management of public employee pension funds act
TRANSCRIPT
D R A F T
FOR DISCUSSION ONLY
MANAGEMENT OF PUBLIC EMPLOYEE PENSION FUNDS ACT
____________________
NATIONAL CONFERENCE OF COMMISSIONERS
ON UNIFORM STATE LAWS
____________________
April 1, 1996, Draft
MANAGEMENT OF PUBLIC EMPLOYEEPENSION FUNDS ACT
Without Prefatory Note and Comments
COPYRIGHT 1996By
NATIONAL CONFERENCE OF COMMISSIONERSON UNIFORM STATE LAWS
_________________________________________________________________
The ideas and conclusions herein set forth, including drafts ofproposed legislation, have not been passed upon by the NationalConference of Commissioners on Uniform State Laws. They do notnecessarily reflect the views of the Committee, Reporters orCommissioners. Proposed statutory language, if any, may not beused to ascertain legislative meaning of any promulgated finallaw.
DRAFTING COMMITTEE ON MANAGEMENT OF PUBLIC EMPLOYEEPENSION FUNDS ACT
DWIGHT A. HAMILTON, Ste. 600, 1600 Broadway, Denver, CO 80202,ChairJERRY L. BASSETT, Legislative Reference Service, 613 AlabamaState House,
11 S. Union St., Montgomery, AL 36130THOMAS S. LINTON, 4323 Shorebrook Dr., Columbia, SC 29206RICHARD B. LONG, P.O. Box 2039, One Marine Midland Plaza,Binghamton, NY 13902EDWARD F. LOWRY, JR., Ste. 1120, 2901 N. Central Ave., Phoenix,AZ 85012DAVID T. PROSSER, JR., P.O. Box 8953, Rm. 211 W., State Capitol,Madison, WI 53708MILLARD H. RUUD, Univ. of Texas, School of Law, 727 E. 26th St.,Austin, TX 78705STEPHEN W. WILBORN, Ste. 403, 305 Ann St., Frankfort, KY 40601STEVEN L. WILLBORN, Univ. of Nebraska, College of Law, Lincoln,NE 68583, Reporter
EX OFFICIO
BION M. GREGORY, Office of Legislative Counsel, State Capitol,Suite 3021, Sacramento,
CA 95814-4996, PresidentJOHN H. LANGBEIN, Yale Law School, P.O. Box 208215, New Haven, CT06520,
Chair, Division D
EXECUTIVE DIRECTOR
FRED H. MILLER, University of Oklahoma, College of Law, 300Timberdell Road, Norman, OK 73019, Executive DirectorWILLIAM J. PIERCE, 1505 Roxbury Road, Ann Arbor, MI 48104,Executive Director Emeritus
Copies of this Act may be obtained from:
NATIONAL CONFERENCE OF COMMISSIONERS ON UNIFORM STATE LAWS676 North St. Clair Street, Suite 1700
Chicago, Illinois 60611312/915-0195
MANAGEMENT OF PUBLIC EMPLOYEE PENSION FUNDS ACT
TABLE OF CONTENTS
SECTION 1. DEFINITIONS . . . . . . . . . . . . . . . . . 1 SECTION 2. SCOPE . . . . . . . . . . . . . . . . . . . . 6 SECTION 3. ESTABLISHMENT OF TRUST . . . . . . . . . . . 7 SECTION 4. POWERS OF TRUSTEE . . . . . . . . . . . . . . 8 SECTION 5. DELEGATION OF FUNCTIONS . . . . . . . . . . . 9 SECTION 6. GENERAL DUTIES OF TRUSTEE AND FIDUCIARY . . . 10 SECTION 7. DUTIES OF TRUSTEE IN INVESTING AND MANAGING
ASSETS OF RETIREMENT SYSTEM . . . . . . . . . 11 SECTION 8. APPLICATION OF TRUSTEE AND FIDUCIARY DUTIES . 13 SECTION 9. LIABILITY OF TRUSTEE OR FIDUCIARY . . . . . . 14 SECTION 10. [OPEN OR PUBLIC] RECORDS AND MEETINGS . . . . 14 SECTION 11. DISCLOSURE TO PUBLIC . . . . . . . . . . . . 15 SECTION 12. DISCLOSURE TO PARTICIPANTS AND
BENEFICIARIES . . . . . . . . . . . . . . . . 17 SECTION 13. REPORTS TO [AGENCY] . . . . . . . . . . . . . 18 SECTION 14. SUMMARY PLAN DESCRIPTION . . . . . . . . . . 19 SECTION 15. ANNUAL DISCLOSURE OF FINANCIAL AND
ACTUARIAL STATUS . . . . . . . . . . . . . . 20 SECTION 16. FINANCIAL STATEMENT . . . . . . . . . . . . . 21 SECTION 17. OPINION ON THE FINANCIAL STATEMENT . . . . . 23 SECTION 18. ACTUARIAL STATEMENT FOR DEFINED BENEFIT
PLANS . . . . . . . . . . . . . . . . . . . . 24 SECTION 19. OPINION ON ACTUARIAL STATEMENT FOR
DEFINED BENEFIT PLANS . . . . . . . . . . . . 26 SECTION 20. STATEMENT ON GUARANTEED BENEFITS . . . . . . 27 SECTION 21. ENFORCEMENT . . . . . . . . . . . . . . . . . 28 SECTION 22. ANTI-ALIENATION . . . . . . . . . . . . . . . 29 [SECTION 23. PURCHASE OF SERVICE CREDIT] . . . . . . . . . 29 SECTION 24. UNIFORMITY OF APPLICATION AND CONSTRUCTION . 34 SECTION 25. SHORT TITLE . . . . . . . . . . . . . . . . . 34 SECTION 26. SEVERABILITY . . . . . . . . . . . . . . . . 34 SECTION 27. EFFECTIVE DATE . . . . . . . . . . . . . . . 34 SECTION 28. REPEALS . . . . . . . . . . . . . . . . . . . 34 SECTION 29. SAVINGS AND TRANSITIONAL PROVISIONS . . . . . 35
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MANAGEMENT OF PUBLIC EMPLOYEE PENSION FUNDS ACT (19__)
SECTION 1. DEFINITIONS. In this [Act]:
(1) "Acceptable actuarial cost method" means a recognized
actuarial method used to determine the present value of the
benefits and expenses of a retirement program and to develop an
allocation of the value to time periods. The term includes the
aggregate, attained age, entry age normal, frozen attained age,
frozen entry age, and unit credit actuarial cost methods. The
term does not include the terminal funding or current funding
cost method.
