By: Jonathan F. Whalen, Esquire
Published on: Fri 23rd Aug, 2024 By: Campbell Durrant, P.C.
On July 8, 2024, Governor Josh Shapiro signed Act 49 of 2024 into law, which provides the ability to make optional changes to many municipal police pension plans. Specifically, Act 49 permits (but does not require) certain municipalities to offer current, qualifying full-time officers the option to purchase up to five (5) years of pension service credit for 1) prior full-time police service provided in another police department and/or 2) prior part-time service in their current department or another police department. By its terms, Act 49 of 2024 does not impact “pension plans within the Pennsylvania Municipal Retirement System,” and is instead directed to the municipal police departments whose plans would be governed by Act 600 (as well as “cities” other than a city of the first class).
Act 600 generally applies to “each borough, town and township of this Commonwealth maintaining a police force of three or more full-time members,” as well as “each regional police department” in Pennsylvania and requires the municipalities to which it applies to establish a police pension fund or annuity by ordinance or resolution and sets forth other mandatory and optional provisions for such plans. Additionally, the Third Class City Code requires the establishment of a pension fund for city police officers (and other employees of a third class city) and similarly provides for a variety of mandatory provisions and optional provisions for these plans. In turn, Act 49 is applicable to cities (other than “a city of the first class”) as well as any “borough, town, township or regional police department” that has established “a police pension fund.”
Act 49 provides, in pertinent part, as follows:
“A city, borough, town, township or regional police department may amend its ordinance or resolution establishing a police pension fund to provide full-time police officers who have satisfied vesting requirements the option to purchase up to five years of pension service credit for prior part-time or full-time police service provided in a police department.”
Act 49 of 2024, § 9122. Accordingly, Act 49 creates an optional provision that municipalities may adopt at their discretion enabling police officers of subject municipalities to purchase prior years of full-time or part-time service for pension service credit purposes. Notably, Act 600 had consistently been interpreted to exclude part-time officers from participating in an Act 600 pension plan, and thus, until Act 49, part-time service years could not be included toward an officer’s pension eligibility under any circumstances. Even under Act 49, however, officers are not eligible to purchase service credit for any prior police service for which the officer otherwise receives or is entitled to receive pension service credit from any other pension fund. Moreover, officers are strictly limited to the purchase of five (5) years of service credit, whether they are purchasing prior part-time or full-time police service and/or military service. For example, under Act 49, an officer could purchase three (3) years of prior part-time police service and two (2) years of military service, but could not exceed five (5) years of purchased service credit via the combination of prior police service and/or military service.
Furthermore, even if a municipality adopts the optional benefits of Act 49, an officer must still have "satisfied vesting requirements" as a prerequisite to purchasing the service credit described in Act 49’s provisions. Under Act 600, an officer typically “becomes vested” after they have reached 25 years of service and age 55 (or age 50, depending on whether the municipality has elected to implement Act 600’s optional reduced retirement age). On the other hand, under the Third Class City Code, an officer must serve a minimum of twenty (20) years and may be required to have attained age fifty (50) to be eligible for normal retirement. Both Act 600 and the Third Class City Code also, however, provide for an optional deferred vested benefit for officers who serve at least twelve (12) years. To be eligible to purchase Act 49 service credit, then, an officer must have reached either twelve (12) years of service (if the municipality offers the optional deferred vested benefit) or have met the applicable age and service requirements for normal retirement if no deferred vested benefit is provided. The practical effect of this limitation is that, for officers who are not eligible to vest until they have satisfied the minimum age and service requirements for normal retirement, the purchase of service credit under Act 49 will function only to potentially entitle that officer to length of service increments (which is another optional benefit under Act 600 but is a mandatory benefit under the Third Class City Code).
Once again, the benefits of Act 49 are entirely optional and there is nothing in the Act compelling municipalities to adopt its provisions. Nonetheless, Act 49 is certain to be raised by police unions in collective bargaining over the coming years and is likely to be touted as a potential recruitment tool. As noted above, however, for a municipality with no deferred vested benefit and no length-of-service increment, there is no discernible benefit to officers in adopting the Act’s provisions, because the only way an officer could “vest” in that situation is by reaching superannuation. As such, municipalities that do offer a length-of-service increment and a deferred vested benefit should ensure that they give careful consideration to the possible effects, both financial and otherwise, of adopting Act 49’s provisions. For example, superannuated officers in municipalities that offer service increments can utilize Act 49 to maximize their service increment without working a day past superannuation. Additionally, Act 49 would allow officers in a municipality with a deferred vested benefit provision to significantly increase their vested benefit by purchasing service time.
On a final note, under Act 205, municipalities must, prior to adopting any modifications to a pension plan, receive a cost estimate of the effect of the proposed benefit plan modification. These Act 205 requirements would certainly apply to the adoption of Act 49’s provisions and thus, as with any pension benefit modification, the adoption of Act 49 must be accompanied by a cost study mandated by Act 205.
Act 49 presents a variety of considerations for municipal police departments and their pension plans. For the reasons described herein, municipalities should consult with labor counsel and their actuaries before acceding to any bargaining proposal relating to the adoption of Act 49 or electing to adopt it outside of the context of collective bargaining.
Takeaways:
• Act 49 of 2024 provides the option for cities (other than a first-class city), boroughs, towns and townships to amend their police pension plans to purchase up to five (5) years of pension service credit for 1) prior full-time police service provided in another police department and/or 2) prior part-time service in their current department or another police department.
• The provisions of Act 49 of 2024 are entirely optional and, if they are adopted, are limited to officers who “have satisfied vesting requirements.” Depending on the terms of municipality’s police pension plan, this can mean that only officers who have reached the age and service requirements for normal retirement are eligible to purchase prior service under Act 49 (in which case, the primary effect of Act 49 is on any applicable service increments). On the other hand, if the municipality’s pension plan provides for a deferred vested benefit after twelve (12) years of service, Act 49’s provisions could, if adopted, allow eligible officers to significantly increase their vested benefit by purchasing service time under Act 49.
• Act 49 is likely to become relevant in collective bargaining in municipal police departments over the coming years. Though Act 49 is entirely optional, the adoption of its benefits, as with any pension benefit plan modification, must be accompanied by a cost study as mandated by Act 205. As such, municipalities that do offer a length-of-service increment and a deferred vested benefit should ensure that they give careful consideration to the possible effects, both financial and otherwise, of adopting Act 49’s provisions, and should consult with labor counsel and their actuaries.
Bottom Line:
While Act 49’s provisions are entirely elective, the Act is certain to become a hot topic in collective bargaining over the coming years. Depending on the present features of a given municipality’s police pension plan, however, the benefit to officers presented by Act 49 can vary significantly. Municipalities to whom Act 49 applies, and particularly those that offer a length-of-service increment and/or a deferred vested benefit in their police pension plans, should ensure that they give careful consideration to the possible effects of adopting Act 49’s provisions, and should consult with labor counsel and their actuaries prior to implementing Act 49 through collective bargaining or otherwise.
