The deadline for current permanent part-time employees to revoke mem-bership rights to their municipality's pension plan is July 1, 2005.

Municipalities must first amend their existing plans in order to permit themembers' requests. For assistance in making changes to your plan, pleasecontact the Municipal Services Division at 1-800-622-7968.

Each PMRS pension plan must report the planmembers’ compensation to PMRS by completing

the Quarterly Report of Contributions (PMRB-21)form. We are often asked, “What types of compensa-tion should be included when reporting earnings?”This question is important due to the majority ofdefined benefit pension plans where the member’sbenefit at retirement is based on the employee’s finalaverage salary. Therefore, the calculation of the ben-efit depends on the municipality’s accurate reportingof compensation to PMRS. For defined contributionplans, even though the final benefit is not calculatedbased on compensation, the contributions that aremade to the plan are typically set as a percentage ofcompensation.

To answer the question in greater detail requires acloser look at the municipality’s contract with PMRS.We also need the municipality to examine any laboragreement covering the employees. Most PMRSpension plan agreements will specify whether benefitsand/or contributions are based on “base salary” or“compensation”. If the contract specifies “basesalary”, then only the base salary should be reported;all other types of compensation such as overtime orbonuses, should be excluded.

If the agreements specify that benefits and contribu-tions are based on “compensation”, without further

(See Compensation, Pg 2)

Inside this issue

Calculations - Retiree Payouts 1

Member Featured inPublication 1

Events Calendar Insert

Social SecurityBenefits Insert

Contact Corner Insert

Who’s Who: Division Spotlight 3

Board MeetingHighlights 4

Riding for a Cure 4

Reminder

Pennsylvania Municipal Retirement System

2005Spring

A thorough review on reporting earnings

In the National Spotlight$Recently our staff discovered a news article in the

Wall Street Journal that featured a story regardingone of our participating police members. In the article,we learned a little bit about the township and its hard-ships, but also about this particular member’s ability tomanage the police township’s budget by using a vari-ety of cost-cutting measures.

The news story inspired our Editorial Board to seekmore in-depth information on our participating munici-palities and members on a more personal basis. Wewould like to get to know you better, to introduce yourmunicipality to other member municipalities, and toshare answers to specific questions you may haveregarding retirement with PMRS. By providing thistype of information, we hope to bring better awarenessof problems or uncertainties that municipalities haveand to help educate others who may be experiencingthe same issues.

Our team is also interested in learning unusual factsabout your municipality or any human-interest storiesregarding PMRS members or municipalities. If youhave a story of interest and/or questions regardingretirement with PMRS and would like to see yourmunicipality featured in an issue of our newsletter,please contact Shannon DeWaelsche via email atsdewaelsch@state.pa.us or call 800-622-7968 or717-787-2065. Thank you for your consideration! w

PMRS member in national newspaper

Calculation

Compensation (Pg 1)

Page 2 Spring 2005 The PMRS Spotlight

defining “compensation,” it would be presumed that allW-2 compensation is included. Many possible typesof compensation might be included in the W-2 earn-ings, including but not limited to: base pay, overtime,bonuses, longevity, shift differential payments, sever-ance, uniform and equipment allowances, paymentsin lieu of health or life insurance, and lump-sum pay-ments for accrued vacation, sick, or compensatoryleave. Since it may not be the intention of the munic-ipality to include all of these forms of compensation, itis recommended that the municipality define exactlywhat forms of compensation are to be included for thepension plan.

One of the most confusing types of compensation isthe lump-sum payment for accrued vacation, sick, andcompensatory leave. Lump-sum payments foraccrued unused leave are usually paid inone of two ways – at the end of each year orat the end of the career (upon retirement orat the time of separation). Prior to 2001,there was no question as to how to handlethis type of compensation – PMRS policystated that lump-sum leave payments paidat the end of each year were NOT to beincluded. If an employee received a lump-sum leave payment at retirement, only vaca-tion leave or compensatory time was includ-ed. Such leave payments were not addedas a lump sum to the final quarter of com-pensation, but were used to extend theeffective date of retirement. For example, if anemployee retired on December 31 and received alump-sum payment at retirement for eight weeks ofunused vacation leave, the lump-sum payment wouldNOT be reported in the fourth quarter’s compensation.Instead, the lump-sum compensation would appearon the first quarter report, the retirement date wouldbe extended to February 26, and the employee wouldreceive an additional eight weeks of credited service.