(2) "Actuarial accrued liability" means that portion of
the present value of the benefits and expenses of a retirement
program which is not provided for by the annual cost of future
retirement program benefits and expenses assigned to years
following the date of the actuarial valuation as determined by an
acceptable actuarial cost method or, for retirement systems using
the aggregate actuarial cost method, as determined by an
actuarial cost method other than the aggregate actuarial cost
method that, in the actuary's opinion, will provide an accurate
report of the program's actuarial status.
(3) "Actuarial value of system assets" means the fair
value of the assets of a retirement system adjusted, as necessary
and appropriate, to diminish the effects of short-term
volatility.
(4) "Administrator" means an individual primarily
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responsible for the operation and administration of a retirement
system or, if an individual is not clearly designated, the
trustee of the system who has the ultimate authority to operate
and administer the program.
(5) "Agent group of programs" means a group of retirement
programs that shares administrative and investment functions, but
that maintains separate accounts for each retirement program so
that assets accumulated for a program may legally provide
benefits only for that program's participants and beneficiaries.
(6) "Annual compensation" means the portion of an
employee's total earnings from a public employer during a fiscal
year on which contributions to a retirement program are based, as
determined by the retirement system.
(7) "Appropriate group of programs" means:
(i) for defined benefit plans, a cost-sharing group of
programs or an agent group of programs; and
(ii) for defined contribution plans, a group of
retirement programs that shares administrative and investment
functions.
(8) "Beneficiary" means a person designated by a
participant or by a retirement program to receive a benefit under
a program. The term does not include a participant.
(9) "Code" means the Internal Revenue Code of 1986, as
amended.
(10) "Cost-sharing group of programs" means a group of
retirement programs in which all assets accumulated for the
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payment of benefits may legally be used to pay benefits to
participants and beneficiaries of any program in the group.
(11) "Defined benefit plan" means a retirement program
other than a defined contribution plan.
(12) "Defined contribution plan" means a retirement
program that provides for an individual account for each
participant and for benefits based solely upon the amount
contributed to the participant's account, and any income,
expenses, gains, and losses, and any forfeitures of accounts of
other participants which may be allocated to the participant's
account.
(13) "Employee" means an employee or officer of a public
employer.
(14) "Fair value" means the amount that a willing buyer
would pay a willing seller for an asset in a current sale, as
determined in good faith by a fiduciary.
(15) "Fiduciary" means a person who exercises any
discretionary authority to manage the operation and
administration of a retirement system or any authority to invest
or manage assets of the system, or who renders investment advice
for a fee or other compensation, direct or indirect, with respect
to assets of the system, or has any authority or responsibility
to do so.
(16) "Furnish" means to deliver personally, to mail to the
last known place of employment or home address of the intended
recipient or, if reasonable grounds exist to believe that the
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public employer will make a good faith effort to deliver
personally or by mail, to provide to the intended recipient's
employer.
(17) "Governing law" means state and local laws
establishing or authorizing the creation of a retirement program
or system and the principal state and local laws and regulations
governing the operation, administration, or management of the
assets of a program or system.
(18) "Nonforfeitable" means an immediate or deferred
benefit that arises from a participant's service, is
unconditional, and is legally enforceable against the retirement
system.
(19) "Participant" means an individual who is or has been
an employee enrolled in a retirement program and who is or may
become eligible to receive a benefit under the program, or whose
beneficiaries are or may become eligible to receive a benefit,
but the term does not include an individual who is no longer an
employee of an employer and has not accrued any nonforfeitable
benefits under that employer's retirement program.
(20) "Present value", with respect to a liability, means
the value actuarially adjusted to reflect anticipated events.
(21) "Public employer" means this State or any political
subdivision, or any agency or instrumentality of this State or
any political subdivision, whose employees are participants in a
retirement program.
(22) "Qualified public accountant" means:
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(i) an audit agency of this State or of a political
subdivision of this State which has no direct relationship with
the functions or activities of the retirement system or its
fiduciaries other than functions relating to this [Act]; or
(ii) a person who is a certified public accountant,
certified or licensed by a regulatory authority of a State.
