and membership in Class OB sh~ll apply to
current and former members of the State Employees' Retirement
System who have returned to State service, other than as a
Class OB exempt employee, on or after January l, 2015, after
a termination of State service, notwithstanding the
following:
(i) Whether the termination occurred before or after
January l, 2015.
(ii) Whether the State employee was an annuitant,
inactive member, vestee or special vestee or withdrew
accumulated deductions during the period of termination.
(3) A terminated State employee who returns to State
service on or after January l, 2015, shall be subject to the
provisions of this part regarding membership in Class OB that
are in effect on the effective date of reemployment,
including benefit formulas and accrual rates, eligibility for
annuities and distributions, contribution rates, definitions,
purchase of creditable school, nonschool, State and nonstate
service provisions and actuarial and funding assumptions.
(4) An individual who is a State employee on January 1,
2015, but is not a member of the system or who first becomes
a State employee, other than as a Class OB exempt employee,
on or after January 1. 2015, or who returns to State .se\lt~;i.ce,
other than as a Class OB exempt employee, after a termination
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1
of State service, without regard to whether the termination
2
occurred before or after January l, 2015, shall be ineligible
3
for active membership in any of the several classes of State
4
service as otherwise provided for under this section other
5
than Class OB. Any such State employee, if eligible, may be a
6
member of Class OB as a result of such State service.
7
(5) For ourposes of this section a State employee who is
8
furloughed under section 802 of the act of August 5. 1941
9
{P.L.752, No.286), known as the Civil Service Act, and
10
reemployed pursuant to the Civil Service Act in any class of
11
service or civil service status which was previously held
12
shall not be treated as having a termination of State
13
service.
14
(6) A State employee who concurrently is employed as a
15
Class OB exempt employee and is performing State service in
16
another position that would otherwise result in service
17
credit as a member of Class OB shall:
18
{il upon making the required Class OB contributions,
19
be credited with service, contributions and compensation
20
as a member of Class OB for the service that is not as a
Class OB exempt employee, without regard to any service
21
22
performed and compensation paid as a Class QB exempt
23
employee; and
24
{ii) upon making the required contributions for
25
service as a Class OB exempt employee, be credited with
26
service. contributions and compensation related to the
27
service as a Class OB exempt employee as otherwise
28
provided in this part without regard to any service
29
performed and compensation paid as a member of Class OB.
30
(b) Other class membership.-31
(1) A State employee who is a member of a class of
32
service other than Class A on the effective date of this part
33
shall retain his membership in that class until such service
34
is discontinued; any service thereafter shall be credited as
35
Class A service, Class AA service [or]~ Class D-4 or Class OB
36
service as provided for in this section.
37
(2) Notwithstanding any other provision of this section,
38
a State employee who is appointed [bail commissioner]
39
arraignment court magistrate of the Philadelphia Municipal
40
Court under 42 Pa.C.S. 1123(a) (5) (relating to jurisdiction
41
and venue) before January 1. 2015, may, within 30 days of the
42
effective date of this sentence or within 30 days of his
43
initial appointment as [a bail commissioner] an arraignment
44
court magistrate, whichever is later, elect Class E-2 service
45
credit for service performed as [a bail commissioner] an
46
arraignment court magistrate. This class of service
47
multiplier for E-2 service as [a bail commissioner] .filL
48
arraignment court magistrate shall be 1.5.
49
* * *
50
Section 308. Section 5306.3(c) and (d) of Title 71 are
51 amended to read:
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5306.3.
Election to become a Class A-4 member.
* * *
(c)
Effect of election.--An election to become a Class A-4
member shall be irrevocable and shall become effective on the
effective date of membership in the system and shall remain in
effect for all future creditable State service that otherwise
would not be credited as Class QB service, other than service
performed as a member of the judiciary[.), but shall not apply
to service performed after a termination of State service and a
reemployment when the reemployment occurs on or after January 1.
2015, unless the reemployment is as a Class OB exempt employee.
Payment of regular member contributions for Class A-4 State
service performed prior to the election of Class A-4 membership
shall be made in a form, manner and time determined by the
board. Upon termination [and subsequent reemployment) of State
service and a subsequent reemployment before January l, 2015, or
as a Class OB exempt employee on or after January 1. 2015, a
member who elected Class A-4 membership shall be credited as a
Class A-4 member for creditable State service that otherwise
would not be credited as Class OB service performed after
reemployment, except as a member of the judiciary, regardless of
termination of employment, termination of membership by
withdrawal of accumulated deductions or status as an annuitant,
vestee or inactive member after the termination of service.
(d)
Effect of failure to make election.--Failure to elect to
become a Class A-4 member within the election period set forth
in subsection (b) shall result in all of the member's State
service, other than service performed as a member of th~
judiciary or that otherwise would be credited as Class OB, being
credited as Class A-3 service and not subject to further
election or crediting as Class A-4 service. Upon termination and
subsequent employment, a member who failed to elect to become a
Class A-4 member shall not be eligible to make another election
to become a Class A-4 member for either past or future State
service.
read:
5306.4.
Election to reduce member contributions, change final
average salary and change benefit payment options.
(a)
General rule.--An active member or inactive member on
leave without pay who is not a member of Class A-3. Class A-4 or
Class OB may make a one-time and irrevocable election to reduce
member contributions, change the calculation of final average
salary and change the benefit payment options under section 5705
(relating to member's options).
(b)
Time for making election.--A State employee who is an
active member or inactive member on leave without pay on the
effective date of this section or who becomes a member of the
system after the effective date of this section and before
November 1. 2015. may make the election by filing written notice
with the board in a form and manner determined by the board .
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1 before December l, 2015. The election period for a person who

2 becomes a State employee on or after November 1. 2015, and
3 before January 1. 2016, and who is an active member or inactive
4 member on leave without pay before January l, 2016. expires 45
5 days after first becoming a State employee. The election period
6 for a person who becomes a State employee on or after January 1.
7 2016, shall expire 45 days after notice from the board of the
8 member's eligibility to make the election. A State employee who
9 is eligible to make the election under this section who returns
10 from USERRA leave or who begins USERRA leave during the election
11 period without having made the election, may make the election
12 by the later of November 30, 2015. or 45 days after being
13 reemployed from USERRA leave.
14
(cl Effect of election.-15
(1) Unless paragraphs (2) or (3) apply, an election
16
under this section shall be effective on January l, 2016.
17
(2) If a member who becomes a State employee before
18
January l, 2016, and makes the election has attained
19
superannuation age or is within two years of attaining
20
superannuation age in the class of service in which the
21
member is employed on December 31, 2015. then the election
22
under this section shall be effective on January l, 2018. For
23
purposes of determining if a member is within two years of
24
superannuation age on December 31. 2015. only eligibility
25
points actually accrued on December 31, 2018, will be
26
included without regard to any future service that might be
27
performed or eligibility points that might be earned before
28
January 1. 2018.
29
(3)
If a member who becomes a State employee on or after
30
January l, 2016, makes the election under this section, the
31
election shall be effective as of the most recent date of
32
employment.
33
(4) An election under this section shall result in a
reduction in the member's contributions on or after the
34
35
effective date of the election and a change in the
36
determination of the member's final average salary and the
37
benefit payment options under section 5705 as provided under
38
this part if the member terminates State service on or after
39
the effective date of the election.
40
(5) An election under this section shall be irrevocable,
41
even if filed before the expiration of the election period.
42
and shall remain in effect for all subsequent State service
43
creditable in the system in a class of service other than
44
Class A-3, Class A-4 or Class OB without regard to the
45
member's class of service when the election was filed and
46
without regard to whether the member terminates or returns to
47
State service.
48
(d)
Effect of failure to make election.--Failure to elect to
49 make a timely election under this section shall result in a
50 member's contributions determined, final average salary
51 calculated and benefit options payable as otherwise provided
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under this part without the reductions and changes available by

an election. The member will not be eligible to make another
election for either past or future State service.
Section 310. Section 5307(a) of Title 71 is amended to read:
5307.
Eligibility points.
(a)
General rule.--An active member of the system shall
accrue one eligibility point for each year of credited service
as a member of the State [or) and if a multiple service member
as a member of the Public School Employees' Retirement System. A
member shall accrue an additional two-thirds of an eligibility
point for each year of Class D-3 credited service. In the case
of a fractional part of a year of credited service, a member
shall accrue the corresponding fractional portion of eligibility
points to which the class of service entitles him.
* * *
Section 311. Section 5308(a) of Title 71 is amended and the
5308.
Eligibility for annuities.
(a)
Superannuation annuity.--Attainment of superannuation
age by an active member or an inactive member on leave without
pay with three or more eligibility points other than eligibility
points resulting from nonstate service or nonschool service
shall entitle him to receive a superannuation annuity upon
termination of State service and compliance with section 5907(f)
(relating to rights and duties of State employees and members).
Attainment of age 55 by a Class OB active member or inactive
member on leave without pay. regardless of years of credited
State service, shall entitle him to receive a superannuation
annuity as calculated under section 5702(al (7) {relating to
maximum single life annuity) upon termination of State service
and compliance with section 5907{f). A member may not receive an
annuity on Class OB credited service unless the member has
attained age 55 on the effective date of retirement regardless
of whether the member has attained superannuation age for other
classes of service.
* * *
{d)
Eligibility of employees with Class OB service for
annuities and benefits.--Eligibility points earned as a result
of credited service in Class OB shall be included in determining
if a member who has Class OB service credit and service credit
in one or more other classes of service is eligible for an
annuity under this section or eligibility for other rights and
benefits under this part. unless provided otherwise. Eligibility
points earned by a multiple service member as a result of Class
T-G credited service in the Public School Employees' Retirement
System similarly shall be included if eligibility points for
school service in the Public School Employees' Retirement System
are used to determine eligibility. No annuity shall be paid
pursuant to section 5702{al (7) unless a member has attained age
55. Eligibility points earned as a result of credited service in
classes other than Class OB shall not be included in determining
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if a Class OB member has the 15 eligibility points required

under section 5902(pl (relating to administrative duties of the
board). Nothing in this subsection amends or waives any other
requirement to be eligible for an annuity or other benefit.
Section 312. Section 5309, 53ll(a), 5501, 5502, 5502.1,
5503.l(a) and 5504(a) and (a.l) of Title 71 are amended to read:
5309.
Eligibility for vesting.
Any member who:
(1) Does not have Class A-3 [or)~ Class A-4 or Class OB
service credit or, if a multiple service member, Class T-E or
Class T-F service credit in the Public School Employees'
Retirement System and terminates State service, or if a
multiple service member and an active member of the Public
School Employees' Retirement System terminates school
service, with five or more eligibility points, or any member
with Class G, Class H, Class I, Class J, Class K, Class L,
Class Mor Class N service with five or more eligibility
points, shall be eligible until attainment of superannuation
age to vest his retirement benefits.
(2) Has only Class A-3 or Class A-4 service credit [or)
and, if a multiple service member, only Class T-E or Class TF service credit in the Public School Employees' Retirement
System and terminates State service, or if a multiple service
member and an active member of the Public School Employees'
Retirement System terminates school service, with ten or more
eligibility points shall be eligible until attainment of
superannuation age to vest his retirement benefits.
(3) Has either Class A-3 or Class A-4 service credit
[or) and, if a multiple service member, Class T-E or Class TF service credit in the Public School Employees' Retirement
System, also has service credited in the system in one or
more other classes of service other than Class OB and has
five or more, but fewer than ten, eligibility points and
terminates State service, or if a multiple service member and
an active member of the Public School Employees' Retirement
Systems terminates school service, shall be eligible until
the attainment of superannuation age to vest his retirement
benefits calculated on his service credited in classes of
service other than Class A-3 or Class A-4 and to be credited
with statutory interest on total accumulated deductions,
regardless of whether or not any part of his accumulated
deductions are a result of Class A-3 or Class A-4 service
credit.
(4) Has only Class OB service credit and terminates
State service shall be eligible until the attainment of
superannuation age to vest his retirement benefits based on
Class QB service except that a member who has a small cash
balance account subiect to distribution as provided in
section 5709(dl (relating to payment of benefits) shall not
be permitted to vest until superannuation age unless
otherwise required under the IRC.
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(5) Has Class OB service credit and service credited in