On July 1, 2001, however, the Department of theAuditor General (AG) issued Municipal PensionBulletin No. 2001-01 “Unauthorized, or Excess,Benefits.” The bulletin addressed what the AG con-sidered to be “excess benefits” that included lump-sum payments for accumulated unused leave in thepension calculations. It was the AG’s opinion thatbecause such payments significantly inflate a retiree’sfinal earnings figure, resulting in inflated benefits, thefiscal soundness of the pension plans would be jeop-ardized. As a result, the AG stated that end-of-careerlump-sum payments of accumulated unused leaveshould not be included in the pension calculation. Thepayments for accumulated unused leave made on an

annual or more frequent basis could, however, beincluded.

In March of 2002, the AG further clarified its positionon “Unauthorized, or Excess, Benefits” by stating thatpayments for accumulated unused leave paid at theend of an employee’s career may be included in thepension calculation, as long as the leave was earnedduring the final average salary period used in thebenefit calculation. If the benefit calculation wasbased on the average of the last three years’ com-pensation, then only the lump-sum payment for theamount of unused leave that would have beenearned in the last three years could be included in thepension calculation. For example, an employeeearned a total of 20 days of leave per each of the lastthree years of service. At retirement, the employee

received a lump-sum payment for 100 daysof unused leave. Only 60 days, however,could be included in the retirement calcula -tion (20 days of leave per year multiplied bythe three years included in the final averagesalary calculation).

Based on the AG’s policy, PMRS hasallowed municipalities to include lump-sumpayments for accumulated unused leave(paid at the end of each year or at the endof the employee’s career) up to the amountof leave earned during the final averagesalary period that is included in the pension

calculations. The municipality must provide PMRSwith documentation that it is the municipality’s policyto include such payments in the pension calculation.It is important that the municipality understand thepotential impact on the plan costs if lump-sum pay-ments are added to a member’s final quarter of com-pensation upon retirement.

As an example, assume that an employee has com-pensation of $36,000, $38,000 and $40,000 in thelast three years prior to retirement. Also assume thatthe employee has 30 years of credited service andthe plan has a benefit accrual rate of 1.5% of the finalthree year average salary for each year of creditedservice. The benefit at retirement would be calculat-ed by multiplying $38,000 (the final three year aver-age salary) times 30 years of credited service timesthe benefit accrual rate of 1.5% (.015). $38,000 X 30X .015 = an annual basic benefit of $17,100. Thelump-sum cost to the municipality to fund this benefit(assuming that the member did not contribute to theplan) for a 62 year old male would be approximately$205,000.

(See Compensation, Pg 4)

The PMRS Spotlight Spring 2005 Page 3

Meet the Membership Services Division- ChiefBen Mader, Bob Eames, Lorain Payne, Kathy

Corradi, and Janis Rhodes. This “fab five” not onlyworks diligently to answer both member and munici-pality calls, but they consistently work to produceretirement estimates, conduct pre-retirement semi-nars, prepare year-end member statements, andalso maintain vital member information. Thestrength of this Division lies in its extensive back-ground knowledge of other division processes withinPMRS. The vast knowledge that each member pos-sesses has proven invaluable. As a team, their goalis to continue providing these services in a timely,customer-friendly manner.

With over 840 different municipal plans and well over12,500 members, this division along with other staff,continuously searches for new and improved waysof serving you. In order to do this, it has been impor-tant to ask ourselves questions such as: “What typesof information are our members seeking? What areour members having the most difficulty understand-ing? How do we help our members to better under-stand their benefits and retirement information?” Wehope that the information we’re about to provide willhelp you better understand how we strive to bringyou the best in retirement planning.

What do our members want to know? The mostcommon information sought by our members areanswers to when they can retire, how much they willreceive, and how much it will cost them. Currently,staff’s goal is to provide such answers within a three-week timeframe. Division Chief Ben Mader statedthat he is optimistic that the turn-around time willbecome dramatically reduced once PMRS imple-ments its newly purchased software. The softwarewill enable members to calculate his or her retire-ment online based on real information in the PMRSdatabase.

Much like an online bank account, members willhave instant access to view current information

about their pension plan. The

answer to questions such as: “When can I retire?”and “How much will I receive at retirement?” will beprovided based on real data. Unlike other pensionsystems that offer generic online calculators thatonly estimate an employee’s retirement, the newsystem that PMRS will implement will be based onreal or current data, therefore providing real answersto the most common member questions.

It is also important to understand that while thisonline feature is an extremely important and usefultool for our members, privacy and other considera-tions will cause PMRS to take its time in implement-ing it. Please know that safeguarding your personalinformation is of utmost importance to us and contin-ues to be a priority of our staff. When will this fea-ture be online? It is staff’s hope to be able to makemember account information available online by thesummer of 2006.