(23) "Related person" means:
(i) a spouse, or parent or sibling of a spouse;
(ii) a child, grandchild, sibling, parent, or spouse
of a child, grandchild, sibling, or parent;
(iii) an individual having the same home;
(iv) a trust or estate of which an individual
described in subparagraph (i) through (iii) is a substantial
beneficiary; or
(v) a trust, estate, incompetent, ward, or minor of
which the person of interest is a fiduciary.
(24) "Retirement program" means a program of rights and
obligations established or maintained for its employees by a
public employer to the extent that by its express terms or as a
result of surrounding circumstances the program, regardless of
the method of calculating the contributions made to the program
or the benefits under the program, or the method of distributing
benefits from the program:
(i) provides retirement income to employees, or
(ii) results in a deferral of income by employees
for periods extending to the termination of covered employment or
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beyond.
(25) "Retirement system" means an entity established or
maintained to operate or administer one or more retirement
programs or to invest or manage the assets of one or more
programs. [May list state retirement systems and statutes
authorizing the formation of systems.]
(26) "Trustee" means one or more persons who have the
ultimate authority to manage the operation and administration of
a retirement system or to invest or manage assets of the system.
SECTION 2. SCOPE. This [Act] applies to all retirement
programs and systems established or maintained on behalf of the
employees of public employers, except:
(1) a retirement program that is unfunded and is
maintained by an employer solely for the purpose of providing
deferred compensation for a select group of management employees
or employees who rank in the top five percent of employees of
that employer based on compensation;
(2) a severance pay arrangement pursuant to which (i)
payments are made solely on account of the termination of an
employee's service and are not contingent, directly or
indirectly, upon the employee's retiring; (ii) the total amount
of the payments does not exceed the equivalent of twice the
employee's total earnings from the employer during the year
immediately preceding the termination of service; and (iii) all
payments are completed within 24 months after the termination of
service;
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(3) a supplemental retirement income arrangement
pursuant to which (i) payments are made solely to supplement the
benefits of retired participants or their beneficiaries to
account for some portion or all of the increases in the cost of
living since retirement; (ii) the employer is not obligated to
make the payments pursuant to the retirement program providing
the basic benefits; and (iii) payments are made out of the
general revenues of the employer, out of a separate trust fund
established and maintained solely for that purpose, or out of a
special appropriation received by the employer for that purpose;
(4) an arrangement or payment made on behalf of an
employee because the employee is covered by Title II of the
Social Security Act (42 U.S.C. Sections 401 et seq.);
(5) an individual retirement account or individual
retirement annuity within the meaning of Section 408 of the Code;
(6) a retirement program consisting solely of annuity
contracts or custodial accounts satisfying the requirements of
Section 403(b) of the Code;
(7) an eligible deferred compensation plan satisfying
the requirements of Section 457 of the Code; or
(8) a program maintained solely for the purpose of
complying with applicable workers' compensation laws or
disability insurance laws.
SECTION 3. ESTABLISHMENT OF TRUST.
(a) Subject to subsections (b) through (d), all assets of
a retirement system must be held in trust. The trustee has
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exclusive authority, consistent with its duties under this [Act],
to invest and manage the assets of the system so held in trust.
(b) Retirement system assets consisting of insurance
contracts or policies issued by an insurer, assets of an insurer,
and assets of the system held by an insurer need not be held in
trust.
(c) If an insurer issues a guaranteed benefit policy to a
retirement system, assets of the system include the policy, but
not assets of the insurer.
(d) If a retirement system invests in a security issued by
an investment company registered under the Investment Company Act
of 1940 (15 U.S.C. Sections 80a-1 et seq.), the assets of the
system include the security, but not assets of the investment
company.
(e) In this section:
(1) "insurer" means an insurance company, insurance
service, or insurance organization qualified to do business in
this State.
(2) "guaranteed benefit policy" means an insurance
policy or contract to the extent the policy or contract provides
for benefits in a guaranteed amount. The term includes any
surplus in a separate account, but excludes any other portion of
a separate account.
SECTION 4. POWERS OF TRUSTEE.
(a) In addition to other powers provided by the governing
law, a trustee has exclusive authority, consistent with its
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duties under this [Act]:
(1) to establish an administrative budget sufficient to
fulfill its duties and, if necessary, to draw upon assets of the
retirement system to fund the budget;
(2) to obtain by [employment or] contract the services
necessary to exercise its powers and fulfill its duties,
including actuarial, auditing, custodial, investment, and legal
services; and
(3) to procure and dispose of the goods and property
necessary to exercise its powers and fulfill its duties.
(b) In exercising its exclusive authority under this
section, a trustee is subject to the fiduciary duties of this
[Act], but not to [civil service, personnel,] procurement, or
similar general laws of this State relating to the subjects of
subsections (a)(1) through (3). No part of this section shall be
deemed to be impliedly repealed by subsequent legislation on
general laws relating to these subjects if such construction can
reasonably be avoided.
SECTION 5. DELEGATION OF FUNCTIONS.
(a) A trustee or administrator may delegate functions that
a prudent trustee or administrator acting in a like capacity and
familiar with such matters could properly delegate under the
circumstances. The trustee or administrator shall exercise
reasonable care, skill, and caution in:
(1) selecting an agent;
(2) establishing the scope and terms of the delegation,
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consistent with the purposes and terms of the retirement program;
and
(3) periodically reviewing the agent's actions in order
to monitor the agent's performance and compliance with the terms
of the delegation.
