Section 895.404 - Municipalities issuing bonds or notes for pension plan funding(a)Application.--This section applies to the following:(1) a municipality that has issued bonds or notes to fund an unfunded actuarial accrued liability under the act of July 12, 1972 (P.L. 781, No. 185), known as the Local Government Unit Debt Act, or under other laws applicable to the municipality; or(2) a municipality that has entered into an alternative funding mechanism.(b)Additions to actuarial valuation report.--For the duration of the aggregated amortization period established under paragraph (1), the actuarial valuation report prepared under sections 201 and 202 shall, in addition to the exhibits required by section 202, include:(1) an exhibit stating the amount and date of each contribution to the pension plan comprised of the proceeds of bonds and notes or an alternative funding mechanism and disclosing the initial and remaining aggregated amortization periods for each contribution calculated as of the date of the initial actuarial valuation report filed after the contribution using the total unfunded actuarial accrued liability of the pension plan and the aggregated additional funding requirements, as determined under paragraph (2);(2) an exhibit prepared in conformance with section 202(b)(3) and (4), except that the actuarial value of assets shall be computed as the actuarial value of assets that would have existed had the proceeds of bonds and notes or an alternative funding mechanism not been contributed to the pension fund; and(3) for each series of bonds or notes issued to fund an unfunded actuarial accrued liability and for each series of bonds or notes issued to refund such bonds or notes, an exhibit of the debt and debt service requirements that shall disclose the original principal amount of the bonds or notes issued, the date and amount of each required principal and interest payment, the amortization of premium or discount, if applicable, and the remaining amount of bond or note principal upon application of each payment, and for each use of an alternative funding mechanism an exhibit of payment requirements of the alternative funding mechanism that shall disclose the original principal amount, the date and amount of each required payment and the remaining amount of the principal upon application of each payment.(c)Determination of general municipal pension system State aid and supplemental State assistance.--Solely for the purposes of determining the amount of general municipal pension system State aid allocable to such a municipality under section 402 and the amount of supplemental State assistance allocable to such municipality under sections 607(j) and 608, the actual financial requirements certified for the pension plan for each plan year shall be determined based upon the exhibits prepared under subsection (b) so that the amount of general municipal pension system State aid and supplemental State assistance to the municipality shall not be reduced or increased as a result of any contributions to the pension plan comprised of the proceeds of bonds and notes for which the remaining aggregated amortization period, as disclosed in the exhibit required in subsection (b), is one or more years. In making these determinations, the commission may adjust the data used to calculate the actuarial indicators or municipal finance indicators, or both, defined in Chapter 5 to insure that the amount of supplemental State assistance to the municipality shall not be reduced or increased as a result of any debt issued or alternative funding mechanism used to fund an unfunded actuarial accrued liability and the debt service on that debt or the payment requirements of an alternative funding mechanism.(d)Application of general municipal pension system State aid and supplemental State assistance.--In addition to the expenditures authorized in section 402(g), general municipal pension system State aid or supplemental State assistance, or both, may be used by a municipality to pay debt service on bonds or notes, or both, issued to fund an unfunded actuarial accrued liability or to meet its payment requirements under an alternative funding mechanism.(e)Pledge of general municipal pension system State aid and supplemental State assistance authorized.--A municipality may pledge to the holders of its bonds or notes issued to fund an unfunded actuarial accrued liability or to a trustee or paying agent acting on behalf of the holders, as security for the payment of the bonds or notes, all of the municipality's right, title and interest in and to any general municipal pension system State aid or supplemental State assistance that the municipality is entitled to receive under this act. A municipality using an alternative funding mechanism may pledge to the authority or a board of pensions and retirement, to the holders of bonds or notes issued by the authority or to a trustee or paying agent acting on behalf of the holders, as security for the payment of the payment requirements of the municipality under an alternative funding mechanism, all of the municipality's right, title and interest in and to any general municipal pension system State aid or supplemental State assistance that the municipality is entitled to receive under this act. The pledge shall be valid and binding from the time the pledge is made, and the lien of the pledge is valid and binding as against all persons having claims of any kind in tort, contract or otherwise against the municipality, whether or not the persons have notice. Except as provided in the Local Government Unit Debt Act, neither the proceedings of the municipality relating to the bonds or notes nor any other instrument by which a pledge is made nor any financing statement in respect thereof need be recorded or filed.(f)Withholding remedy provided.--If, in accordance with subsection (e), a municipality has pledged, as security for its bonds or notes issued to fund an unfunded actuarial accrued liability, or as security for the performance of its obligations under an alternative funding mechanism, its right, title and interest in and to any general municipal pension system State aid or supplemental State assistance that the municipality is entitled to receive under this act and it fails to pay or provide for payment of debt service on the bonds or notes in accordance with the terms thereof, or fails to perform its payment obligations under an alternative funding mechanism, the trustee or paying agent for the bonds or notes, or, in the case of an alternative funding mechanism, the authority, the board of pensions and retirement, or any person either entity authorizes to act on its behalf, may certify in writing to the State Treasurer that a pledge has been made and that a failure to pay has occurred, and, upon receipt of the certification, the State Treasurer shall: (1) notify the municipality of the withholding provisions of this section;(2) withhold, out of any general municipal pension system State aid or supplemental State assistance payable to the municipality, an amount equal to the unpaid debt service or an amount equal to the unpaid payment requirements under an alternative funding mechanism; and(3) notify the Auditor General of these actions and request the Auditor General to issue a warrant for payment of the amount withheld to the trustee or paying agent in the case of bonds or notes, or to the authority, the board of pensions and retirement, or any person either entity authorizes to act on its behalf, in the case of an alternative funding mechanism. Upon receipt of a notice from the State Treasurer, the Auditor General shall issue a warrant to the State Treasurer for payment to the trustee or paying agent in the case of bonds or notes, or to the authority, the board of pensions and retirement or any person either entity authorizes to act on its behalf in the case of an alternative funding mechanism, and the State Treasurer immediately shall pay over the amount so withheld to the trustee or paying agent in the case of bonds or notes, or to the authority, the board of pensions and retirement or any person either entity authorizes to act on its behalf, in the case of an alternative funding mechanism. In the case of bonds or notes, the trustee or paying agent shall apply the amount to the debt service due from the municipality. In the case of an alternative funding mechanism, the authority, the board of pensions and retirement or any person either entity authorizes to act on its behalf shall apply the amount to unpaid obligations of the municipality under the alternative funding mechanism.