one or more other classes of service and terminates State
service, or if a multiple seryice member and an active member
of the Public School Employees' Retirement System terminates
school service. shall be eligible to vest his retirement
benefits based on Class QB service until the attainment of
superannuation age and if he has five or more eligibility
points to vest his retirement benefits on all other classes
of service other than Class A-3 or Class A-4 until the
attainment of the applicable superannuation age and if he has
ten or more eligibility points to vest his retirement
benefits on all classes of service until superannuation age.
Any such member shall be credited with statutory interest,
but not excess interest. on his total accumulated deductions
and total cash balance accumulated deductions until the
effective date of retirement.
(6) A member with more than one class of credited
service who vests his retirement benefits in any class of
service may not receive distributions from other classes of
service until his effective date of retirement. regardless of
whether his benefits resulting from such other classes of
service are vested or he is eligible to receive an annuity. A
member with service credited in more than one class of
service may not separately vest those benefits and receive
annuities from different classes of service with different
effective dates.
5311.
Eligibility for refunds.
(a) Total accumulated deductions.--Any active member,
regardless of eligibility for benefits, may elect to receive his
total accumulated deductions and his cash balance member
accumulated deductions upon termination of service in lieu of
any benefit to which he is entitled.
* * *
Regular member contributions and cash balance member

contributions for current service.
Regular member contributions or cash balance member
contributions shall be made to the fund on behalf of each active
member for current service except for any period of current
service in which the making of such contributions has ceased
solely by reason of section 5502.1 (relating to waiver of
regular member contributions and Social Security integration
member contributions) or any provision of this part relating to
the limitations under IRC 40l(a) (17) or [415(b)] 415.
5502.
Social Security integration member contributions.
Except for any period of current service in which the making
of regular member contributions has ceased solely by reason of
section 5502.l (relating to waiver of regular member
contributions and Social Security integration member
contributions) or any provision of this part relating to
limitations under IRC 401(a) (17) or 415(b), contributions,
shall be made on behalf of a member of any class other than
5501.
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Class QB who prior to March 1, 1974, has elected Social Security

integration coverage. The amount of such contributions shall be
6 1/4% of that portion of his compensation in excess of the
maximum wages taxable under the provisions of the Social
Security Act (49 Stat. 620, 42 U.S.C. 301 et seq.), in
addition to the regular member contributions which, after such
election, shall be determined on the basis of the basic
contribution rate of 5% and the additional member contribution
of 1 1/4%: Provided, That a member may elect to discontinue
Social Security integration coverage and shall thereafter be
ineligible to accrue any further Social Security integration
credits or any additional benefits on account of Social Security
integration membership.
5502.1.
Waiver of regular member contributions and Social
Security integration member contributions.
(a)
General rule.--Notwithstanding the provisions of
sections 5501 (relating to regular member contributions and cash
balance member contributions for current service) and 5502
(relating to Social Security integration member contributions),
no regular member contributions or Social Security integration
member contributions shall be made by an active member for the
period from July 1 to the following June 30 if the maximum
single life annuity to which the member would have been entitled
to receive had the member retired with an effective date of
retirement on the preceding January 1 is greater than 110% of
the highest calendar year compensation of the member, provided
the member files a written election as prescribed by the board.
(b) Applicability.--This section shall not apply to any
member who has Class A-3 [or]L Class A-4 or Class OB service
credit.
5503.1.
Pickup contributions.
(a)
Treatment for purposes of IRC 414(h).--All
contributions required to be made under sections 5501 (relating
to regular member contributions and cash balance member
contributions for current service), 5501.1 (relating to sharedrisk member contributions for Class A-3 and Class A-4 service),
5502 (relating to Social Security integration member
contributions), 5503 (relating to joint coverage member
contributions) and section 5505.1 (relating to additional member
contributions), with respect to current State service rendered
by an active member on or after January 1, 1982, shall be picked
up by the Commonwealth or other employer and shall be treated as
the employer's contribution for purposes of IRC 414(h).
* * *
Member contributions for the purchase of credit for
previous State service or to become a full coverage
member.
(a) Amount of contributions for service in other than Class
G through N and Class QB.-(1)
The contributions to be paid by an active member or
eligible school employee for credit for total previous State
5504.
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service other than service in Class G, Class H, Class I,

Class J, Class K, Class L, Class M [and]L Class N and Class
QB. or to become a full coverage member shall be sufficient to
provide an amount equal to the regular and additional
accumulated deductions which would have been standing to the
credit of the member for such service had regular and
additional member contributions been made with full coverage
in the class of service and at the rate of contribution
applicable during such period of previous service and had his
regular and additional accumulated deductions been credited
with statutory interest during all periods of subsequent
State and school service up to the date of purchase.
(2)
Notwithstanding paragraph (1), members with Class A3 State service shall make contributions and receive credit
for previously uncredited State service as if the previous
State service was Class A-3 service, and members with Class
A-4 State service shall make contributions and receive credit
as if the previous State service was Class A-4 service, even
if it would have been credited as a different class of
service had the State employee been a member of the system at
the time the service was performed unless it was mandatory
that the State employee be an active member of the system and
the previous State service is being credited as the result of
a mandatory active membership requirement.
13) Notwithstanding paragraphs 11) and (2) if a member
who is purchasing credit for previous State service has made
an election under section 5306.4 (relating to election to
reduce member contributions, change final average salary and
change benefit payment options), the contributions for all
previously uncredited State service that is first credited on
or after the effective date of the election shall be
calculated by reducing the regular member contributions as
provided by the election.
(a.1) Converted county service.--No contributions shall be
required to restore credit for previously credited State service
in Class G, Class H, Class I, Class J, Class K, Class L, Class M
and Class N. Such service shall be restored upon the
commencement of payment of the contributions required to restore
credit for all other previous State service other than Class OB
service.
* * *
Section 313. Section 5505 of Title 71 is amended by adding a
subsection to read:
5505.
Contributions for the purchase of credit for creditable
nonstate service.
* * *
lil Notwithstanding the definition of basic contribution
rate, if a member who is purchasing creditable nonstate service
under subsections lb) and ldl has made an election under section
5306.4 (relating to election to reduce member contributions,
change final average salary and change benefit payment options),
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the contributions under those subsections for all creditable

nonstate service that is first credited on or after the
effective date of the election shall be determined using a basic
contribution rate of 4%. If a member who is purchasing
creditable nonstate service under subsection (cl has made an
election under section 5306.4 the contributions under that
subsection for all creditable nonstate service that is first
credited on or after the effective date of the election shall be
determined by reducing the regular member contributions as
provided by the election.
Section 314. Section 5507(a), 5508(f) and (h), 5509(c) and
5701 of Title 71 are amended to read:
5507.
Contributions by the Commonwealth and other employers.
(a) Contributions on behalf of active members.--The
Commonwealth and other employers whose employees are members of
the system shall make contributions to the fund on behalf of all
active members in such amounts as shall be certified by the
board as necessary to provide, together with the members' total
accumulated deductions and cash balance member accumulated
deductions, annuity reserves on account of prospective annuities
other than those provided in sections 5708 (relating to
supplemental annuities), 5708.1 (relating to additional
supplemental annuities), 5708.2 (relating to further additional
supplemental annuities), 5708.3 (relating to supplemental
annuities commencing 1994), 5708.4 (relating to special
supplemental postretirement adjustment), 5708.5 (relating to
supplemental annuities commencing 1998), 5708.6 (relating to
supplemental annuities commencing 2002), 5708.7 (relating to
supplemental annuities commencing 2003) and 5708.8 (relating to
special supplemental postretirement adjustment of 2002), in
accordance with the actuarial cost method provided in section
5508 (a), (b), (c), (d) and (f) (relating to actuarial cost
method).
* * *
5508.
Actuarial cost method.
* * *
(f)
Experience adjustment factor.-(1)

For each year after the establishment of the accrued
liability contribution rate and the supplemental annuity
contribution rate for the fiscal year beginning July 1, 2010,
any increase or decrease in the unfunded accrued liability
and any increase or decrease in the liabilities and funding
for supplemental annuities, due to actual experience
differing from assumed experience (recognizing all realized
and unrealized investment gains and losses over a five-year
period), money provided to the board as a result of an
application to the Pennsylvania Economic Development Finance
Agency for a total of up to three billion dollars, pursuant
to the agency's program guidelines, changes in contributions
caused by the final contribution rate being different from
the actuarially required contribution rate, State employees
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making shared-risk member contributions, changes in actuarial

assumptions or changes in the terms and conditions of the
benefits provided by the system by judicial, administrative
or other processes other than legislation, including, but not
limited to, reinterpretation of the provisions of this part,
shall be amortized in equal dollar annual contributions over
a period of 30 years beginning with the July 1 succeeding the
actuarial valuation determining said increases or decreases.
(2) The actuarially required contribution rate shall be
the sum of the normal contribution rate, the accrued
liability contribution rate and the supplemental annuity
contribution rate, modified by the experience adjustment
factor as calculated in paragraph (1) .
* * *
(h) Temporary application of collared contribution rate.-The collared contribution rate for each fiscal year shall be
determined by comparing the actuarially required contribution
rate calculated without regard for costs added by legislation to
the prior year's final contribution rate. If, for any of the
fiscal years beginning July 1, 2011, July 1, 2012, [ and on or
after] July 1, 2013, July 1. 2014. July 1. 2015. July 1. 2016.
July 1. 2017 and July 1, 2018. the actuarially required
contribution rate calculated without regard for costs added by
legislation is more than 3%, 3.5% [and]~ 4.5%, 3%. 3%, 3%. 3%.
and 3% respectively, of the total compensation of all active
members greater than the prior year's final contribution rate,
then the collared contribution rate shall be applied and be
equal to the prior year's final contribution rate increased by
the respective percentage above of total compensation of all
active members. Otherwise, and for all subsequent fiscal years,
the collared contribution rate shall not be applicable. In no
case shall the collared contribution rate be less than 4% of
total compensation of all active members.
* * *
5509.
Appropriations and assessments by the Commonwealth.
* * *
(c) Contributions from funds other than General Fund.--The
amounts assessed other employers who are required to make the
necessary contributions out of funds other than the General Fund
shall be paid by such employers into the fund in accordance with
requisitions presented by the board. The General Fund of the
Commonwealth shall not be held liable to appropriate the moneys
required to build up the reserves necessary for the payment of
benefits to employees of such other employers. In case any such
other employer shall fail to provide the moneys necessary for
such purpose, then the service of such members for such period
for which money is not so provided shall be credited and pickup
contributions with respect to such members shall continue to be
credited to the members' savings account and the cash balance
savings account. The annuity to which such member is entitled
shall be determined as actuarially equivalent to the present
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value of the maximum single life annuity of each such member

reduced by the amount of employer contributions payable on
account and attributable to his compensation during such
service, except that no reduction shall be made as a result of
the failure of an employer to make contributions required for a
period of USERRA leave.
5701.
Return of total accumulated deductions and cash balance
member accumulated deductions.
Any member upon termination of service may, in lieu of all
benefits payable under this chapter to which he may be entitled,
elect to receive his total accumulated deductions and his cash
balance member accumulated deductions.
Section 315. Section 5702(a) (1) and (a.1) of Title 71 are
amended and subsection (a) is amended by adding a paragraph to
read:
5702.
Maximum single life annuity.
(a) General rule.--Any full coverage member who is eligible
to receive an annuity pursuant to the provisions of section
5308(a) or (b) (relating to eligibility for annuities) who
terminates State service, or if a multiple service member who is
a school employee who is an active member of the Public School
Employees' Retirement System who terminates school service,
before attaining age 70 shall be entitled to receive a maximum
single life annuity attributable to his credited service and
equal to the sum of the following single life annuities
beginning at the effective date of retirement:
(1) A standard single life annuity multiplied by the sum
of the products, determined separately for each class of
service, obtained by multiplying the appropriate class of
service multiplier by the ratio of years of service credited
in that class to the total credited service other than
service credited as a member of Class OB. In case the member
on the effective date of retirement is under superannuation
age for any service, a reduction factor calculated to provide
benefits actuarially equivalent to an annuity starting at
superannuation age shall be applied to the product determined
for that service. The class of service multiplier for any
period of concurrent service shall be multiplied by the
proportion of total State and school compensation during such
period attributable to State service[.] other than
compensation attributable to State service as a member of
Class OB and school service as a member of Class T-G. In the
event a member has two multipliers for one class of service
the class of service multiplier to be used for calculating
benefits for that class shall be the average of the two
multipliers weighted by the proportion of compensation
attributable to each multiplier during the three years of
highest annual compensation in that class of service:
Provided, That in the case of a member of Class E-1, a
portion but not all of whose three years of highest annual
judicial compensation is prior to January 1, 1973, two class
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of service multipliers shall be calculated on the basis of