(b) In performing a delegated function, an agent owes a
duty to the retirement system and to its participants and
beneficiaries to comply with the terms of the delegation and, if
a fiduciary, to comply with the duties imposed by Section 6.
(c) A trustee or administrator who complies with
subsection (a) is not liable to the retirement system or to its
participants or beneficiaries for the decisions or actions of the
agent to whom the function was delegated.
(d) By accepting the delegation of a function from the
trustee or administrator of a retirement system, an agent submits
to the jurisdiction of the courts of this State.
(e) A trustee may limit the authority of an administrator
to delegate functions under this section.
SECTION 6. GENERAL DUTIES OF TRUSTEE AND FIDUCIARY. Subject
to Section 8(c) and (d), each trustee and other fiduciary shall
discharge duties with respect to a retirement system:
(1) solely in the interest of the participants and
beneficiaries;
(2) for the exclusive purpose of providing benefits to
participants and beneficiaries and paying reasonable expenses of
administering the system;
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(3) with the care, skill, prudence, and diligence under
the circumstances then prevailing which a prudent person acting
in a like capacity and familiar with such matters would use in
the conduct of an activity of a like character and purpose;
(4) impartially, taking into account any differing
interests of participants and beneficiaries; and
(5) in accordance with the governing law of the retirement
program and system.
SECTION 7. DUTIES OF TRUSTEE IN INVESTING AND MANAGING ASSETS
OF RETIREMENT SYSTEM.
(a) Subject to Section 8(c) and (d), a trustee who invests
and manages assets of a retirement system shall comply with the
duties imposed by Section 6 and this section.
(b) In investing and managing assets of a retirement
system, a trustee shall consider among other circumstances:
(1) general economic conditions;
(2) the possible effect of inflation or deflation;
(3) the role that each investment or course of action
plays within the overall portfolio of the retirement program or
appropriate group of programs;
(4) the expected total return from income and the
appreciation of capital;
(5) needs for liquidity, regularity of income, and
preservation or appreciation of capital; and
(6) for defined benefit plans, the adequacy of funding
for the plan.
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(c) A trustee shall diversify the investments of each
retirement program or appropriate group of programs unless the
trustee reasonably determines that, because of special
circumstances, it is clearly prudent not to do so.
(d) A trustee shall adopt a statement of investment
objectives and policies for each retirement program or
appropriate group of programs. The statement must include the
desired rate of return on assets overall, the desired rates of
return and acceptable levels of risk for each asset class, asset
allocation goals, guidelines for the delegation of authority to
investment managers, and information on the types of reports to
be used to evaluate investment performance. At least once
annually, the trustee shall review the statement and either
change or reaffirm it.
(e) In investing and managing system assets, a trustee may
only incur costs that are appropriate and reasonable in relation
to the assets and the skills of the trustee.
(f) A trustee shall make a reasonable effort to verify
facts relevant to the investment and management of assets of a
retirement system.
(g) A trustee may invest in any kind of property or type
of investment consistent with the standards of this [Act].
(h) In investing and managing system assets, a trustee may
consider benefits created by an investment in addition to
investment return only if the trustee determines that the
investment providing the collateral benefits is expected to
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provide an investment return commensurate with available
alternative investments having similar risks.
SECTION 8. APPLICATION OF TRUSTEE AND FIDUCIARY DUTIES.
(a) Compliance by a trustee or other fiduciary with
Sections 5 through 7 must be determined in light of the facts and
circumstances existing at the time of the trustee or fiduciary's
decision or action and not by hindsight.
(b) A trustee's investment and management decisions must
be evaluated not in isolation but in the context of the trust
portfolio as a whole and as a part of an overall investment
strategy having risk and return objectives reasonably suited to
the program or appropriate group of programs.
(c) A trustee may return a contribution [with interest] to
a public employer or employee, or make alternative arrangements
for reimbursement, if the trustee determines the contribution was
made because of a mistake of fact or law, or, upon termination of
a retirement program, return to an employer any assets of the
program remaining after all liabilities of the program to
participants and beneficiaries have been satisfied.
(d) If a retirement program provides for individual
accounts and permits a participant or beneficiary to exercise
control over the assets in such an account and a participant or
beneficiary exercises control over those assets:
(1) the participant or beneficiary is not a fiduciary
by reason of the exercise; and
(2) a person who is otherwise a fiduciary is not liable
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under Section 6 or 7 for any loss, or by reason of any failure to
meet the requirements of Section 6 or 7, resulting from the
participant's or beneficiary's exercise of control.
SECTION 9. LIABILITY OF TRUSTEE OR FIDUCIARY.
(a) A trustee or other fiduciary who breaches a duty
imposed by this [Act] is personally liable to the retirement
system for any losses resulting from the breach and any profits
made by the trustee or other fiduciary through use of assets of
the system by the trustee or fiduciary. The trustee or other
fiduciary is subject to other equitable or remedial relief as the
court considers appropriate, including removal.
(b) Except as otherwise provided in section 5, any
agreement which relieves a trustee or other fiduciary from
responsibility or liability for any breach of duty under this
[Act] is void, except:
(1) a retirement system may purchase insurance for a
trustee or other fiduciary, or for itself, to cover liability or
losses occurring because of an act or omission of a trustee or
other fiduciary, if the insurance permits recourse by the insurer
against the trustee or fiduciary in the case of a breach of duty
under this [Act] by the trustee or fiduciary; and
(2) a trustee or other fiduciary may purchase insurance
on their own account to cover liability or losses occurring
because of a breach of duty under this [Act].