Not only is it the Membership Services’ vision to con-tinue providing individualized services, they alsoforesee the technology enhancement as a positivesign of things to come. Offering the ability for mem-bers to research and answer their own questions willeventually enable staff to thoroughly focus on pro-cessing retirements, withdrawals, and buy-backs (toname a few) on a more timely basis. In all, upgrad-ing our system will make many areas of businessbetter - both in our office and for our members. w

Who’s WhoTaking a closer look at the MembershipServices Division

Don’t simply retire from something; have something to retire to.~ Harry Emerson Fosdick

Don’t simply retire from something; have something to retire to.~ Harry Emerson Fosdick

Top Left : Kathy Corradi, Lorain Payne, Janis RhodesBottom Left : Bob Eames & Chief Ben Mader

Like a picture on a post card, scenic Lake Tahoe inNevada is a place of beauty. It is also a place to

be conquered. This June, PMRS staff member andlocal Team in Training participant Tom Garrett, willbike the 100-mile perimeter of the lake to raise moneyfor the Leukemia & Lymphoma Society. A participantof last year’s bike event, Garrett said that the experi-

Now assume that the same employee received alump-sum payment of $10,000 for accrued unusedleave, which was added to the final quarter’s compen-sation. The final average salary would now be$41,333 and the annual benefit would be $18,600,increasing the municipal cost for the benefit to$225,000.

A few other things to keep in mind when reportingcompensation to PMRS:

w Only the earnings for employment covered by thepension plan should be reported. For example, ifelected officials are excluded from membership inthe plan and an individual is both an employeeand an elected official of the municipality, compen-sation received for the duties of an elected official(meeting pay) would NOT be included.

w If the plan requires member contributions, the con-tributions must be withheld on all compensationincluded in the pension calculation.

w Reporting earnings while an employee is receivingWorker’s Compensation benefits is dependent oneach municipality’s policy. If Worker’s Compensationearnings are reported for pension purposes, themember will continue to earn credited service, andany required member contributions must be madeon the reported earnings.

Questions on how a municipality is to report earningsand/or how to change the reporting base can bedirected to our Municipal Services Division staff. w

Editorial Board Tim Brulia, Tom Garrett, Kris Gibboney, Ben Mader, Donna Miller, *Shannon DeWaelsche *Editor

Compensation (Pg 2)

Page 4 Spring 2005 The PMRS Spotlight

WE’RE ON THE WEB!WWW.PMRS.STATE.PA.US

Questions or comments?Email us: ra-staff@state.pa.us

Office Hours: Monday through Friday7:45 A.M. to 4:15 P.M.

In a NutshellHighlights from the latest Board meeting

ence was both exciting and emotional. “As we left ourhotel and pedaled away from the starting line on thatchilly June morning, we were greeted by crowds offamily members, supporters, and honor patientscheering us on. Some even held up pictures of chil-dren who were lost to these horrible diseases.”

Although the lengthy road of laborious work liesahead, those who participate do so knowing that theirbattle to surpass 7,000-foot elevations to reach the fin-ish line pales in comparison to the fight of numerouspatients to stay alive. “When you ride with a purpose,you find strength and power you never knew you had”says Garrett. It is with great admiration that we shareour colleague’s story. We wish him much luck inhis fund-raising efforts as well as his abili-ty to make it to the finish line. He is, in oureyes, an ordinary man doing extraordinarythings. Good luck to you Tom! w

A PMRS staff member rides to find a cure

A Rough Road

Tom Garrett

On January 20, 2005, Board members met for thefirst meeting of the New Year. The hottest top-

ics regarded: the elections for the Chairman andVice-Chairman positions, interviews for an investmentconsultant, and interviews for a real estate investmentmanager to help maintain the System’s desired assetallocation. The meeting also required several impor-tant operational decisions that will ultimately shapethe System’s business foundation in the comingyears. The adoption of a Right-To-Know Policy andthe development of a plan to check for deceasedmembers who might continue to receive monthlychecks are two such examples.

The meeting began with a unanimous vote to re-electDoug Bowen to the position of Chairman and RobertUmstead to Vice-Chairman of the Board. On theinvestment side, Board members voted to rehireDahab Associates as the System’s investment con-sultant for another five-year contract. The staff atPMRS looks forward to their continued commitmentand support in the months ahead.

Lastly, the Board interviewed four prospective man-agers as a result of obtaining over $50 million fromthe liquidation of its CIGNA real estate portfolio. Dueto the inability to invest the amount into an attractiveportfolio within a year, the Board decided to place thefunds into a passive large cap growth fund until thefunds could be properly invested. The Board remainscommitted to meeting the asset allocation previouslyset forth while maintaining its prudent person policy. w

2nd Quarter Events2nd Quarter EventsSpring 2005 The PMRS Spotlight

Please retain this calendar to help plan your work schedule for the upcoming months. The listincludes dates for state aid funding requirements, monies and reports that are due at PMRS,approximate major PMRS mailings, and PMRS meetings of general interest.