his entire judicial service, the one applying the judicial
class of service multipliers effective prior to January 1,
1973 and the second applying the class of service multipliers
effective subsequent to January 1, 1973. The average class of
service multiplier to be used for calculating benefits for
his judicial service shall be the average of the two
calculated multipliers weighted by the proportion of
compensation attributable to each of the calculated
multipliers during the three years of highest annual
compensation in that class of service.
* * *
(7) If eligible, a single life annuity which is
actuarially equivalent to the total cash balance accumulated
deductions credited to his individual cash balance savings
accourit.
(a.l) Rule for terminations after attaining age 70.-(1) Any full coverage member who is eligible to receive
an annuity pursuant to the provisions of section 5308(a) who
terminates State service, or if a multiple service member who
is a school employee and an active member of the Public
School Employees' Retirement System who terminates school
service, on or after attaining age 70 and who applies for a
superannuation annuity to be effective the day after the
termination of State service or school service, as the case
may be, shall be entitled to receive a maximum single life
annuity as of a determination date that is equal to the
greater of subparagraph (i) or (ii), plus any annuity he may
be eligible to receive under subsection {a) (7):
(i) the sum of the annuities provided in subsection
(a) (1) through (6) calculated as of the determination
date; and
(ii) the greater of clause (A) or (B):
(A) the sum of the annuities provided in
subsection (a) (1), (3), (4) and (6) as of the
preceding determination date adjusted by the
actuarial increase factor, plus the annuities
provided in subsection (a) (2) and (5) as of the
determination date; and
(B) the maximum single life annuity calculated
without including any annuity payable under
subsection (a) (7) as of the preceding determination
date adjusted by the actuarial increase factor.
The maximum single life annuity calculated without
including any annuity payable under subsection (a) (7) shall
be calculated for each determination date.
(2) For purposes of this subsection, the determination
date shall be:
(i) the member's birthday, provided that as of such
date the member qualifies for a maximum single life
annuity under this subsection, determined excluding
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eligibility for annuity payable under subsection (a) (7);

or
(ii) if the member's maximum single life annuity is
being determined as of the member's effective date of
retirement, then the determination date shall be the
member's effective date of retirement.
(3) In the event an active member, an inactive member on
leave without pay or a multiple service member who is a
school employee and an active member of the Public School
Employees' Retirement System has attained age 70 before the
effective date of this subsection, or enters State service or
school service, as the case may be, after attaining age 70,
then section 5305.1 (relating to eligibility for actuarial
increase factor) and subsections (a) and (a.1) shall be
effective prospectively with respect to such member at the
member's next birthday after the effective date of this
subsection, entry into State service, or school service.
Nothing in this subsection shall be construed to provide an
actuarial increase factor for any period of service prior to the
* * *
Section 316. Section 5704(a) and (e) of Title 71 are amended
to read:
5704.
Disability annuities.
(a) Amount of annuity.-ll.l A member who has credit in one or more classes of
service other than Class OB and who has made application for
a disability annuity and has been found to be eligible in
accordance with the provisions of section 5905(c) (1)
(relating to duties of the board regarding applications and
elections of members) shall receive a disability annuity
payable from the effective date of disability as determined
by the board and continued until a subsequent determination
by the board that the annuitant is no longer entitled to a
disability annuity. The disability annuity shall be a single
life annuity that is equal to [a] the sum of the standard
single life [annuity] annuities determined separately for
each class of service other than Class OB multiplied by the
appropriate class of service multiplier applicable to the
class of service at the time of disability if the [product
of] sums of the products of each such class of service
multiplier and the [total] number of years and fractional
part of a year of credited service in each class, plus the
number of years and fractional part of a year of service
credited in Class OB if any, is greater than 16.667,
otherwise [the) each standard single life annuity shall be
multiplied by the lesser of the following ratios:
MY*/Y or 16.667/Y
where Y = total number of years of credited service, Y* =
total years of credited service if the member were to
continue as a State employee until attaining superannuation
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age for classes of service other than Class OB as applicable

at the time of disability, or if the member has attained
superannuation age for classes of service other than Class
.ill)., as applicable at the time of disability, then the number
of years of credited service and M = the class of service
multiplier as applicable to that class of service at the
effective date of disability. A member of Class C shall
receive, in addition, any annuity to which he may be eligible
under section 5702(a) (3) (relating to maximum single life
annuity). [The member shall be entitled to the election of a
annuity to which he is entitled under section 5702.]
(2)
In addition to the amount of disability annuity
payable under paragraph (1), a member who has Class OB
service credit shall be entitled to a separate annuity
calculated under section 5702(a) (7) without regard to whether
he has attained age 55 on the effective date of disability.
(3) The member shall be entitled to the election of a
annuity to which he is entitled under section 5702.
* * *
(e) Termination of State service.--Upon termination of
disability annuity payments in excess of an annuity calculated
in accordance with section 5702, a disability annuitant who:
(1) does not have Class A-3 or Class A-4 service credit;
or
(2) has Class A-3 or Class A-4 service credit and fewer
than ten eligibility points;
and who does not return to State service may file an application
with the board for an amount equal to the excess, if any, of the
sum of the shared-risk accumulated deductions plus the regular
and additional accumulated deductions and cash balance member
accumulated deductions standing to his credit at the effective
date of disability over one-third of the total disability
annuity payments received. If the annuitant on the date of
termination of service was eligible for an annuity as provided
in section 5308(a) or (b) (relating to eligibility for
annuities), he may file an application with the board for an
election of an optional modification of his annuity.
* * *
Section 317. Section 5705(a) is amended and the section is
amended by adding a subsection to read:
5705.
Member's options.
(a) General rule.--Any special vestee who has attained
superannuation age, any vestee who does not have Class A-3 [or],__
Class A-4 or Class OB service credit having five or more
eligibility points for service other than Class T-E or Class T-F
service in the Public School Employees' Retirement System,
vestee having Class OB service who has attained age 55 or vestee
who has Class A-3 or Class A-4 service credit having ten or more
eligibility points, any member with Class G, Class H, Class I,
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Class J, Class K, Class L, Class M or Class N service having

five or more eligibility points or any other eligible member
upon termination of State service who has not withdrawn his
deductions as provided in section 5701 (relating to return of
deductions) may apply for and elect to receive either a maximum
single life annuity, as calculated in accordance with the
provisions of section 5702 (relating to maximum single life
annuity), or a reduced annuity certified by the actuary to be
actuarially equivalent to the maximum single life annuity
payable after reduction under subsection (a.ll and in accordance
with one of the following options; except that no member shall
elect an annuity payable to one or more survivor annuitants
other than his spouse or alternate payee of such a magnitude
that the present value of the annuity payable to him for life
plus any lump sum payment under this subsection and subsection
(a.ll he may have elected to receive is less than 50% of the
present value of his maximum single life annuity before
reduction under subsection (a.ll:
(1) Option 1.--A life annuity to the member with a
guaranteed total payment equal to the present value of the
maximum single life annuity on the effective date of
retirement with the provision that, if, at his death, he has
received less than such present value, the unpaid balance
shall be payable to his beneficiary.
(2) Option 2.--A joint and survivor annuity payable
during the lifetime of the member with the full amount of
such annuity payable thereafter to his survivor annuitant, if
living at his death.
(3) Option 3.--A joint and fifty percent (50%) survivor
annuity payable during the lifetime of the member with onehalf of such annuity payable thereafter to his survivor
annuitant, if living at his death.
(4) Option 4.--Some other benefit which shall be
maximum single life annuity, subject to the following
restrictions:
(i) any annuity shall be payable without reduction
during the lifetime of the member;
(ii)
the sum of all annuities payable to the
designated survivor annuitants shall not be greater than
one and one-half times the annuity payable to the member;
and
(iii) a portion of the benefit may be payable as a
lump sum, except that such lump sum payment shall not
exceed an amount equal to the total accumulated
deductions standing to the credit of the member that are
not the result of contributions and statutory interest
made or credited as a result of Class A-3 or Class A-4
service. The balance of the present value of the maximum
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single life annuity adjusted in accordance with section

5702(b) shall be paid in the form of an annuity with a
guaranteed total payment, a single life annuity, or a
joint and survivor annuity or any combination thereof but
subject to the restrictions of subparagraphs (i) and (ii)
under this option. If a member has made an election under
section 5306.4 (relating to election to reduce member
contributions, change final average salary and change
benefit) and the member's date of termination of service
is on or after the effective date of that election, then
no portion of the benefit is payable as a lump sum under
this subparagraph.
(a.1)
Additional lump sum withdrawal.--The following shall
apply:
(ll
On or after January 1, 2015, if a member has made an
election under section 5306.4 and the member's effective date
of retirement is on or after the effective date of that
election, then the member may elect to receive a portion of
the benefit payable as a lump sum, except that such lump sum
payment shall not exceed an amount equal to the total
accumulated deductions standing to the credit of the member
that are not the result of contributions and statutory
interest made or credited as a result of Class A-3 or Class
A-4 service.
(2)
A member who has Class OB service and is eligible
for an annuity under section 5308(a) (relating to eligibility
for annuities) may elect to receive a portion of the benefit
payable as a lump sum not to exceed an amount equal to the
cash balance member accumulated deductions standing to the
credit of the member.
(3)
If a member elects to be paid an additional lump sum
amount under this subsection, then the maximum single life
annuity calculated under section 5702 and payable under
subsection (al shall be reduced by the additional amount
withdrawn divided by the cost of a dollar annuity on the
effective date of retirement computed on the basis of the
annual interest rate adopted for that fiscal year by the
board for the calculation of the employer normal contribution
rate under section 5508 (bl (relating to actuarial cost
method) and the mortality tables adopted by the board for the
determination of actuarially equivalent benefits under this
part. The reduction in the maximum single life annuity under
this subsection shall apply before the election and
calculation of any reduced annuities payable under subsection
1.L..
* * *
Sections 5705.1 and 5706(a), (a.1), (b) and

Section 318.
(3)
of
Title 71 are amended to read:
(c) (1) and
5705.1.
Payment of accumulated deductions resulting from
[Class A-3 and Class A-4] more than one class of
service.
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(a)
Payment of accumulated deduction resulting from Class A3 and Class A-4 service.--Any superannuation or withdrawal
annuitant who:
(1) has Class A-3 or Class A-4 service credit;
(2) has service credited in one or more classes of
service; [and]
(3) because he has five or more, but fewer than ten,
eligibility points is not eligible to receive an annuity on
his Class A-3 or Class A-4 service; and
(4) does not have any service credited as Class OB
shall receive in a lump sum at the time of his retirement, in
addition to any other annuity or lump sum payment which he may
elect, his accumulated deductions resulting from his Class A-3
or Class A-4 service credit. Payment of these accumulated
deductions resulting from Class A-3 or Class A-4 service credit
shall not be eligible for installment payments pursuant to
section 5905.1 (relating to installment payments of accumulated
deductions) but shall be considered a lump sum payment for
purposes of section 5905.l(d).
(bl
Payment of cash balance member accumulated deductions
resulting from Class OB service.--Any annuitant who:
Is receiving an annuity as a result of credited
(1)
service other than service as a member of Class OB who has
not attained age 55 on the effective date of retirement and
has cash balance member accumulated deductions standing to
his credit in the cash balance savings account, shall receive
in a lump sum at the time of his retirement, in addition to
any other annuity or lump sum payment which he may elect, his
cash balance member accumulated deductions. Payment of these
cash balance member accumulated deductions resulting from
Class OB service credit shall not be eligible for installment
payments under section 5905.1. but shall be considered a lump
sum payment for purposes of section 5905.l(d).
(2)
Is a member with Class OB service credit and one or
more other classes of service credit who is receiving an
annuity based on his Class OB service but is not eligible to
receive an annuity based on his service credited in one or
more of his other classes of service shall receive in a lump
sum at the time of his retirement, in addition to any other
annuity which he may elect for his Class OB service, his
accumulated deductions resulting from his service credit in
classes of service other than Class OB for which he is not
eligible to receive an annuity. Payment of these accumulated
deductions resulting from service credit in classes of
service other than Class OB shall not be eligible for
installment payments under section 5905.1, but shall be
considered a lump sum payment for purposes of section
5905.l(d).
5706.
Termination of annuities.
(a) General rule.--If the annuitant returns to State service
or enters or has entered school service and elects multiple
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service membership, any annuity payable to him under this part