SECTION 10. [OPEN OR PUBLIC] RECORDS AND MEETINGS.
(a) Records that disclose a tentative or final investment
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or other financial decision are not [open or public] records
under [the State Open Records Law] to the extent their disclosure
would jeopardize the ability to implement the decision. The
records become [open or public] records when their disclosure no
longer jeopardizes the ability to implement the investment or
other financial decision.
(b) Notwithstanding the [State Open Meetings Law], a
multi-member body having authority to invest or manage assets of
a retirement system may make a tentative or final investment or
other financial decision in executive session if disclosure of
the decision would jeopardize the ability to implement the
decision.
SECTION 11. DISCLOSURE TO PUBLIC.
(a) The administrator of each retirement system shall
publish:
(1) a summary plan description of each retirement
program;
(2) a summary description of any material modification
in the terms of the program and any material change in the
information required to be included in the summary plan
description, to the extent the modification or change has not
been integrated into an updated summary plan description;
(3) an annual disclosure of financial and actuarial
status; and
(4) an annual report which contains the schedules
described in Section 16(c)(1) through (4); the percentage
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required by Section 18(b)(4)(v) for defined benefit plans; a
brief description of, and information about how to interpret, the
schedules and, when reported, the percentage; and other material
necessary to summarize the annual disclosure of financial and
actuarial status fairly and accurately.
(b) The administrator of a retirement system shall make
available for public examination in the principal office of the
administrator and in other places if necessary to make the
information reasonably available to participants:
(1) the governing law of the retirement program and
system;
(2) the most recent updated summary plan description;
(3) summary descriptions of modifications or changes
described in subsection (a)(2) that have been provided to
participants and beneficiaries but not yet integrated into the
summary plan description;
(4) the most recent annual disclosure of financial and
actuarial status; and
(5) the most recent annual report.
(c) Upon written request by a participant, beneficiary, or
member of the public, the administrator shall provide a copy of
any or all of the publications described in subsection (b). The
administrator may impose a reasonable charge to cover the cost of
providing copies, and shall provide the copies within 30 days
after receiving payment.
SECTION 12. DISCLOSURE TO PARTICIPANTS AND BENEFICIARIES.
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(a) The administrator of a retirement program shall
furnish to each participant and to each beneficiary who is
receiving benefits under a program:
(1) a copy of the most recent summary plan description,
along with any summary descriptions of modifications or changes
described in Section 11(a)(2):
(i) within three months after a person becomes a
participant or, in the case of a beneficiary, within three months
after a person first receives benefits, or, if later, within four
months after the retirement system becomes subject to this [Act],
and
(ii) thereafter, a copy of an updated summary plan
description, which integrates all modifications and changes, at
intervals separated by no more than five years;
(2) the summary description of any modifications or
changes described in Section 11(a)(2), within [seven months]
after the end of the fiscal year in which any modification or
change has been made; and
(3) the annual report described in Section 11(a)(4)
within [seven months] after the end of each fiscal year.
(b) The administrator of a retirement system shall provide
to any participant or beneficiary, in the annual report or upon
the participant or beneficiary's written request, a statement
indicating, on the basis of the most recent available
information, the administrator's best estimate of:
(1) the total benefits accrued; and
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(2) the nonforfeitable benefits accrued, if any, or the
earliest date on which benefits will become nonforfeitable.
(c) Each participant and each beneficiary who is receiving
benefits under a program is entitled to receive without charge
one statement under subsection (b) during any fiscal year. The
administrator may impose a reasonable charge to cover the cost of
providing other statements. The administrator shall provide the
statements within 30 days after the participant or beneficiary's
request or, if a charge is imposed, within 30 days after
receiving payment.
SECTION 13. REPORTS TO [AGENCY]. The administrator of a
retirement system shall file with the [Agency] [and others]:
(1) a copy of the governing law of the retirement
program and system within four months after the system becomes
subject to this [Act] and an updated copy at least once every
five years thereafter;
(2) a copy of the summary plan description within four
months after the system becomes subject to this [Act] and of
updated summary plan descriptions at the same time they are first
provided to any participant or beneficiary under Section
12(a)(1);
(3) a copy of any summary description of modifications
or changes within [seven months] of the end of the fiscal year in
which any modification or change has been made; and
(4) a copy of the annual disclosure of financial and
actuarial status and annual report within [seven months] of the
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end of each fiscal year.
SECTION 14. SUMMARY PLAN DESCRIPTION.
(a) A summary plan description and any summary description
of modifications or changes under Section 11(a)(2) must be
written in a manner calculated to be understood by the average
participant and be accurate and sufficiently comprehensive
reasonably to inform participants and beneficiaries of their
rights and obligations under the retirement program.
(b) A summary plan description must contain:
(1) the name of the retirement program and system and
type of administration;
(2) the name and business address of the administrator;
(3) the name and business address of each agent for the
service of process;
(4) the name, title, and business address of each
trustee and a brief description of how the trustee was selected;
(5) citations to the governing law of the retirement
program and system;
(6) a description of the program's requirements
respecting eligibility for participation and benefits;
(7) a description of the program's provisions providing
for nonforfeitable benefits;
(8) a description of circumstances that may result in
disqualification, ineligibility, or denial or loss of benefits;
(9) a description of the benefits provided by the
program, including the manner of calculating benefits and the
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benefits, if any, provided for spouses and survivors;
(10) the source of financing of the program;
(11) the identity of any organization through which
benefits are provided;
(12) the date of the end of the fiscal year; and
(13) the procedures to be followed to present claims
for benefits under the program and the administrative remedies
available under the program for the redress of claims that are
denied in whole or in part.
