Pennsylvania § 5501.1 - Shared-risk member contributions and shared-gain adjustments to regular member contributions.

§ 5501.1. Shared-risk member contributions and shared-gain adjustments to regular member contributions.

(a) General.--Shared-risk member contributions shall be made to the fund on behalf of each member of Class A-3, Class A-4, Class A-5 or Class A-6 for current service credited in each such class of service as provided under this section, except for any period of current service in which the making of the contributions has ceased solely by reason of any provision of this part relating to the limitations under IRC § 401(a)(17) or 415. Shared-risk member contributions shall be credited to the members' savings account. A shared-gain adjustment to regular member contributions for Class A-3, Class A-4, Class A-5 and Class A-6 shall be made as provided under this section.

(a.1) Exception for certain members who elected under section 5306.5.--Notwithstanding subsection (a), shared-risk member contributions and shared-gain adjustments to regular member contributions for Class A-5 and Class A-6 service shall not be made for any member who elected Class A-5 or Class A-6 membership under section 5306.5 (relating to election by active members to become a Class A-5 member, Class A-6 member or plan participant) who were members of a class of service other than Class A-3 or Class A-4 before making the election.

(b) Determination of shared-risk contribution rate for Class A-3 and Class A-4 service.--The shared-risk contribution for Class A-3 and Class A-4 service shall be determined as follows:

(1) For the period from the effective date of this section until June 30, 2014, the shared-risk contribution rate for Class A-3 and Class A-4 shall be zero.

(2) For the period from July 1, 2014, to June 30, 2017, if the annual interest rate adopted by the board for use during the period from January 1, 2011, to December 31, 2013, for the calculation of the normal contribution rate is more than 1% greater than the actual rate of return, net of fees, of the investments of the fund based on market value over the period, the shared-risk contribution rate shall be .5%. In all other situations, the shared-risk contribution rate shall be zero.

(3) For each subsequent three-year period, if the shared-gain adjustment to regular member contributions is zero, the shared-risk contribution rate shall be increased by .5% if the annual interest rate adopted by the board for use during the previous ten-year period for the calculation of the normal contribution rate is more than 1% greater than the actual rate of return, net of fees, of the investments of the fund based on market value over the period. The shared-risk contribution rate shall be decreased by .5% if the annual interest rate adopted by the board for use during the previous ten-year period for the calculation of the normal contribution rate is equal to or less than the actual rate of return, net of fees, of the investments of the fund based on market value over that period.

(4) Notwithstanding paragraphs (2) and (3), the shared-risk contribution rate shall not be less than zero and shall not be more than the experience adjustment factor resulting from investment gains or losses during the determination period in effect on the first day when the new rate would be applied, determined without regard to any setoff the Commonwealth or any eligible employer receives for advance payment of accrued liability contributions under section 5507(h) (relating to contributions to the system by the Commonwealth and other employers), and expressed as a percentage of member compensation, and shall not be more than 2%. For the determination of the shared-risk contribution rate to be effective July 1, 2017, the determination period shall be January 1, 2011, through December 31, 2016. For the determination of the shared-risk contribution rate to be effective July 1, 2020, the determination period shall be January 1, 2011, through December 31, 2019.

(5) The shared-risk contribution rate and the factors entering into its calculation shall be certified by the actuary as part of the annual valuations and the actuarial investigation and evaluation of the system conducted every five years under section 5902(j) (relating to administrative duties of the board).

(6) In the event that the annual interest rate adopted by the board for the calculation is changed during the period used to determine the shared-risk contribution rate, the board, with the advice of the actuary, shall determine the applicable rate during the entire period, expressed as an annual rate.

(7) For any fiscal year in which the actual contributions, plus any annual setoff for that fiscal year resulting from advance payment of accrued liability contributions under section 5507(h), by the Commonwealth or an employer are lower than the actuarially required contributions, the prospective shared-risk contribution rate for those employees whose employers are not making the actuarially required contributions shall be zero and shall not subsequently be increased, except as otherwise provided in this section. For purposes of this paragraph, the actuarially required contribution shall be no less than the normal cost plus the cost to fully amortize the unfunded actuarial accrued liability calculated using actuarial methods and assumptions that are consistent with generally accepted actuarial standards and generally accepted accounting principles, including professional actuarial standards of practice.

(8) If the actuary certifies that the accrued liability contributions calculated in accordance with the actuarial cost method provided in section 5508(b) (relating to actuarial cost method) and without regard to any setoff the Commonwealth or any eligible employer receives for advance payment of accrued liability contributions under section 5507(h), as adjusted by the experience adjustment factor, are zero or less, then the shared-risk contribution rate for the next fiscal year shall be zero and shall not subsequently be increased, except as otherwise provided in this section.

(9) The shared-risk contribution rate for Class A-5 or Class A-6 service performed by State employees who were members of Class A-3 or Class A-4 and who elected to be members of Class A-5 or Class A-6 under section 5306.5 shall be determined under this subsection and not subsection (e).