shall cease effective upon the date of his return to State
service or entering school service and in the case of an annuity
other than a disability annuity the present value of such
annuity, other than the portion of the annuity that is being
paid under section 5702(a) (7) (relating to maximum single life
annuity), adjusted for full coverage in the case of a joint
coverage member who makes the appropriate back contributions for
full coverage, shall be frozen as of the date such annuity
ceases[.] and the present value of the portion of the annuity
that is being paid under section 5702(a) (7) shall be placed in
the member's individual cash balance saving account. An
annuitant who is credited with an additional 10% of Class A and
Class C service as provided in section 5302(c) (relating to
credited State service) and who returns to State service shall
forfeit such credited service and shall have his frozen present
value adjusted as if his 10% retirement incentive had not been
applied to his account. In the event that the cost-of-living
increase enacted December 18, 1979 occurred during the period of
such State or school employment, the frozen present value shall
be increased, on or after the member attains superannuation age,
by the percent applicable had he not returned to service. This
subsection shall not apply in the case of any annuitant who may
render services to the Commonwealth in the capacity of an
independent contractor or as a member of an independent board or
commission or as a member of a departmental administrative or
advisory board or commission when such members of independent or
departm~ntal boards or commissions are compensated on a per diem
basis for not more than 150 days per calendar year or as a
member of an independent board or commission requiring
appointment by the Governor, with advice and consent of the
Senate, where the annual salary payable to the member does not
exceed $35,000 and where the member has been an annuitant for at
least six months immediately preceding the appointment. Such
service shall not be subject to member contributions, result in
additions, interest or excess interest to the member's
individual cash balance saving account or be eligible for
qualification as creditable State service.
(a.l)
Return to State service during emergency.--When, in
the judgment of the employer, an emergency creates an increase
in the work load such that there is serious impairment of
service to the public, an annuitant may be returned to State
service for a period not to exceed 95 days in any calendar year
without loss of his annuity. In computing the number of days an
annuitant has returned to State service, any amount of time less
than one-half of a day shall be counted as one-half of a day.
For agencies, boards and commissions under the Governor's
jurisdiction, the approval of the Governor that an emergency
exists shall be required before an annuitant may be returned to
State service. This service shall not be subject to member
contributions, result in additions, interest or excess interest
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to the member's individual cash balance savings account or be

eligible for qualification as creditable State service.
* * *
(b) Subsequent discontinuance of service.--Upon subsequent

discontinuance of service, such member other than a former
annuitant who had the effect of his frozen present value
eliminated in accordance with subsection (c) or a former
disability annuitant shall be entitled to an annuity which is
actuarially equivalent to the sum of~
.DJ.. the frozen present value as determined under
subsection (a) [and]L
12.l the present value of a maximum single life annuity-'-calculated excluding any annuity payable under section
5702(a) (7), based on years of service credited subsequent to
reentry in the system and his final average salary computed
by reference to his compensation during his entire period of
State and school service[.], excluding compensation received
for service performed as a member of Class OB or Class T-G in
the Public School Employees' Retirement System; and
(3) if eligible, an annuity payable under 5702(a) (7)
based on the total cash balance accumulated deductions
credited to the former annuitant in the cash balance savings
account.
(c) Elimination of the effect of frozen present value.-(1) An annuitant who returns to State service and earns
three eligibility points by performing credited State service
following the most recent period of receipt of an annuity
under this part, or an annuitant who enters school service
and:
(i)
is a multiple service member; or
(ii) who elects multiple service membership, and
earns three eligibility points by performing credited State
service or credited school service following the most recent
period of receipt of an annuity under this part, and who had
the present value of his annuity frozen in accordance with
subsection (a), shall qualify to have the effect of the
frozen present value resulting from all previous periods of
retirement eliminated, provided that all lump sum payments
under Option 4 or under section 5705(a.ll (relating to
member's options) and annuity payments, except those made
under section 5702(a) (7), payable during previous periods of
retirement plus interest as set forth in paragraph (3) shall
be returned to the fund in the form of an actuarial
adjustment to his subsequent benefits or in such form as the
board may otherwise direct.
* * *
(3)
In addition to any other adjustment to the present
value of the maximum single life annuity that a member may be
entitled to receive that occurs as a result of any other
provision of law, the present value of the maximum single
life annuity shall be reduced by all amounts paid or payable
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to him during all previous periods of retirement, except

those made under section 5702 (al (7), plus interest on these
amounts until the date of subsequent retirement. The interest
for each year shall be calculated based upon the annual
interest rate adopted for that fiscal year by the board for
the calculation of the normal contribution rate pursuant to
section 5508(b) {relating to actuarial cost method).
Section 319. Section 5707 {a), {b), {c), {d) and {e) are
amended and the section is amended by adding a subsection to
read:
5707.
Death benefits.
{a) Members without Class OB service eligible for
annuities.--Any active member, inactive member on leave without
pay, vestee or current or former State employee performing
USERRA leave who dies and does not have Class OB service credit
and was eligible for an annuity in accordance with section
5308{a) or (b) {relating to eligibility for annuities) or
special vestee who has attained superannuation age and dies
before applying for a superannuation annuity shall be considered
as having applied for an annuity to become effective the day
before his death and in the event he has not elected an option
or such election has not been approved prior to his death, it
shall be assumed that he elected Option 1.
(b) Members without Class OB service ineligible for
annuities.--In the event of the death of a special vestee, an
active member, an inactive member on leave without pay or a
current or former State employee performing USERRA leave who
does not have Class OB service credit and who is not entitled to
a death benefit as provided in subsection (a), his designated
beneficiary shall be paid the full amount of his total
accumulated deductions.
(c)
Disability annuitants eligible for withdrawal annuity.-In the event of the death of a disability annuitant who has
elected to receive a maximum disability annuity before he has
received in annuity payments, excluding any disability annuity
payments under section 5704 (al (2) (relating to disability
annuities), an amount equal to the present value, on the
effective date of disability, of the benefits to which he would
have been entitled under subsection (a) had he died while in
State service, the balance of such amount shall be paid to his
designated beneficiary. In addition, if he was receiving
disability annuity payments under section 5704(a) (2), he may
receive, if eligible, the total cash balance accumulated
account on the effective date of disability over one-third of
the disability payments received under section 5704(a) (2). For
purposes of this subsection. the determination of benefits to
which the disability annuitant would have been entitled under
subsection (al shall be made even though the disability
annuitant may have Class OB service.
{d)
Disability annuitants ineligible for withdrawal
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annuity.--In the event of the death of a disability annuitant

who was not entitled to receive benefits under subsection (a),
except for the reason of having Class OB service credit, his
beneficiary shall be paid the excess of the sum of the regular
and additional accumulated deductions standing to his credit on
the effective date of disability over one-third of the total
disability payments received, excluding any disability annuity
payments under section 5704(al (2). In addition. if he was
receiving disability annuity payments under section 5704(a) (2),
he may receive, if eligible, the total cash balance accumulated
account on the effective date of disability over one-third of
the disability payments received under section 5704(a) (2).
(e) Annuitants electing maximum single life annuity.--In the
event of the death of an annuitant who has elected to receive
the maximum single life annuity before he has received in
annuity payments the full amount of the total accumulated
deductions and. if he was eligible for an annuity as provided in
section 5702 (a) (7) (relating to maximum single life annuity),
the total cash balance accumulated deductions standing to his
credit on the effective date of retirement, the balance shall be
paid to his designated beneficiary.
* * *
(g) Members with Class OB service.--An active member,
inactive member on leave without pay or vestee who has Class OB
service credit who dies shall be paid the total cash balance
accumulated deductions credited to him in addition to any other
payments he would be eligible to receive under subsection (a) or
(bl calculated without regard to any annuity payable under
section 5702 (al (7).
Section 320. Section 5709 of Title 71 is amended by adding a
subsection to read:
5709.
Payment of benefits.
* * *
(dl
Small cash balance accounts.--A member with only Class
OB service who terminates State service and whose total cash
balance accumulated deductions are equal to or less than the
amount established under IRC 401(al (31) as of the date of
termination of service shall be paid his accumulated deductions
in a lump sum as provided in IRC 401(a) (31) and have all Class
OB service credit cancelled. This payment of total cash balance
accumulated deductions shall not be eligible for installment
payments under section 5905.1 (relating to installment payments
of accumulated deductions), but shall be considered a lump sum
payment for purposes of section 5905.l(d).
Section 321. Section 5902(k) and (1) of Title 71 are amended
and the section is amended by adding subsections to read:
5902.
Administrative duties of the board.
* * *
(k) Certification of employer contributions.--The board
shall, each year in addition to the itemized budget required
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under section 5509 (relating to appropriations and assessments

by the Commonwealth), certify, as a percentage of the members'
payroll, the shared-risk contribution rate, the employers'
contributions as determined pursuant to section 5508 (relating
to actuarial cost method) necessary for the funding of
prospective annuities for active members and the annuities of
annuitants and certify the rates and amounts of the employers'
normal contributions as determined pursuant to section 5508(b),
accrued liability contributions as determined pursuant to
section 5508(c), supplemental annuities contribution rate as
determined pursuant to section 5508(e), the experience
adjustment factor as determined pursuant to section 5508(f), the
collared contribution rate pursuant to section 5508(h) and the
final contribution rate pursuant to section 5508(i), which shall
be paid to the fund and credited to the appropriate accounts.
The board may allocate the final contribution rate and certify
various employer contribution rates and amounts based upon the
different benefit eligibility, class of service multiplier,
superannuation age, final average salary calculation and other
benefit differences resulting from State service credited for
individual members even though such allocated employer
contribution rate on behalf of any given member may be more or
less than 5% of the member's compensation for the period from
July 1, 2010, to June 30, 2011, or may differ from the prior
year's contribution for that member by more or less than the
percentages used to calculate the collared contribution rate for
that year and may be below any minimum contribution rate
established for the coll.ared contribution rate or final
contribution rate. These certifications shall be regarded as
final and not subject to modification by the Secretary of the
Budget.
(1)
Member contributions.--The board shall cause all pickup
contributions made on behalf of a member to be credited to the
account of the member and credit to his account any other
payment made by such member, including, but not limited to,
amounts collected by the Public School Employees' Retirement
System for the reinstatement of previous State service or
creditable nonstate service and amounts paid to return benefits
paid after the date of return to State service or entering
school service representing lump sum payments made pursuant to
section 5705(a) (4) (iii) or (a.1) (relating to member's options)
and member's annuity payments, but not including other benefits
returned pursuant to section 5706(a.2) or (a.3) (relating to
termination of annuities), and shall pay all such amounts into
the fund.
* * *
(p)
Additional amounts credited to the members' cash balance
savings accounts.--In addition to cash balance member
contributions and statutory interest thereon, the board shall
credit to the individual members' cash balance savings accounts
4% of their compensation if on the immediately preceding
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December 31, they have less than 15 eligibility points earned as

a member of Class OB or 5% of their compensation if on the
immediately preceding December 31, they have 15 or more
eligibility points earned as a member of Class OB. The credited
amounts shall be credited with statutory interest. The board
shall further credit to the members' individual savings accounts
excess interest, if any is determined to be creditable, as
determined under subsection (ql, allocated proportionally
between the cash balance member accumulated deductions and the
percentages of compensation credited under this section, plus
past statutory interest and excess interest.
(q)
Determination of excess interest.-(1) As part of the actuarial valuation made under
subsection (j) for calendar year 2015, and for each
subsequent calendar year, the board shall determine the
amount potentially available from that year for distribution
as excess interest. That amount shall be one-half of the
investment gains and losses, net of investment and
administrative fees and costs, above or below a rate of
return of 5% of the total assets in the fund multiplied by
the ratio of the total amount credited in the cash balance
savings account to the sum of the total amount credited in
the cash balance savings account plus the accrued actuarial
liability of all benefits derived from all the service of all
members in all classes of service other than Class OB. This
product shall be available in equal annual installments over
five years.
(2) After the actuarial valuation made for calendar year
2017 and after the actuarial valuations for each subsequent
calendar year. the board shall determine if excess interest
is to be awarded to those active members and inactive members
on leave without pay who are not Class OB exempt emoloyees
and who have Class OB service credit on the date of the
applicable actuarial valuation.
(3)
For each determination period. excess interest shall
be granted if the sum of the amounts determined under
paragraph (1) for all the years of the determination period
is positive. If so. then the percentage rate of excess
interest shall be determined by dividing this sum by the
total amount credited in the cash balance savings account on
the last day of the determination period. Each member or
inactive member on leave without pay who is not a Class OB
exempt employee and who has Class OB service credit on the
last day of the determination period and who is an active
member or inactive member on leave without pay who is not a
Class OB exempt employee and on the next following December
31 shall have excess interest at this rate credited to his
total cash balance accumulated deductions. which shall be
credited proportionally between the cash balance member
accumulated deductions and other amounts credited to his
individual cash balance savings account.
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(4) The determination period for the period ending with