SECTION 15. ANNUAL DISCLOSURE OF FINANCIAL AND ACTUARIAL
STATUS.
(a) The annual disclosure of financial and actuarial
status must contain:
(1) The name of the retirement system and, if
subsection (b) applies, identification of each retirement program
and appropriate group of programs;
(2) the name and business address of the administrator
and trustee;
(3) the name and business address of each agent for the
service of process;
(4) the number of employees covered by the system and,
if subsection (b) applies, by each program and appropriate group
of programs;
(5) the name and business address of each fiduciary;
(6) the current statement of investment objectives and
policies required by Section 6(h);
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(7) a financial statement complying with Section 16;
(8) an opinion on the financial statement complying
with Section 17;
(9) in the case of a defined benefit plan, an actuarial
statement complying with Section 18;
(10) in the case of a defined benefit plan, an opinion
on the actuarial statement complying with Section 19; and
(11) if applicable, any statements described in Section
20.
(b) In the case of a retirement system that administers or
manages the assets of more than one retirement program, the
administrator shall present the information in the annual
disclosure of financial and actuarial status so that it
reasonably and fairly conveys the financial status of each
appropriate group of programs and, for defined benefit plans, the
actuarial status of each cost-sharing group of programs and of
each retirement program in an agent group of programs.
SECTION 16. FINANCIAL STATEMENT.
(a) The financial statement in the annual disclosure of
financial and actuarial status must contain a statement of
assets, liabilities, and net assets available for retirement
program benefits for the retirement system or, if Section 15(b)
applies, for each appropriate group of programs.
(b) In the notes to the financial statement, a qualified
public accountant shall disclose the following items:
(1) a description of the retirement system, including
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any significant changes in the system made during the fiscal year
and the impact of the changes on benefits;
(2) the funding policy, including, if applicable,
policy with respect to a ratio less than one between the
actuarial value of system assets and actuarial accrued liability,
and any changes in the policy during the fiscal year;
(3) a description of any significant changes in
retirement program benefits made during the fiscal year;
(4) a description of material lease commitments, other
commitments, and contingent liabilities;
(5) a general description of priorities upon
termination of the system, if any;
(6) a description of agreements and transactions during
the fiscal year with any public employer participating in the
system and any employee organization representing employees
covered by the system;
(7) a description of any material interest held by any
trustee, administrator, or employee who is a fiduciary with
respect to the investment and management of system assets, or a
related person, in any material transaction with the system
within the last three years or proposed to be effected; and
(8) any other matters necessary to present fully and
fairly the financial condition of the system.
(c) A financial statement must also contain in separate
schedules:
(1) a statement of assets and liabilities aggregated by
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categories and valued at their fair value, and the same data
displayed in comparative form for the end of the preceding fiscal
year;
(2) a statement of receipts and disbursements during
the fiscal year aggregated by general sources and applications;
(3) a statement of the rates of return, net of total
investment expense, on system assets overall and on assets
aggregated by category over the most recent one-year, three-year,
five-year, and 10-year periods, to the extent available, and the
rates of return on appropriate benchmarks for system assets
overall and for each category over each time period;
(4) a statement of the sum of total investment expense
and total general administrative expense for the fiscal year
expressed as a percentage of the fair value of system assets on
the last day of the fiscal year, and an equivalent percentage for
the preceding five fiscal years; and
(5) a schedule of all assets held for investment
purposes on the last day of the fiscal year aggregated and
identified by issuer, borrower, lessor, or similar party to the
transaction; providing, if relevant, the asset's maturity date,
rate of interest, par or maturity value, number of shares, cost,
and fair value; and identifying any asset that is in default or
classified as uncollectible.
SECTION 17. OPINION ON THE FINANCIAL STATEMENT.
(a) A trustee shall engage an independent qualified public
accountant to conduct such an examination of any financial
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statements of the retirement system, and of other books and
records of the system, as the accountant considers necessary to
enable the accountant to form an opinion as to whether the
financial statement and schedules required to be contained in the
annual disclosure of financial and actuarial status are presented
fairly and in conformity with generally accepted accounting
principles on a basis consistent with that of the preceding year.
The examination must be conducted in accordance with generally
accepted auditing standards and involve tests of the books and
records of the system which the accountant considers necessary.
(b) The accountant shall also offer an opinion as to
whether the separate schedules specified in Section 16(c)(1)
through (5) and the annual report required by Section 11(a)(4)
present fairly and in all material respects the information
contained in the separate schedules and annual report when
considered in conjunction with the financial statements taken as
a whole. In formulating the opinion, the accountant may rely on
the correctness of any actuarial matter as to which a qualified
actuary has expressed an opinion, if the accountant so indicates.
SECTION 18. ACTUARIAL STATEMENT FOR DEFINED BENEFIT PLANS.
(a) The actuarial statement required for a defined benefit
plan must contain the information required by this section for
the retirement system or, if Section 15(b) applies, for each
cost-sharing group of programs and each retirement program in an
agent group of programs.