(c) Determination of shared-gain adjustment to regular member contributions for Class A-3 and Class A-4 service.--The regular member contributions for Class A-3 and Class A-4 service shall be determined as follows:

(1) For the period from the effective date of this section until June 30, 2017, the regular member contributions for Class A-3 and Class A-4 service shall be determined as otherwise provided in this part.

(2) For the period from July 1, 2017, to June 30, 2020, if the shared-risk contribution rate for Class A-3 and Class A-4 service is zero and the annual interest rate adopted by the board for use during the period from January 1, 2011, to December 31, 2016, for the calculation of the normal contribution rate is more than 1% lower than the actual rate of return, net of fees, of the investments of the fund based on market value over the period, then the regular member contribution rate of each member for Class A-3 and Class A-4 service shall be reduced by .5%. In all other situations, the regular member contributions shall be determined as otherwise provided in this part.

(3) For each subsequent three-year period, if the shared-risk contribution rate for Class A-3 and Class A-4 is zero, the regular member contribution rate shall be decreased by .5% if the annual interest rate adopted by the board for use during the previous ten-year period for the calculation of the normal contribution rate is more than 1% lower than the actual rate of return, net of fees, of the investments of the fund based on market value over the period. The regular member contribution rate shall be increased by .5% if the annual interest rate adopted by the board for use during the previous ten-year period for the calculation of the normal contribution rate is equal to or greater than the actual rate of return, net of fees, of the investments of the fund based on market value over that period.

(4) Notwithstanding paragraphs (2) and (3), the regular member contribution rate may not be greater than the product of the basic contribution rate and the class of service multiplier; and the amount of the adjustment to a lower regular member contribution rate may not be greater than the reduction in the actuarially required contribution rate by the experience adjustment factor resulting from investment gains or losses during the determination period in effect on the first day when the new rate would be applied, determined without regard to any setoff the Commonwealth or any eligible employer receives for advance payment of accrued liability contributions under section 5507(h), and expressed as a percentage of member compensation. In no event may the adjustment to the regular member contribution rate be more than 2%. For the determination of the regular member contribution rate to be effective July 1, 2020, the determination period shall be January 1, 2011, through December 31, 2019.

(5) The shared-gain adjustment to the regular member contribution rate and the factors entering into its calculation shall be certified by the actuary as part of the annual valuations and the actuarial investigation and evaluation of the system conducted every five years under section 5902(j).

(6) If the annual interest rate adopted by the board for the calculation is changed during the period used to determine the shared-gain adjustment to the regular member contribution rate, the board, with the advice of the actuary, shall determine the applicable rate during the entire period, expressed as an annual rate.

(7) The shared-gain adjustment to the regular member contribution rate for Class A-5 or Class A-6 service performed by State employees who were members of Class A-3 or Class A-4 and who elected to be members of Class A-5 or Class A-6 under section 5306.5 shall be determined under this subsection and not subsection (f).

(d) Calculation of regular member contribution rate.--For purposes of this section, the regular member contribution rate for each member is the product of the basic contribution rate and the class of service multiplier used to determine the regular member contributions for each member.

(e) Determination of shared-risk contribution rate for Class A-5 and Class A-6 service.--The shared-risk contribution for Class A-5 or Class A-6 service shall be determined as follows:

(1) For the period from the effective date of this section until June 30, 2023, the shared-risk contribution rate shall be zero.

(2) For the period from July 1, 2023, to June 30, 2026, if the annual interest rate adopted by the board for use during the period from January 1, 2020, to December 31, 2022, for the calculation of the normal contribution rate is more than 1% greater than the actual rate of return, net of fees, of the investments of the fund based on market value over the period, the shared-risk contribution rate shall be 0.75%. In all other situations, the shared-risk contribution rate shall be zero.

(3) For each subsequent three-year period, if the shared-gain adjustment to regular member contributions is zero, the shared-risk contribution rate shall be increased by .75% if the annual interest rate adopted by the board for use during the previous ten-year period for the calculation of the normal contribution rate is more than 1% greater than the actual rate of return, net of fees, of the investments of the fund based on market value over the period. The shared-risk contribution rate shall be decreased by .75% if the annual interest rate adopted by the board for use during the previous ten-year period for the calculation of the normal contribution rate is equal to or less than the actual rate of return, net of fees, of the investments of the fund based on market value over that period.

(4) Notwithstanding paragraphs (2) and (3), the shared-risk contribution rate may not be less than zero and may not be more than the experience adjustment factor resulting from investment gains or losses during the determination period in effect on the first day when the new rate would be applied, determined without regard to any setoff the Commonwealth or any eligible employer receives for advance payment of accrued liability contributions under section 5507(h), and expressed as a percentage of member compensation, and shall not be more than 3%. For the determination of the shared-risk contribution rate to be effective July 1, 2026, the determination period shall be January 1, 2020, through December 31, 2025. For the determination of the shared-risk contribution rate to be effective July 1, 2029, the determination period shall be January 1, 2020, through December 31, 2028.

(5) The shared-risk contribution rate and the factors entering into its calculation shall be certified by the actuary as part of the annual valuations and the actuarial investigation and evaluation of the system conducted every five years under section 5902(j).