the actuarial valuation for calendar year 2017 shall be
calendar years 2015, 2016 and 2017. The determination period
for the period ending with the actuarial valuation for
calendar year 2018 shall be calendar years 2015, 2016, 2017
and 2018. The determination period for the periods ending
with calendar year 2019 and subsequent years shall be the
ending year and the four immediately previous calendar years.
(r) Application for bond proceeds.--The board is authorized
to apply to the Pennsylvania Economic Development Financing
Authority for a total of up to $3,000,000,000 in accordance with
the Pennsylvania Economic Development Finance Agency's program
guidelines.
Section 322. Section 5903(b), 5905(b), (c.1) (1), (e) (1) and
(f)(l), 5905.l(a), (b) and (d), 5906(c), (g), (h) and (j),
5907 (c), (f) (1) and (g), 5931 (b), 5932, 5933 (a), 5934, 5935,
5936 and 5937 of Title 71 are amended to read:
5903.
Duties of the board to advise and report to heads of
departments and members.
* * *
(b)
Member status statements and certifications.--The board
shall furnish annually to the head of each department on or
before April 1, a statement for each member employed in such
department showing the total accumulated deductions and total
cash balance accumulated deductions standing to his credit as of
December 31 of the previous year and requesting the member to
make any necessary corrections or revisions regarding his
designated beneficiary. In adqition, for each member employed in
any department and for whom the department has furnished the
necessary information, the board shall certify the number of
years and fractional part of a year of credited service
attributable to each class of service, the number of years and
fractional part of a year attributable to social security
integration credits in each class of service and, in the case of
a member eligible to receive an annuity, the benefit to which he
is entitled upon the attainment of superannuation age.
* * *
5905.
Duties of the board regarding applications and

elections of members.
* * *
(b)
School employees electing multiple service status.--Upon
receipt of notification from the Public School Employees'
Retirement Board that a former State employee has become an
active member in the Public School Employees' Retirement System
and has elected to become a member with multiple service status
the board shall:
(1) in case of a member receiving an annuity from the
system:
(i) discontinue payments, transfer the present value
of the member's annuity at the time of entering school
service, plus the amount withdrawn in a lump sum payment,
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on or after the date of entering school service, pursuant
2
to section 5705 (relating to member's options), with
3
statutory interest to date of transfer, minus the amount
4
to be returned to the board on account of return to
5
service, that the board has determined is to be credited
6
in the members' savings account, from the annuity reserve
7
account to the members' savings account and resume
8
crediting of statutory interest on the amount restored to
9
his credit;
10
(ii) transfer the balance of the present value of
11
the total annuity, minus the amount to be returned to the
12
board on account of return to service that the board has
13
determined is to be credited in the State accumulation
14
account and the cash balance savings account, from the
15
annuity reserve account to the State accumulation account
16
and the cash balance savings account; and
17
(iii) certify to the member the amount of lump sum
and annuity payments with statutory interest the member
18
19
is to return to the board and, of those amounts, which
20
amount shall be credited to the members' savings account
21
or the cash balance savings account and credited with
22
statutory interest as such payments are returned and
23
which amount shall be credited to the State accumulation
24
account; or
25
(2) in case of a member who is not receiving an annuity
26
and has not withdrawn his total accumulated deductions and
27
cash balance member accumulated deductions, continue or
28
resume the crediting of statutory interest on his total
29
accumulated deductions and his total cash balance accumulated
30
deductions during the period his total accumulated deductions
31
and cash balance member accumulated deductions remain in the
32
fund; or
33
(3) in case of a former State employee who is not
34
receiving an annuity from the system and his total
35
accumulated deductions were withdrawn, certify to the former
36
State employee the accumulated deductions as they would have
37
been at the time of his separation had he been a full
38
coverage member together with statutory interest for all
39
periods of subsequent State and school service to the date of
40
repayment. Such amount shall be restored by him and shall be
41
credited with statutory interest as such payments are
42
restored.
43
* * *
44
(c.1) Termination of service.--In the case of any member
45 terminating State service who is entitled to an annuity and who
46 is not then a disability annuitant, the board shall advise such
47 member in writing of any benefits to which he may be entitled
48 under the provisions of this part and shall have the member
49 prepare, on or before the date of termination of State service,
50 one of the following three forms, a copy of which shall be given
51 to the member and the original of which shall be filed with the
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board:
(1) an application for the return of total accumulated
deductions and cash balance member accumulated deductions;
* * *
(e)
Certification to vestees and special vestees terminating
service.--The board shall certify to a vestee or to a special
vestee within one year of termination of State service of such
member:
(1) the total accumulated deductions and total cash
balance accumulated deductions standing to his credit at the
date of termination of service;
* * *
(f)
Initial annuity payment and certification.--The board
shall make the first monthly payment to a member who is eligible
for an annuity within 60 days of the filing of his application
for an annuity or, in the case of a vestee or special vestee who
has deferred the filing of his application to a date later than
90 days following attainment of superannuation age, within 60
days of the effective date of retirement, and receipt of the
required data from the head of the department and, if the member
has Class G, Class H, Class I, Class J, Class K, Class L, Class
M or Class N service, any data required from the county
retirement system or pension plan to which the member was a
contributor before being a State employee. Concurrently, the
board shall certify to such member:
(1) the total accumulated deductions and total cash
balance accumulated deductions standing to his credit showing
separately the amount contribute0 by the member, the pickup
contribution and the interest credited to the date of
termination of service;
* * *
5905.1. Installment payments of accumulated deductions.
(a)
General rule.--Notwithstanding any other provision of
this part, whenever a member elects to withdraw his total
accumulated deductions and cash balance member accumulated
deductions pursuant to section 5311(a) (relating to eligibility
for refunds) or 5701 (relating to return of total accumulated
deductions and cash balance member accumulated deductions) or
elects to receive a portion of his benefit payable as a lump sum
pursuant to section 5705 (a) (4) (iii) or (a.1) (relating to
member's options), the member may elect to receive the amount in
not more than four installments.
(b)
Payment of first installment.--The payment of the first
installment shall be made in the amount and within seven days of
the date specified by the member, except as follows:
(1) Upon receipt of a member's application to withdraw
his total accumulated deductions and cash balance member
accumulated deductions as provided in section 5311(a) or 5701
and upon receipt of all required data from the head of the
department and, if the member has Class G, Class H, Class I,
Class J, Class K, Class L, Class M or Class N service, any'
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data required from the county retirement system or pension

plan to which the member was a contributor before being
transferred to State employment, the board shall not be
required to pay the first installment prior to 45 days after
the filing of the application and the receipt of the data or
the date of termination of service, whichever is later.
(2)
In the case of an election as provided in section
5705(a) (4) (iii) or (a.1) by a member terminating service
within 60 days prior to the end of a calendar year and upon
receipt of all required data from the head of the department
and, if the member has Class G, Class H, Class I, Class J,
Class K, Class L, Class M or Class N service, any data
required from the county retirement system or pension plan to
which the member was a contributor before being transferred
to State employment, the board shall not be required to pay
the first installment prior to 21 days after the later of the
filing of the application and the receipt of the data or the
date of termination of service, but, unless otherwise
directed by the member, the payment shall be made no later
than 45 days after the filing of the application and the
receipt of the data or the date of termination of service,
whichever is later.
(3)
In the case of an election as provided in section
5705(a) (4) (iii) or (a.1) by a member who is not terminating
service within 60 days prior to the end of a calendar year
and upon receipt of all required data from the head of the
department and, if the member has Class G, Class H, Class I,
Class J, Class K, Class L, Class M or Class N service, any
data required from the county retirement system or pension
plan to which the member was a contributor before being
transferred to State employment, the board shall not be
required to pay the first installment prior to 45 days after
the filing of the application and the receipt of the data or
the date of termination of service, whichever is later.
* * *
(d)
Statutory interest.--Any lump sum, including a lump sum
payable pursuant to section 5705.1 (relating to payment of
accumulated deductions resulting from [Class A-3 and Class A-4]
more than one class of service), or installment payable shall
include statutory interest credited to the date of payment,
except in the case of a member, other than a vestee or special
vestee, who has not filed his application prior to 90 days
following his termination of service.
5906.
Duties of heads of departments.
* * *
(c) Member contributions.--The head of department shall
cause the required pickup contributions for current service to
be made and shall cause to be deducted any other required member
contributions, including, but not limited to, contributions owed
by an active member with multiple service membership for school
service and creditable nonschool service in the Public School
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Employees' Retirement System and amounts certified by the Public

School Employees' Retirement Board as due and owing on account
of termination of annuities, from each payroll. The head of
department shall notify the board at times and in a manner
prescribed by the board of the compensation of any noneligible
member to whom the limitation under IRC 401(a) (17) either
applies or is expected to apply and shall cause such member's
contributions deducted from payroll to cease at the limitation
under IRC 40l(a) (17) on the payroll date if and when such
limit shall be reached. The head of department shall certify to
the State Treasurer the amounts picked up and deducted and shall
send the total amount picked up and deducted together with a
duplicate of such voucher to the secretary of the board every
pay period. The head of department shall pay pickup
contributions from the same source of funds which is used to pay
other compensation to the employee. On or before January 31,
1997, and on or before January 31 of each year thereafter, the
head of department shall, at the time when the income and
withholding information required by law is furnished to each
member, also furnish the amount of pickup contributions made on
his behalf and notify the board, if it has not been previously
notified, of any noneligible member whose compensation in the
preceding year exceeded the annual compensation limit under IRC
401(a) (17). If the board shall determine that the member's
savings account or cash balance savings account shall have been
credited with pickup contributions for a noneligible member in
the preceding year which are attributable to compensation in
excess of the limitation under IRC 401(a) (17), or with total
member contributions for such member which would cause such
member's contributions or benefits to exceed any applicable
limitation under IRC 401(a) (17) or 415(b), the board shall as
soon as practicable refund to the member from his individual
member account such amount, together with the statutory interest
thereon, as will cause the member's total member contributions
and cash balance contributions in the preceding year not to
exceed the applicable limit. The payment of any such refund to
the member shall be charged to the member's savings account or
the member's individual cash balance savings account. as the
case mav be.
* * *
(g)
Former school employee contributors.--The head of
department shall, upon the employment of a former contributor to
the Public School Employees' Retirement System who is not an
annuitant of the Public School Employees' Retirement System,
advise such employee of his right to elect within 365 days of
the later of entry into the system or beginning service as a
Class OB exempt employee to become a multiple service member,
and in the case of any such employee who so elects and has
withdrawn his accumulated deductions, require him to reinstate
his credit in the Public School Employees' Retirement System.
The head of the department shall advise the board of such
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election. This subsection shall not apply to a State employee