(b) The trustee shall engage a qualified actuary to
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prepare the actuarial statement. The statement must contain:
(1) the dates of the fiscal year and the most recent
actuarial valuation;
(2) the total amount of the contributions made by
participants and the total amount of all other contributions,
including public employer contributions, received for the fiscal
year and for each preceding fiscal year for which the information
was not previously reported;
(3) the number of participants, whether or not retired,
and beneficiaries receiving benefits covered as of the last day
of the fiscal year;
(4) the following information as of the date of the
most recent actuarial valuation and, if available and
sufficiently comparable so as not to be misleading, for at least
the two preceding actuarial valuations:
(i) the aggregate annual compensation of
participants;
(ii) the actuarial value of system assets;
(iii) the actuarial accrued liability;
(iv) the difference between the actuarial value of
system assets and actuarial accrued liability;
(v) the actuarial value of system assets expressed
as a percentage of actuarial accrued liability;
(vi) the difference between the actuarial value of
system assets and actuarial accrued liability expressed as a
percentage of the aggregate annual compensation of participants;
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and
(vii) the actuarial assumptions and methods used in
determining the information described in this paragraph and other
factors that significantly affect the information described in
the paragraph; and
(5) such other information as may be necessary to
disclose fully and fairly the actuarial condition of the
retirement system, each cost-sharing group of programs, or each
retirement program in an agent group of programs.
SECTION 19. OPINION ON ACTUARIAL STATEMENT FOR DEFINED
BENEFIT PLANS.
(a) The qualified actuary who prepares an actuarial
statement shall issue an opinion stating that:
(1) to the best of the actuary's knowledge the
statement is complete and accurate;
(2) each assumption and method used in preparing the
statement is reasonable and the assumptions and methods in the
aggregate are reasonable, taking into account the experience of
the retirement system, each cost-sharing group of programs, or
each retirement program in an agent group of programs and
reasonable expectations; and
(3) the assumptions and methods in combination offer
the actuary's best estimate of anticipated experience.
(b) In formulating an opinion, the actuary may rely on the
correctness of any accounting matter as to which any qualified
public accountant has expressed an opinion, if the actuary so
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indicates.
(c) An actuarial valuation of the retirement system or, if
Section 15(b) applies, of each cost-sharing group of programs or
each retirement program in an agent group of programs must be
made at least once every two years. More frequent actuarial
valuations must be made if the actuary determines that a more
frequent valuation is necessary to support the actuary's opinion.
SECTION 20. STATEMENT ON GUARANTEED BENEFITS.
(a) If some or all of the benefits under a retirement
program are purchased from and guaranteed by an insurance
company, insurance service, or insurance organization qualified
to do business in this State, the annual disclosure of financial
and actuarial status must contain a statement from the company,
service, or organization covering the fiscal year and enumerating
with respect to the program:
(1) the premium rate or subscription charge;
(2) the total premium or subscription charges paid to
the company, service, or organization;
(3) the approximate number of persons covered by each
class of benefits;
(4) the total claims paid by the company, service, or
organization;
(5) dividends or retroactive rate adjustments,
commissions, administrative service or other fees, and other
costs incurred by the company, service, or organization for the
acquisition or retention of the retirement system;
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(6) any amounts held to provide benefits after
retirement;
(7) the remainder of premiums or subscription charges;
and
(8) the names and business addresses of brokers,
agents, or other persons to whom commissions or fees were paid,
and the amount and purpose of each payment.
(b) If a company, service, or organization does not
maintain separate experience records covering the specific groups
it serves, the annual disclosure of financial and actuarial
status must contain instead of the information required by
subsection (a):
(1) a statement as to the basis of its premium rate or
subscription charge;
(2) the total amount of premiums or subscription
charges received from the retirement system;
(3) a copy of the most recent financial report of the
company, service, or organization; and
(4) if the company, service, or organization incurs
specific costs for the acquisition or retention of the system, a
detailed statement of the costs.
SECTION 21. ENFORCEMENT.
(a) An action may be brought [in an appropriate court] by:
(1) a public employer, participant, beneficiary, or
fiduciary for appropriate relief under Section 9;
(2) a public employer, participant, beneficiary, or
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fiduciary to enjoin any act, practice, or omission that violates
this [Act] or to obtain other appropriate equitable relief to
redress the violation or to enforce this [Act]; or
(3) [the Agency] to enjoin any violation of Section 13.
(b) An action under subsection (a)(1) or (2) must be filed
within one year after the challenged act, practice, or omission,
but the time is extended:
(1) during the pendency of the petitioner's timely
attempts to exhaust available administrative remedies, if the
attempts are not clearly frivolous or repetitious; and
(2) during any period that the petitioner did not know
and was under no duty to discover, or did not know and was under
a duty to discover but could not reasonably have discovered, that
the challenged act, practice, or omission occurred.
(c) In an action under this section by a participant,
beneficiary, or fiduciary, the court may allow a reasonable
attorney's fee and costs of action to either party.
SECTION 22. ANTI-ALIENATION. Benefits of a retirement
program may not be assigned or alienated, except to the extent
specifically permitted by another statute of this State.
[SECTION 23. PURCHASE OF SERVICE CREDIT.
(a) In this section:
(1) "Employer" means any employer.