(6) In the event that the annual interest rate adopted by the board for the calculation is changed during the period used to determine the shared-risk contribution rate, the board, with the advice of the actuary, shall determine the applicable rate during the entire period, expressed as an annual rate.

(7) For any fiscal year in which the actual contributions, plus any annual setoff for that fiscal year resulting from advance payment of accrued liability contributions under section 5507(h), by the Commonwealth or an employer are lower than the actuarially required contributions, the prospective shared-risk contribution rate for those employees whose employers are not making the actuarially required contributions shall be zero and shall not subsequently be increased, except as otherwise provided in this section. For purposes of this paragraph, the actuarially required contribution shall be no less than the normal cost plus the cost to fully amortize the unfunded actuarial accrued liability calculated using actuarial methods and assumptions that are consistent with generally accepted actuarial standards and generally accepted accounting principles, including professional actuarial standards of practice.

(8) If the actuary certifies that the accrued liability contributions calculated in accordance with the actuarial cost method provided in section 5508(b) and without regard to any setoff the Commonwealth or any eligible employer receives for advance payment of accrued liability contributions under section 5507(h), as adjusted by the experience adjustment factor, are zero or less, then the shared-risk contribution rate for the next fiscal year shall be zero and shall not subsequently be increased, except as otherwise provided in this section.

(9) The shared-risk contribution rate for Class A-5 or Class A-6 service performed by State employees who were members of Class A-3 or Class A-4 and who elected to be members of Class A-5 or Class A-6 under section 5306.5 shall be determined under subsection (b) and not this subsection.

(f) Determination of shared-gain adjustment to regular member contributions for Class A-5 or Class A-6 service.--The regular member contributions for Class A-5 or Class A-6 service shall be determined as follows:

(1) For the period from the effective date of this section until June 30, 2023, the regular member contributions shall be determined as otherwise provided in this part.

(2) For the period from July 1, 2023, to June 30, 2026, if the annual interest rate adopted by the board for use during the period from January 1, 2020, to December 31, 2022, for the calculation of the normal contribution rate is more than 1% lower than the actual rate of return, net of fees, of the investments of the fund based on market value over the period, then the regular member contribution rate of each member for Class A-5 and Class A-6 service shall be reduced by .75%. In all other situations, the regular member contributions shall be determined as otherwise provided in this part.

(3) For each subsequent three-year period, if the shared-risk contribution rate for Class A-5 and Class A-6 service is zero, the regular member contribution rate shall be decreased by .75% if the annual interest rate adopted by the board for use during the previous ten-year period for the calculation of the normal contribution rate is more than 1% lower than the actual rate of return, net of fees, of the investments of the fund based on market value over the period. The regular member contribution rate shall be increased by .75% if the annual interest rate adopted by the board for use during the previous ten-year period for the calculation of the normal contribution rate is equal to or greater than the actual rate of return, net of fees, of the investments of the fund based on market value over that period.

(4) Notwithstanding paragraphs (2) and (3), the regular member contribution rate may not be greater than the product of the basic contribution rate and the class of service multiplier; and the amount of the adjustment to a lower regular member contribution rate may not be greater than the reduction in the actuarially required contribution rate by the experience adjustment factor resulting from investment gains or losses during the determination period in effect on the first day when the new rate would be applied, determined without regard to any setoff the Commonwealth or any eligible employer receives for advance payment of accrued liability contributions under section 5507(h), expressed as a percentage of member compensation. In no event may the adjustment to the regular member contribution rate be more than 3%. For the determination of the regular member contribution rate to be effective July 1, 2026, the determination period shall be January 1, 2020, through December 31, 2025. For the determination of the regular member contribution rate to be effective July 1, 2029, the determination period shall be January 1, 2020, through December 31, 2028.

(5) The shared-gain adjustment to the regular member contribution rate and the factors entering into its calculation must be certified by the actuary as part of the annual valuations and the actuarial investigation and evaluation of the system conducted every five years under section 5902(j).

(6) If the annual interest rate adopted by the board for the calculation is changed during the period used to determine the shared-gain adjustment to the regular member contribution rate, the board, with the advice of the actuary, shall determine the applicable rate during the entire period, expressed as an annual rate.

(7) The shared-gain adjustment to the regular member contribution rate for Class A-5 or Class A-6 service performed by State employees who were members of Class A-3 or Class A-4 and who elected to be members of Class A-5 or Class A-6 under section 5306.5 shall be determined under subsection (c) and not this subsection.

(Nov. 23, 2010, P.L.1269, No.120, eff. imd.; June 12, 2017, P.L.11, No.5, eff. imd.; Nov. 27, 2019, P.L.723, No.105, eff. imd.)

2019 Amendment. Act 105 amended subsecs. (b)(4), (7) and (8), (c)(4), (e)(4), (7) and (8) and (f)(4). See section 9 of Act 105 in the appendix to this title for special provisions relating to applicability.

Cross References. Section 5501.1 is referred to in sections 5102, 5302, 5303, 5503.1, 5505, 5933, 5957 of this title.