The calendar below is also provided on our website at www.pmrs.state.pa.us

New legislation [Section 419(c) of Public Law108-203, the Social Security Protection Act of

2004] (SSPA) requires State and local governmentemployers to provide a statement to employeeshired January 1, 2005 or later in a job not coveredunder Social Security. The statement explains howa pension from that job could affect future SocialSecurity benefits to which they may become enti-tled.

Form SSA-1945, Statement Concerning YourEmployment in a Job Not Covered by SocialSecurity, is the document that employers should useto meet the requirements of the law. The SSA-1945explains the potential effects of two provisions in theSocial Security law for workers who also receive apension based on their work in a job not covered bySocial Security. The Windfall Elimination Provisioncan affect the amount of a worker’s Social SecurityRetirement or disability benefit. The GovernmentPension Offset Provision can affect a Social Securitybenefit received as a spouse or an ex-spouse.

Employers must:

w Give the statement to the employee prior to thestart of employment;

w Get the employee’s signature on the form; and

w Submit a copy of the signed form to the pension-paying agency

Social Security will not be setting any additionalguidelines for the use of the form.

A copy of the SSA-1945 can be downloaded fromthe PMRS website at www.pmrs.state.pa.us ormay be ordered directly from the Social SecurityAdministration (SSA) through e-mail atoplm.oswm.rqct.orders@ssa.gov or by fax at410-965-2037. Please see the SSA website(www.ssa.gov) for further ordering instructions orfor additional information regarding the SSPA law.Should you have any additional questions, pleasecontact our office at 717-787-2065 or 800-622-7968. w

Social Security - Not for EveryoneSocial Security - Not for EveryoneEmployment in a Job Not Covered by Social Security

(Issued by the Social Security Agency December 2004)

April 1 - Deadline for filing the ad hoc reimbursement forms (AG-490 and AG-64) with the Auditor

General's Office.

April 28 - Retiree checks mailed from PMRS.

May 2 - Deadline for returning Quarterly Reports for the 1st quarter to PMRS.

May 19 - Pennsylvania Municipal Retirement Board meeting.

May 27 - Retiree checks mailed from PMRS.

June 27 - Quarterly Reports for the 2nd Quarter mailed to municipalities.

June 29 - Retiree checks mailed from PMRS.

Divisions

Spring 2005 The PMRS Spotlight

– manages the System’s investments, prepares financial reports, andmaintains municipal and member financial accounts.

Update: PMRS has added a new feature to the website that enables municipalitiesand members to track where their municipality stands in the queue for processingtheir annual statements. To date, over 800 municipalities have submitted therequired information to begin the process and over 550 financial statements havebeen prepared. This is a substantial improvement over the past five years!

– manages individual member records, prepares year-end member state-ments, and processes monthly payments to retirees.

Reminder: The Division is in the process of distributing 2004 member statements.Please review each member statement and inform the Membership Services Divisionif corrections are warranted. Keep in mind: information shown on the statement isused to determine municipal costs and member eligibility for pension benefits.

– visits prospective member municipalities, maintains municipal recordsand contracts, conducts cost study analysis, and administers planupgrades.

Reminder: For municipalities that reduce or waive required member contributionsby resolution, please remember this must be done on an annual basis. If doing so for2005, please be sure to submit a copy of the resolution to PMRS.

– consists of several sections that assist in various areas such as informa -tion technology, human resources, administration, and communications.

Did you know? Our website is brimming with answers to the most commonlyasked questions regarding retirement with PMRS. In January 2005, our site wasaccessed over 17,400 times. We believe this to be a good sign that our members arefinding the information that we publish on our site to be useful and of value. If youhave a question that is not addressed on our site, we invite you to contact us.

717-787-2065 1-800-622-7968 P.O. Box 1165 Harrisburg, PA 17108-1165717-783-8363 (fax) ra-staff@state.pa.us www.pmrs.state.pa.us

AccountingRenny Witmer, Chief

Municipal ServicesLee Hughey, Chief

Membership ServicesBen Mader, Chief

OperationsCynthia Davis, Chief

Contact us

Below is a list that provides you with information onthe four divisions within PMRS. Brought to you byour Division Chiefs, this segment includes tips onwho to contact, things to remember, and other bits ofinformation that might be of interest. Please checkour website for continued updates and futurenewsletter publications featuring this helpful infor-mation.

CONTACTCONTACTCORNERCORNER