(2) "Pension benefit" means a retirement, death, or
permanent disability benefit that the participant, or a
beneficiary, is or will be entitled to receive based on the
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participant's service during a year of employment or on employee
or employer contributions made for the participant's benefit
during the year, but the term does not include benefits:
(i) from arrangements or payments made pursuant to
the Social Security Act (42 U.S.C. Sections 401 et seq.);
(ii) from an individual retirement account or
individual retirement annuity within the meaning of Section 408
of the Code, but the term includes an amount that derives from
contributions made during a year that are rolled over from a
qualified plan into an individual retirement account or
individual retirement annuity, unless the total amount deriving
from contributions made during the year is used to purchase
service credit pursuant to subsection (e)(2);
(iii) deriving from employee or employer
contributions that have been distributed to the participant, or a
beneficiary, and subjected to federal income taxation; or
(iv) deriving from employee or employer
contributions that have been rolled over pursuant to subsection
(e)(1) to purchase years of service credit under this section.
(3) "Year of full-time employment" means a calendar or
academic year during which the participant has completed 1,000 or
more hours of service. For an academic year, the year of full-
time employment is deemed earned during the calendar year in
which the last day of the academic year falls.
(b) A retirement program must permit each participant in a
defined benefit plan to purchase years of service credit for any
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period of employment with any prior employer provided that:
(1) years of service credit may be purchased only in
full-year increments;
(2) one year of service credit may be purchased for
each year of full-time employment with an employer;
(3) no more than one year of full-time employment may
be credited for any given calendar year;
(4) service credit is not purchased for any year of
employment for which the participant receives a pension benefit,
other than a benefit resulting from the purchase of service
credit under this section;
(5) the participant provides certification from former
employers as to dates of employment, hours of service worked each
calendar or academic year, and pension benefits resulting from
the employment and agrees to a payment method and schedule
complying with subsections (d) through (f); and
(6) a participant may not revoke a decision to purchase
service credit.
(c) Purchased years of service credit must be taken into
account to determine whether benefits are nonforfeitable, to
determine the amount of retirement, death, or permanent
disability benefits, and for all other purposes under the
retirement program[, but purchased years of service credit may
not be taken into account to establish eligibility for retiree
health benefits].
(d) For each year of service credit purchased under this
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section, a participant shall pay an amount equal to the present
value of the increased benefits resulting from the year of
service credit purchased. Each retirement program must establish
a method to determine the present value of the increased
benefits, based on reasonable actuarial factors. To the extent a
participant does not pay the full amount within 180 days after
making the decision to purchase service credit, a reasonable rate
of interest must be added to the amount due, commencing 180 days
after the participant makes the decision and continuing until
full payment is made.
(e) A participant may pay for years of service credit
purchased in any one or any combination of the following ways:
(1) by the transfer of any portion of an eligible
rollover distribution from a qualified trust, but only to the
extent the transfer meets the requirements of Section 402(c) of
the Code to be excluded from the gross income of the participant
for the taxable year in which the distribution is paid;
(2) by the transfer of any portion of an individual
retirement account or individual retirement annuity, but only to
the extent the transfer is a rollover contribution that meets the
requirements of Section 408 of the Code to be excluded from the
gross income of the participant for the taxable year in which the
amount is paid or distributed out of the individual retirement
account or individual retirement annuity to the participant;
(3) by a lump-sum payment; or
(4) by installment payments over a period of time not
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exceeding 10 years.
(f) A participant may not make a payment under subsection
(e) if it would result in payments exceeding the annual ceiling
for tax-deferred contributions under Section 415 of the Code. To
the extent any payment would result in payments by the
participant exceeding the annual ceiling, the payment must be
deferred until the next year in which payments can be made
without exceeding the annual ceiling and appropriate adjustments
must be made to the amount of interest added to the amount due
under subsection (d). If a participant is unable to complete
payments within the 10-year period of subsection (e)(4) because
of the limitations of this subsection, subsection (g) applies.
(g) If a participant is unable to complete payments for
years of service purchased for any reason, the administrator
shall:
(1) determine the amount of money the participant paid
for the purchase of service credit and when the payments were
made;
(2) discount the amount determined under paragraph (1)
to its value as of the date 180 days after the participant made
the decision to purchase service credit, based on the actuarial
and interest assumptions used at the time the participant made
the decision to purchase service credit; and
(3) credit the participant for a number of years of
service to the nearest one-hundredth of a year equal to the
number the participant would have been able to purchase on the
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date the participant made the decision to purchase service credit
for the amount determined under paragraph (2), based on the
actuarial and interest assumptions used at the time the
participant made the decision to purchase service credit.
(h) The administrator of a retirement program shall adopt
rules and regulations to implement the provisions of this
section.]
SECTION 24. UNIFORMITY OF APPLICATION AND CONSTRUCTION. This
[Act] shall be applied and construed to effectuate its general
purpose to make uniform the law with respect to the subject of
this [Act] among states enacting it.
SECTION 25. SHORT TITLE. This [Act] may be cited as the
[Uniform or Model] Management of Public Employee Pension Funds
Act.
SECTION 26. SEVERABILITY. If any provision of this [Act] or
its application to any person or circumstance is held invalid,
the invalidity does not affect other provisions or applications
of this [Act] which can be given effect without the invalid
provision or application, and to this end the provisions of this
[Act] are severable.
SECTION 27. EFFECTIVE DATE. This [Act] takes effect . . .
SECTION 28. REPEALS. The following acts and parts of acts
are repealed:
(1) . . .
(2) . . .
(3) . . .
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SECTION 29. SAVINGS AND TRANSITIONAL PROVISIONS.