who is an active member in Class OB or who has only Class T-G
credit in the Public School Employees' Retirement System.
(h)
Former school employee annuitants.--The head of
department shall, upon the employment of an annuitant of the
Public School Employees' Retirement System who applies for
membership in the system, advise such employee that he may elect
multiple service membership within 365 days of the later of
entry into the system or beginning service as a Class OB exempt
employee and if he so elects his public school employee's
annuity will be discontinued effective upon the date of his
return to State service and, upon termination of State service
and application for an annuity, the annuity will be adjusted in
accordance with section 5706 (relating to termination of
annuities) . The head of department shall advise the board of
such election. This subsection shall not apply to a State
employee who is an active member in Class OB or who has only
Class T-G credit in the Public School Employees' Retirement
System.
* * *
(j)
Termination of service.--The head of department shall,
in the case of any member who does not have Class OB service,
who is terminating State service and who is ineligible for an
annuity before attainment of superannuation age, advise such
member in writing of any benefits to which he may be entitled
under the provisions of this part and shall have the member
prepare, on or before the date of termination of State service,
an application for the return of total. accumulated deductions
or, on or before September 30, 1997, an application to be vested
as a special vestee, if eligible.
* * *
5907.
Rights and duties of State employees and members.
* * *
(c)
Multiple service membership.--[Any active member] 8Jlv_
State employee who is an active member in a class of service
other than Class OB and who was formerly an active member in the
Public School Employees' Retirement System in a class of service
other than Class T-G may elect to become a multiple service
member. Such election shall occur no later than the later of 365
days after becoming an active member in this system or beginning
service as a Class OB exempt employee. A State employee who is
eligible to elect to become a multiple service member who begins
USERRA leave during the election period without having elected
multiple service membership may make the election within 365
days after being reemployed from USERRA leave.
* * *
(f)
Termination of service.--Each member who terminates
State service and who is not then a disability annuitant shall
execute on or before the date of termination of service the
appropriate application, duly attested by the member or his
legally constituted representative, electing to:
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(1)
withdraw his total accumulated deductions and cash
balance member accumulated deductions; or
* * *
(g) Vesting of retirement rights.--If a member elects to
vest his retirement rights he shall nominate a beneficiary by
written designation filed with the board and he may anytime
thereafter, withdraw the total accumulated deductions and cash
balance member accumulated deductions standing to his credit or
apply for an annuity. A member may not apply for an annuity
based on service as member of Class OB with an effective date
that is before the member attains age 55.
* * *
5931.
Management of fund and accounts.
* * *
(b)
Crediting of interest.--The board, annually, shall allow
the required interest on the mean amount for the preceding year
to the credit of each of the accounts except excess interest
credited to the cash balance savings account. The amount so
allowed shall be credited thereto by the board and transferred
from the interest reserve account. Excess interest, if any,
shall be credited to the cash balance savings account as set
forth in section 5902(q) (relating to administrative duties of
the board) .
* * *
5932.
State Employees' Retirement Fund.
The fund shall consist of all balances in the several
separate accounts set apart to be used under the direction of
the board for the benefit of members of the system; .and the
Treasury Department shall credit to the fund all moneys received
from the Department of Revenue arising from the contributions
required under the provisions of Chapter 55 (relating to
contributions), and any income earned by the investments or
moneys of said fund. There shall be established and maintained
by the board the several ledger accounts specified in sections
5933 (relating to members' savings account), 5934 (relating to
State accumulation account), 5935 (relating to annuity reserve
account), 5936 (relating to State Police benefit account), 5937
(relating to enforcement officers' benefit account), 5938
(relating to supplemental annuity account) [and)L 5939 (relating
to interest reserve account) and 5942 (relating to cash balance
savings account) .
5933.
Members' savings account.
(a)
Credits to account.--The members' savings account shall
be the ledger account to which shall be credited the amounts of
the pickup contributions made by the Commonwealth or other
employer and contributions or lump sum payments made by active
members, other than for Class OB service. in accordance with the
provisions of sections 5501 (relating to regular member
contributions and cash balance member contributions for current
service), 5501.1 (relating to shared-risk member contributions
for Class A-3 and Class A-4 service), 5502 (relating to social
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security integration member contributions), 5503 (relating to

joint coverage member contributions), 5504 (relating to member
contributions for the purchase of credit for previous State
service or to become a full coverage member), 5505.1 (relating
to additional member contributions) and 5505 (relating to
contributions for the purchase of credit for creditable nonstate
service) and transferred from the members' savings account of
the Public School Employees' Retirement System in accordance
with the provisions of section 5303.2 (relating to election to
convert school service to State service) .
* * *
5934. State accumulation account.
The State accumulation account shall be the ledger account to
which shall be credited all contributions of the Commonwealth or
other employers whose employees are members of the system and
made in accordance with the provisions of section 5507(a) or (d)
(relating to contributions by the Commonwealth and other
employers) except that the amounts received under the provisions
of the act of May 12, 1943 (P.L.259, No.120), and the amounts
received under the provisions of the Liquor Code, act of April
12, 1951 (P.L.90, No.21), shall be credited to the State Police
benefit account or the enforcement officers' benefit account as
the case may be. All amounts transferred to the fund by county
retirement systems or pension plans in accordance with the
provisions of section 5507(c) also shall be credited to the
State accumulation account. All amounts transferred to the fund
by the Public School Employees' Retirement System in accordance
with section 5303.2(e) (relating to election to convert school
service to State service), except amounts credited to the
members' savings account, and all amounts paid by the Department
of Corrections in accordance with section 5303.2(f) also shall
be credited to the State accumulation account. All amounts
received by the fund as a result of an application under section
5902(rl (relating to administrative duties of the board) also
shall be credited to the State accumulation account. The State
accumulation account shall be credited with valuation interest.
The reserves necessary for the payment of annuities and death
benefits as approved by the board and as provided in Chapter 57
(relating to benefits), other than annuities and benefits
resulting from Class QB service, shall be transferred from the
State accumulation account to the annuity reserve account
provided for in section 5935 (relating to annuity reserve
account), except that the reserves necessary on account of a
member who is an officer of the Pennsylvania State Police or an
enforcement officer shall be transferred from the State
accumulation account to the State Police benefit account
provided for in section 5936 (relating to State Police benefit
account) or to the enforcement officers' benefit account as
provided for in section 5937 (relating to enforcement officers'
benefit account) as the case may be. The reserves necessary for
the payment of supplemental annuities in excess of those
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reserves credited to the supplemental annuity account on June

30, 2010, shall be transferred from the State accumulation
account to the supplemental annuity account. In the event that
supplemental annuities are increased by legislation enacted
after December 31, 2009, the necessary reserves shall be
transferred from the State accumulation account to the
supplemental annuity account. The amounts credited to the
members' individual cash balance savings accounts as provided
for in section 5902(p) shall be transferred from the State
5935.
Annuity reserve account.
(a) Credits and charges to account.--The annuity reserve
account shall be the ledger account to which shall be credited
the reserves held for payment of annuities and death benefits on
account of all annuitants except in the case of members who are
officers of the Pennsylvania State Police or enforcement
officers. The annuity reserve account shall be credited with
valuation interest. After the transfers provided in sections
5933 (relating to members' savings account), 5934 (relating to
State accumulation account) [and]L 5938 (relating to
supplemental annuity account) and 5942 (relating to cash balance
savings account), all annuity and death benefit payments except
those payable to any member who retires as an officer of the
Pennsylvania State Police or an enforcement officer shall be
charged to the annuity reserve account and paid from the fund.
(b)
Transfers from account.--Should an annuitant other than
a member who was retired as an officer of the Pennsylvania State
Police or an enforcement officer be subsequently restored.to
active service, the present value of his member's annuity at the
time of reentry into State service shall be transferred from the
annuity reserve account and placed to his individual credit in
the members' savings account or individual cash balance savings
account, as appropriate. In addition, the actuarial reserve for
his annuity based on all classes of credited service other than
Class OB less the amount transferred to the members' savings
account shall be transferred from the annuity reserve account to
the State accumulation account. The present value of the annuity
provided by section 5702(a) (7) {relating to maximum single life
annuity) at the time of reentry into State service shall be
transferred from the annuity reserve account and placed to the
member's individual credit in the cash balance savings account.
5936.
State Police benefit account.
(a)
Credits and charges to account.--The State Police
benefit account shall be the ledger account to which shall be
credited all contributions received under the provisions of the
act of May 12, 1943 (P.L.259, No.120), referred to as the
Foreign Casualty Insurance Premium Tax Allocation Law, and any
additional Commonwealth or other employer contributions provided
for in section 5507 (relating to contributions by the
Commonwealth and other employers) which are creditable to the
State Police benefit account. The State Police benefit account
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shall be credited with the required interest. In addition, upon

the filing of an application for an annuity by a member who is
an officer of the Pennsylvania State Police, the total
accumulated deductions standing to the credit of the member in
the members' savings account, the total cash balance accumulated
deductions standing to the credit of the member in the cash
balance savings account and the necessary reserves from the
State accumulation account shall be transferred to the State
Police benefit account. Thereafter, the total annuity of such
annuitant shall be charged to the State Police benefit account
and paid from the fund.
(b)
Transfers from account.--Should the said annuitant be
subsequently restored to active service, the present value of
the member's annuity at the time of reentry into State service
shall be transferred from the State Police benefit account and
placed to his individual credit in the members' savings account
or individual cash balance savings account, as appropriate. In
addition, the actuarial reserve for his annuity. based on all
classes of credited service other than Class QB, calculated as
if he had been a member of Class A if he has Class A or Class C
service credited; as if he had been a member of Class A-3 if the
annuitant has Class A-3 State service credited; or as if he had
been a member of Class A-4 if the annuitant has Class A-4
service credited, less the amount transferred to the members'
savings account shall be transferred from the State Police
benefit account to the State accumulation account. The present
value of the annuity provided by section 5702(al (7) (relating to
maximum single life annuity) at the time of reentry into State
service shall be transferred from the State Police benefit
account and placed to his individual credit in the cash balance
savings account. Upon subsequent retirement other than as an
officer of the Pennsylvania State Police the actuarial reserve
remaining in the State Police benefit account shall be
transferred to the appropriate reserve account.
5937.
Enforcement officers' benefit account.
(a)
Credits and charges to account.--The enforcement
officers' benefit account shall be the ledger account to which
shall be credited moneys transferred from the enforcement
officers' retirement account in the State Stores Fund according
to the provisions of the act of April 12, 1951 (P.L.90, No.21),
known as the Liquor Code, and any additional Commonwealth or
other employer contributions provided for in section 5507
(relating to contributions by the Commonwealth and other
employers) which are creditable to the enforcement officers'
benefit account. The enforcement officers' benefit account shall
be credited with the required interest. In addition, upon the
filing of an application for an annuity by a member who is an
enforcement officer of the Pennsylvania Liquor Control Board,
the total accumulated deductions standing to the credit of the
member in the members' savings account, the total cash balance
accumulated deductions standing to the credit of the member in
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the cash balance savings account and the necessary reserves from
the State accumulation account shall be transferred to the
enforcement officers' benefit account. Thereafter, the total
annuity of such annuitant shall be charged to the enforcement
officers' benefit account and paid from the fund.
(b)
Transfers from account.--Should the said annuitant be
subsequently restored to active service, the present value of
the member's annuity at the time of reentry into State service
shall be transferred from the enforcement officers' benefit
account and placed to his individual credit in the members'
savings account or individual cash balance savings account. as
appropriate. In addition, the actuarial reserve for his annuity..__
based on all classes of credited service other than Class QB,
calculated as if he had been a member of Class A if the
annuitant does not have any Class AA, Class A-3 or Class A-4
service credited; as if he had been a member of Class AA if the
annuitant does have Class AA service credited; as if he had been
a member of Class A-3 if the annuitant has Class A-3 State
service credited; or as if he had been a member of Class A-4 if
the annuitant has Class A-4 service credited, less the amount
transferred to the members' savings account shall be transferred
from the enforcement officers' benefit account to the State
accumulation account. The present value of the annuity provided
by section 5702(a) (7) (relating to maximum single life annuity)
at the time of reentry into State service shall be transferred
from the enforcement officers' benefit account and placed to his
individual credit in the cash balance savings account. Upon
subsequent retirement other than as an enforcement officer the .
actuarial reserve remaining in the enforcement officers' benefit
account shall be transferred to the appropriate reserve account.
read:
5942.
Cash balance savings account.
(al
Credits to account.--The cash balance savings account
shall be the ledger account to which shall be credited the
amounts of the pickup contributions made by the Commonwealth or
other employers and additional amounts credited to the
individual members' cash balance savings accounts in accordance
with the provisions of sections 5501 (relating to regular member
contributions and cash balance member contributions for current
service) and 5902fp) (relating to administrative duties of the
board) .
(bl
Interest and transfers from account.--The cash balance
savings account in total and the individual member accounts
shall be credited with statutory interest, and if applicable
excess interest. The total cash balance accumulated deductions
credited to a member whose application for an annuity has been
approved shall be transferred from the cash balance savings
account to the annuity reserve account provided for under
section 5935 (relating to annuity reserve account), except in
the case of a member who is an officer of the Pennsylvania State
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Police or an enforcement officer the total cash balance