(g)State Treasurer authorized to enter into certain agreements.--The State Treasurer is authorized to enter into an agreement with a municipality that has issued its bonds or notes to fund an unfunded actuarial accrued liability providing for the payment directly to the trustee or paying agent for the bonds or notes of any general municipal pension system State aid or supplemental State assistance that the municipality is entitled to receive under this act, regardless of whether the municipality has failed to pay or provide for payment of debt service on the bonds or notes in accordance with the terms thereof. The State Treasurer is authorized to enter into an agreement with a municipality that has used an alternative funding mechanism providing for the payment directly to the authority, to the board of pensions and retirement, or to any person either entity authorizes to act on its behalf of the general municipal pension system State aid or supplemental State assistance that the municipality is entitled to receive under this act, regardless of whether the municipality has failed to pay or provide for payment of its obligations under an alternative funding mechanism.(h)Modification of the determination of minimum municipal obligations.--Any unpaid portion of the amortization contribution requirement component of the minimum municipal obligation determined under section 302 for any municipality that issues bonds or notes to fund an unfunded actuarial accrued liability, or that uses an alternative funding mechanism, shall be canceled until deposit of the proceeds of bonds, notes or an alternative funding mechanism can be reflected in the minimum municipal obligation adopted by the governing body of the municipality. Cancellation of the amortization contribution requirement component of a minimum municipal obligation under this subsection shall be in proportion to the reduction in the unfunded actuarial accrued liability of the pension fund, as determined in the last actuarial valuation report submitted to the commission under Chapter 2, that results from the deposit of the proceeds of bonds, notes or an alternative funding mechanism. (1) In the case of municipalities submitting annual actuarial valuation reports pursuant to section 201, the cancellation of the amortization contribution requirement component of the minimum municipal obligation shall be effective for the year following the valuation date of the first actuarial valuation report prepared under Chapter 2 reflecting the deposit of the proceeds of bonds, notes or an alternative funding mechanism. The cancellation of the amortization contribution requirement component of the minimum municipal obligation shall also be effective for the year preceding the valuation date of the first actuarial valuation report prepared under Chapter 2 reflecting the deposit of the proceeds of bonds, notes or an alternative funding mechanism if the effective date of the deposit of the proceeds of bonds, notes or an alternative funding mechanism is not January 1.(2) In the case of municipalities submitting biennial actuarial valuation reports pursuant to section 201, the cancellation of the amortization contribution requirement component of the minimum municipal obligation shall be effective as follows:(i) if the effective date of the deposit of the bond or note proceeds is January 1 of an odd-numbered year, the cancellation shall be effective for the year following the valuation date of the first actuarial valuation report prepared under Chapter 2 reflecting the deposit of the bond or note proceeds;(ii) if the effective date of the deposit of the bond or note proceeds is in an odd-numbered year but not on January 1, the cancellation shall be effective for the two years preceding and the year following the valuation date of the first actuarial valuation report prepared under Chapter 2 reflecting the deposit of the bond or note proceeds;(iii) if the effective date of the deposit of the bond or note proceeds is in an even-numbered year, the cancellation shall be effective for the year preceding and the year following the valuation date of the first actuarial valuation report prepared under Chapter 2 reflecting the deposit of the bond or note proceeds.(i)Deposit and use of proceeds of bonds, notes or an alternative funding mechanism.--The total net proceeds of bonds, notes or an alternative funding mechanism shall be deposited into the pension fund of the municipality within 30 days of receipt by the municipality or the effective date of this act, shall be treated as an amortization contribution for the purposes of reporting under Chapter 2 and shall not be used to pay any portion of the municipality's minimum municipal obligation determined under section 302. 1984, Dec. 18, P.L. 1005, No. 205, § 404, added 1994, Dec. 28, P.L. 1433, No. 168, § 1, imd. effective. Amended 1996, Dec. 10, P.L. 934, No. 150, § 1, imd. effective; 1998, June 18, P.L. 626, No. 82, § 2, imd. effective.