accumulated deductions to his credit shall be transferred from
the cash balance savings account to the State Police benefit
account provided for under section 5936 (relating to State
Police benefit account) or to the enforcement officers' benefit
account provided for under section 5937 {relating to enforcement
officers' benefit account), as the case may be.
(cl
Charges to account.--Upon the election of a member to
withdraw his cash balance member accumulated deductions without
receiving a benefit or upon payment of a small cash balance
account in a lump sum as provided for under section 5709(d)
(relating to payment of benefits), the payment of such amount
shall be charged to the individual member's cash balance savings
account. Any amounts remaining in an individual member's cash
balance savings account after these charges shall be transferred
to the State accumulation account.
Section 324.
Section 5955 of Title 71 is amended to read:
5955.
Construction of part.
(al
Exclusive source of rights and benefits.--Regardless of
any other provision of law, pension and benefit rights of State
employees shall be determined solely by this part or any
amendment thereto, and no collective bargaining agreement nor
any arbitration award between the Commonwealth and [its] other
employers and the Commonwealth's and other employer's employees
or their collective bargaining representatives shall be
construed to change any of the provisions herein, to require the
board to administer pension or retirement benefits not set forth
in this part, or otherwise require action by any other
government body pertaining to pension or retirement benefits or
rights of State employees. Notwithstanding the foregoing, any
pension or retirement benefits or rights previously so
established by or as a result of an arbitration award shall
remain in effect after the expiration of the current collective
bargaining agreement between the State employees so affected and
the Commonwealth until the expiration of each of the collective
bargaining agreements in effect on January 1, 2011, at which
time the classes of membership and resulting member contribution
rates and contributions for creditable nonstate service,
eligibility for vesting, withdrawal and superannuation
annuities, optional modification of annuities and other terms
and conditions related to class of membership shall be as
determined by this part for employees covered by those and
successor collective bargaining agreements. For purposes of
administering this part, for those State employees who are
members of each such collective bargaining unit, the date
January 1, 2011, contained in this part, except in this section,
shall be replaced with the date of the day immediately following
the expiration of each such collective bargaining agreement. The
provisions of this part insofar as they are the same as those of
existing law are intended as a continuation of such laws and not
as new enactments. The provisions of this part shall not affect
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any act done, liability incurred, right accrued or vested, or

any suit or prosecution pending or to be instituted to enforce
any right or penalty or to punish any offense under the
authority of any repealed laws.
(bl References.--References in this part to the Internal
Revenue Code of 1986 (Public Law 99-514, 26 U.S.C. 1 et seq.l
or the Uniformed Services Employment and Reemployment Rights Act
of 1994 (Public Law 103-353, 108 Stat. 3149), including
administrative regulations promulgated under the Internal
Revenue Code of 1986 or the Uniformed Services Employment and
Reemployment Rights Act of 1994, are intended to include laws
and regulations:
(1)
In effect on the effective date of this subsection.
(2) Amended, supplemented or supplanted on and after the
(cl Officer or member of the Pennsylvania State Police.-(1) Notwithstanding any provision of subsection (a) or
section 12.1 of the act of November 23. 2010 (P.L.1269,
No.120) entitled "An act amending Titles 24 (Education) and
71 (State Government) of the Pennsylvania Consolidated
Statutes, in Title 24, further providing for definitions, for
mandatory and optional membership, for contributions by the
Commonwealth, for payments by employers, for actuarial cost
method, for additional supplemental annuities, for further
additional supplemental annuities, for supplemental annuities
commencing 1994, for supplemental annuities commencing 1998,
for supplemental annuities commencing 2002, for supplemental
annuities commencing 2003, for administrative duties of
board, for payments to school entities by Commonwealth, for
eligibility points for retention and reinstatement of service
credits and for creditable nonschool service; providing for
election to become a Class T-F member; further providing for
classes of service, for eligibility for annuities, for
eligibility for vesting, for regular member contributions,
for member contributions for creditable school service. for
contributions for purchase of credit for creditable nonschool
service, for maximum single life annuity, for disability
annuities. for member's options, for duties of board
regarding applications and elections of members and for
rights and duties of school employees and members; providing
for Independent Fiscal Office study; in Title 71,
establishing an independent fiscal office and making a
related repeal; further providing for definitions, for
credited State service. for retention and reinstatement of
service credits, for creditable nonstate service and for
classes of service; providing for election to become a Class
A-4 member; further providing for eligibility for annuities
and for eligibility for vesting; providing for shared risk
member contributions for Class A-3 and Class A-4 service;
further providing for waiver of regular member contributions
and Social Security integration member contributions, for
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member contributions for purchase of credit for previous

State service or to become a full coverage member, for
contributions for the purchase of credit for creditable
nonstate service, for contributions by the Commonwealth and
other employers, for actuarial cost method, for maximum
single life annuity, for disability annuities and for
member's options; providing for payment of accumulated
deductions resulting from Class A-3 service; further
providing for additional supplemental annuities, for further
annuities commencing 2003, for special supplemental
postretirement adiustment of 2002, for administrative duties
of the board, for duties of board to advise and report to
heads of departments and members, for duties of board
installment payments of accumulated deductions, for rights
and duties of State employees and members, for members'
savings account, for State accumulation account, for State
Police Benefit Account, for Enforcement Officers' Benefit
Account, for supplemental annuity account and for
construction of part; and providing for Independent Fiscal
Office study, for retirement eligibility of Pennsylvania
State Police officers or members, for a prohibition on the
issuance of pension obligation bonds, for holding certain
public officials harmless, for construction of calculation or
actuarial method, for applicability and for certain
operational provisions," regarding the continued
effectiveness of pension or retirement benefits or rights
previously established by or as a result of a binding
arbitration award, the pension or retirement benefits or
rights of a State employee who on January l, 2015, is a
current or former State police officer, shall be as provided
in this part as if the binding arbitration award was not
issued, except as provided under this subsection.
(2) A State employee who is a current or former State
police officer who terminates State service before January l,
2015, shall be eligible to receive the maximum single life
annuity, before optional modification under section 5705
(relating to member's options), which the State employee
would have been eligible to receive if this subsection had
not been enacted.
(3) A State employee who meets the following shall be
eligible to receive the maximum single life annuity, before
optional modification under section 5705, which the State
employee would have been eligible to receive if this
subsection had not been enacted:
(il is a current or former State police officer;
(ii) has not made an election under section 5306.4
(relating to election to reduce member contributions,
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change final average salary and change benefit payment

options);
(iii) does not have service credited in Class OB;
and
(iv) terminates State service on or after January 1.
2015. or if he has made an election under section 5306.4
terminates State service before the effective date of the
election.
(3.ll A State employee who meets all of the requirements
in paragraph (3) other than the requirement in paragraph
(3) (ii) and who terminates State service on or after the
effective date of the election, shall be able to receive the
maximum single life annuity that the State employee would
have been eligible to receive if this subsection had not been
enacted except that the annuity will be calculated using the
final average salary calculation applicable to members who
make the election and any optional modification under section
5705 shall be subject to the provisions applicable to members
who make an election under section 5306.4.
(4) A State employee who is a current or former State
police officer or who becomes a State police officer after
the effective date of this subsection who has service
credited in Class OB and who terminates State service on or
after January l, 2015. shall be eligible to receive a maximum
single life annuity before optional modification under
section 5705 equal to the sum of, if eligible:
(il the maximum single life annuity that the State
employee would have been eligible to receive without
regard to any service credit, compensation or
contributions attributable to Class OB service if this
subsection had not been enacted, provided that if the
State employee has made an election under section 5306.4
the annuity under this subparagraph will be calculated
using the final average salary calculation applicable to
members who make the election and any optional
modification under section 5705 shall be subject to the
provisions applicable to members who make an election
under section 5306.4; and
(ii) the maximum single life annuity that the State
employee is eligible to receive under this Part
attributable to Class OB service and, if a multiple
service member, Class T-F service.
(5) As used in this subsection. the term "binding
arbitration award" shall mean a binding arbitration award
issued before July l, 1989, pursuant to the act of June 24,
1968 (P.L.237, No.111), referred to as the Policemen and
Firemen Collective Bargaining Act, and implemented by the
State Employees' Retirement Board.
(d) Adverse inference.--Nothing in this part shall be
construed to mean that the limitations on benefits or other
requirements under IRC 40l(a) or other applicable provisions
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of the IRC which are applicable to participants in the plan do

not apply to the participants or to members of the system and
the benefits payable under this part.
(el Application to certain members of the General
Assembly.---As applied to members of the General Assembly who
become State employees as a result of entering into office as a
member of the General assembly on or after December 1. 2014. and
before January 1. 2015. any references in the provisions of this
part pertaining to membership in Class OB and eligibility or
ineligibility for membership in other classes of service to
December 31, 2014, or January 1. 2015, shall be read as November
30, 2014. and December l, 2014, respectively.
ARTICLE V
TITLE 24
TRANSITIONAL PROVISIONS
Section 501. Nothing in this act which amends or supplement
provisions of 24 Pa.c.s. Pt. IV in relation to requirements for
qualification of the Public School Employees' Retirement System
as a qualified pension plan under section 401(a) of the Internal
Revenue Code of 1986 (Public Law 99-514, 26 U.S.C. 401(a)), or
any construction of 24 Pa.C.S. Pt. IV, as so amended or
supplemented, or any rules or regulations adopted under 24
Pa.C.S. Pt. IV shall create in any member of the system or in
any other person claiming an interest in the account of any such
member a contractual right, either express or implied, nor in
any construction of 24 Pa.c.s. Pt. IV, as so amended or
Pa.C.S. Pt. IV. The provisions of 24 Pa.c.s. Pt. IV shall remain
subject to the Internal Revenue Code of 1986 and regulations
thereunder, as the same may be amended after the effective date
of this section, and the General Assembly reserves to itself
such further exercise of its legislative power to amend or
supplement such provisions as may from time to time be required
in order to maintain the qualification of such system as a
qualified pension plan under section 40l(a) of the Internal
Revenue Code of 1986 and other applicable provisions of the
Internal Revenue Code of 1986.
Section 502. Nothing in this act shall be construed or
deemed to imply that any interpretation or application of the
provisions of 24 Pa.C.S. Pt. IV or benefits available to members
of the Public School Employees' Retirement System was not in
accordance with the provisions of 24 Pa.C.S. Pt. IV or other
applicable law prior to the effective date of this section.
Section 503. This act shall be construed and administered in
such a manner that the Public School Employees' Retirement
System will satisfy the requirements necessary to qualify as a
qualified pension plan under section 40l(a) of the IRC and other
applicable provisions of the Internal Revenue Code of 1986
(Public Law 99-514, 26 U.S.C. 1 et seq.). The rules,
regulations and procedures adopted and promulgated by the Public
School Employees' Retirement Board under Pa.C.S. 8502(h) may
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include those necessary to accomplish the purpose of this

section.
Section 504. It is the express intent of the General
Assembly that nothing in this act shall be construed to grant to
or be deemed to imply that this act expands, contracts or
otherwise affects any contractual rights, either expressed or
implied, or any other constitutionally protected rights, in the
terms and conditions of the Public School Employees' Retirement
System or other pension or retirement benefits as a school
employee, including, but not limited to, benefits, options,
rights or privileges established by 24 Pa.c.s. Pt. IV for any
current or former school employees.
Section 505. No school employee otherwise a member of,
eligible to be a member of or having school service credited in
a class of school service other than Class T-G may cancel,
decline or waive membership in such other class of school
service in order to obtain Class T-G service credit, become a
member of Class T-G or elect Class T-G membership.
Section 506. A change in accrued liability as a result of
changes under this act to the collared contribution rates shall
be amortized as part of the experience adjustment factor as
provided under 24 Pa.C.S. 8328. Payments required to fund any
changes in accrued liability resulting from this act shall be
subject to any limits imposed by this act on employer
contributions to the Public School Employees' Retirement System.
For purposes of 24 Pa.C.S. 8326, 8327 and 8328, any such
changes shall not be considered to be costs added by
legislation.
Section 507. If, prior to the effective date of this
section, the Public School Employees' Retirement Board certifies
employer contribution rates for the fiscal year beginning July
1, 2014, the board shall, notwithstanding any other provision of
law, recertify to the Secretary of the Budget the contributions,
rates, factors and amounts under 24 Pa.C.S. 8502(k). The
board's recertification shall reflect all changes in the
contributions, rates, factors and amounts previously certified
by the board prior to the effective date of this section for the
fiscal year beginning July 1, 2014, which are required to comply
with 24 Pa.C.S. 8328. The recertification shall occur within
15 days of the effective date of this section and shall
supersede the prior certification.
Section 508. Notwithstanding any other provision of law,
fiduciary requirement, actuarial standard of practice or other
requirement, the members of the Public School Employees'
Retirement Board, the actuary and other employees and officials
of the Public School Employees' Retirement System may not be
held liable or in breach or violation of a law or standard as
individuals, in their official capacity or as a governmental or
corporate entity, for an action or calculation related to
calculating and certifying a final contribution rate as provided
under this act that is different from the actuarially required
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contribution rate as appropriately calculated under 24 Pa.C.S.

Pt. IV.
Section 509.
Repeals are as follows:
(1)
The General Assembly finds and declares that the
repeal under paragraph (2) is necessary to effectuate this
act.
(2)
Section 13(1) (i) of the act of November 23, 2010
(P.L.1269, No.120), entitled ''An act amending Titles 24
(Education) and 71 (State Government) of the Pennsylvania
Consolidated Statutes, in Title 24, further providing for
definitions, for mandatory and optional membership, for
contributions by the Commonwealth, for payments by employers,
for actuarial cost method, for additional supplemental
annuities, for further additional supplemental annuities, for
supplemental annuities commencing 1994, for supplemental
annuities commencing 1998, for supplemental annuities
for administrative duties of board, for payments to school
entities by Commonwealth, for eligibility points for
retention and reinstatement of service credits and for
creditable nonschool service; providing for election to
become a Class T-F member; further providing for classes of
service, for eligibility for annuities, for eligibility for
vesting, for regular member contributions, for member
contributions for creditable school service, for
annuities, for member's options, for duties of board
establishing an independent fiscal off ice and making a
credited State service, for retention and reinstatement of
and for eligibility for vesting; providing for shared-risk
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operational provisions,'' is repealed.
20
ARTICLE VII
21
TITLE 71
22
TRANSITIONAL PROVISIONS
23
24 deemed to imply that any calculation or actuarial method used by
25 the State Employees' Retirement Board, its actuaries or the
26 State Employees' Retirement System was not in accordance with
27 the provisions of the State Employees' Retirement Code or other
28 applicable law prior to the effective date of this section.
29
Section 702. Notwithstanding the provisions of 71 Pa.c.s.
30 5903(b), the statement for each member prepared by the State
31 Employees' Retirement Board for the period ending December 31,
32 2014, and any other statements or estimates of benefits prepared
33 by the board pursuant to the provisions of 71 Pa.C.S. Pt. XXV
34 from the effective date of this section to June 30, 2015, need
35 not reflect the provisions of this act.
36
Section 703. Notwithstanding the provisions of 71 Pa.C.S.
37 Pt. XXV, the obligation of the State Employees' Retirement Board
38 to make payments to any individual whose rights, benefits and
39 obligations are affected by this act within specified time
40 periods of the receipt of applications for benefits or other
41 information shall not apply from the effective date of this
42 section to June 30, 2015.
43
Section 704. Repeals are as follows:
44
(1) The General Assembly declares that the repeal under
45
paragraph (2) is necessary to effectuate the provisions of
46
this act.
47
(2) Section 13 of the of the act of November 23, 2010
48
(P.L.1269, No.120) entitled ''An act amending Titles 24
(Education) and 71 (State Government) of the Pennsylvania
49
50
Consolidated Statutes, in Title 24, further providing for
51
definitions, for mandatory and optional membership, for
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contributions by the Commonwealth, for payments by employers,

for actuarial cost method, for additional supplemental
annuities, for further additional supplemental annuities, for
supplemental annuities commencing 1994, for supplemental
annuities commencing 1998, for supplemental annuities
for administrative duties of board, for payments to school
entities by Commonwealth, for eligibility points for
retention and reinstatement of service credits and for
creditable nonschool service; providing for election to
become a Class T-F member; further providing for classes of
service, for eligibility for annuities, for eligibility for
vesting, for regular member contributions, for member
contributions for creditable school service, for
annuities, for member's options, for duties of board
establishing an independent fiscal office and making a
credited State service, for retention and reinstatement of
and for eligibility for vesting; providing for shared risk
postretirement adjustment of 2002, for administrative duties
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operational provisions," is repealed.
Section 705. Nothing in this act which amends or supplements
provisions of 71 Pa.c.s. Pt. XXV in relation to requirements for
qualification of the State Employees' Retirement System as a
qualified pension plan under section 40l(a) of the Internal
Revenue Code of 1986 (Public Law 99-514, 26 U.S.C. 40l(a)), or
any construction of 71 Pa.C.S. Pt. XXV, as so amended or
Pa.c.s. Pt. XXV shall create in any member of the system or in
any other person claiming an interest in the account of any such
member a contractual right, either express or implied nor in any
construction of 71 Pa.C.S. Pt. XXV, as so amended or
Pa.C.S. Pt. XXV. The provisions of 71 Pa.C.S. Pt. XXV shall
remain subject to the Internal Revenue Code of 1986 (Public Law
99-514, 26 U.S.C. 1 et seq.), as amended, and regulations
thereunder as the same may hereafter be amended, and the General
Assembly reserves to itself such further exercise of its
legislative power to amend or supplement such provisions as may
from time to time be required in order to maintain the
qualification of such system as a qualified pension plan under
section 401(a) and other applicable provisions of the Internal
Revenue Code of 1986.
deemed to imply that, but for the expressed applications of the
limitations on benefits or other requirements under section
401(a) or applicable provisions of the Internal Revenue Code of
1986 (Public Law 99-514, 26 U.S.C. 1 et seq.), those
limitations would not otherwise apply to members of the State
Employees' Retirement System and the benefits payable pursuant
to 71 Pa.C.S. Pt. XXV.
deemed to imply that any interpretation or application of the
provisions of 71 Pa.C.S. Pt. XXV or benefits available to
members of the State Employees' Retirement System was not in
accordance with the provisions of 71 Pa.C.S. Pt. XXV or other
applicable law prior to the effective date of this section.
Section 708.
It is the expressed intention of the General
Assembly that the provisions of this act pertaining to Class QB
service credit shall apply to all State employees who first
become State employees after the applicable dates set forth in
this act, without regard to any other class of service or
benefits that may be applicable to any other State employee or
State office or employment position they may hold.
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Section 709. This act shall be construed and administered in

such a manner that the State Employees' Retirement System will
satisfy the requirements necessary to qualify as a qualified
pension plan under section 40l(a) and other applicable
provisions of the Internal Revenue Code of 1986 (Public Law 99514, 26 U.S.C. 1 et seq.). The rules, regulations and
procedures adopted and promulgated by the State Employees'
Retirement Board under 71 Pa.C.S. 5902(h) may include those
necessary to accomplish the purpose of this section.
Section 710. No State employee otherwise a member of,
eligible to be a member of or having State or nonstate service
credited in a class of service other than Class QB may cancel,
decline or waive membership in such other class of service in
order to obtain Class QB service credit, become a member of
Class QB or elect Class QB membership.
Section 711. Notwithstanding any other provision of law, any
change in accrued liability of the State Employees' Retirement
System created by this act as a result of changes in benefits
shall be funded in equal dollar installments over a period of 20
years beginning July 1, 2014. Any change in accrued liability as
a result of the amendment of 71 Pa.C.S. 5508(h) to the
collared contribution rates shall be amortized as part of the
experience adjustment factor as provided under 71 Pa.C.S.
5508(f). Payments required to fund any changes in accrued
liability resulting from this act shall be subject to any limits
imposed by this act on employer contributions to the State
Employees' Retirement System. For purposes of 71 Pa.c.s.
5501.2, 5507 and 5508, any such changes shall not be considered
to be costs added by legislation.
Section 712.
If, prior to the effective date of this
section, the board certifies employer contribution rates for the
fiscal year beginning July 1, 2014, the board shall,
notwithstanding any other provision of law, recertify to the
Secretary of the Budget the contributions, rates, factors and
amounts under 71 Pa.C.S. 5902(k). The board's recertification
shall reflect all changes in the contributions, rates, factors
and amounts previously certified by the board prior to the
effective date of this section for the fiscal year beginning
July 1, 2014, which are required to comply with 71 Pa.C.S.
5508. The recertification shall occur within 15 days of the
effective date of this section and shall supersede the prior
certification.
Section 713. Notwithstanding any other provision of law,
fiduciary requirement, actuarial standard of practice or other
requirement, the members of the State Employees' Retirement
Board, the actuary and other employees and officials of the
State Employees' Retirement System may not be held liable or in
breach or violation of a law or standard as individuals, in
their official capacity or as a governmental or corporate
entity, for an action or calculation related to calculating and
certifying a final contribution rate as provided under this act
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that is different from the actuarially required contribution

rate as appropriately calculated under 71 Pa.c.s. Pt. XXV.
ARTICLE IX
EFFECTIVE DATE
Section 901. This act shall take effect immediately.
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H1353B2152A09253
BIL:AJC 07/24/14
#90
A09253
AMENDMENTS TO HOUSE BILL NO. 1353 (As amended by A07223)

Sponsor:
Printer's No. 2152
1
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Amend Bill, page 22, lines 5 through 7 (A07223), by striking

out "contingent on the" in line 5 and all of lines 6 and 7
2014/90BIL/HB1353A09253
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PERC Actuarial Note July 2014

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COMMONWEALTH OF PENNSYLVANIA

July 30, 2014

PUBLIC EMPLOYEE RETIREMENT COMMISSION

Amendment Numbers 07223 and 09253 to

Public School Employees Retirement System and

Cash Balance Plan for New and Returning Members

Actuarial Note Transmittal

Actuarial Note Transmittal

Actuarial Note Transmittal

Actuarial Note Transmittal

service. Under the State Employees Retirement Code, superannuation or normal

Actuarial Note Transmittal

Actuarial Note Transmittal

Mandatory Membership: Membership in Class T-G and Class QB would be

Optional Membership: Current school or State employees who are members of

Actuarial Note Transmittal

Service Credit Purchase: Class T-G and Class QB members would be

Actuarial Note Transmittal

benefits, multiple service membership is irrelevant to the cash balance

Retirement Benefit Entitlement: Upon termination of service, any Class T-G or

Actuarial Note Transmittal

Pension Obligation Bonds: As provided in Section 8502(r) and Section 5902(r)

Actuarial Note Transmittal

study is accessible at http://crr.bc.edu/wp-content/uploads/2014/07/slp_40_508rev.pdf. Since this is

Actuarial Note Transmittal

Actuarial Note Transmittal

SUMMARY OF ACTUARIAL COST IMPACT

Actuarial Note Transmittal

SUMMARY OF ACTUARIAL COST IMPACT

Actuarial Note Transmittal

SUMMARY OF ACTUARIAL COST IMPACT

Cash Balance/Funding Reform

Actuarial Note Transmittal

SUMMARY OF ACTUARIAL COST IMPACT

Cash Balance/Funding Reform

Actuarial Note Transmittal

SUMMARY OF ACTUARIAL COST IMPACT

Cash Balance/Funding Reform

Actuarial Note Transmittal

SUMMARY OF ACTUARIAL COST IMPACT

Cash Balance/Funding Reform

Actuarial Note Transmittal

SUMMARY OF ACTUARIAL COST IMPACT

Cash Balance/Funding Reform

Actuarial Note Transmittal

SUMMARY OF ACTUARIAL COST IMPACT

Cash Balance/Funding Reform

Actuarial Note Transmittal

SUMMARY OF ACTUARIAL COST IMPACT

Cash Balance/Funding Reform

Actuarial Note Transmittal

SUMMARY OF ACTUARIAL COST IMPACT

Cash Balance/Funding Reform

Actuarial Note Transmittal

Actuarial Note Transmittal

Actuarial Note Transmittal

Actuarial Note Transmittal

July 28, 2014

Mr. James L. McAneny

Mr. James L. McAneny

Mr. James L. McAneny

Mr. James L. McAneny

Summary of the Cash Balance Retirement Plan

Mr. James L. McAneny