Section 203.4. Procedure for authorization of alternative actuarial cost method for actuarial valuation reports

(a) Application for authorization. A separate application to the Commission for authorization to utilize an alternative actuarial cost method for the actuarial valuation report shall be made by a municipality that desires the authorization. A separate application shall be made for each municipal pension plan for which the authorization is sought. The application shall be filed by the chief administrative officer of the municipality following adoption by the governing body of the municipality of a resolution requesting the authorization. No application filed on behalf of more than one municipality or more than one municipal pension plan or filed by a person other than the chief administrative officer of the affected municipality will be a valid application.

(b) Deadline date for filing application for authorization. The application for authorization to utilize an alternative actuarial cost method for the actuarial valuation report shall be filed by the last business day occurring 6 months prior to the date on which the actuarial valuation report is due to be filed with the Commonwealth.

(c) Contents of the application for authorization. The application for authorization to utilize an alternative actuarial cost method for the actuarial valuation report shall be prepared by the actuary of the municipal pension plan for which the authorization is sought. The application for authorization shall request a particular alternative actuarial cost method and shall indicate, in general, the impracticality, difficulty and undesirability that would result from utilizing the actuarial cost method prescribed in section 202(b) of the act (53 P. S. § 895.202(b)) and the greater practicality, facility and desirability of utilizing the requested alternative actuarial cost method. The application for authorization shall include the following:

(1) Reasons why use of the prescribed actuarial cost method is not in the best interests of the participants and beneficiaries of the municipal pension plan and why use of the requested alternative actuarial cost method is in the best interests of the participants and beneficiaries of the municipal pension plan.

(2) An algebraic demonstration of the conditions under which the alternative actuarial cost method recognizes accruing pension plan liabilities on a level basis over time as a percentage of covered payroll and produces stability in the annual actuarial cost of the pension plan from year to year. Alternatively, if the Commission recognizes the actuarial cost method as a budgeting tool for municipal government for this particular expenditure item, an algebraic demonstration that the requested alternative actuarial cost method will produce a cost incidence pattern over time that corresponds to the adquately documented likely future revenue availability pattern of the municipality. Algebraic demonstrations shall be based on the actuarial assumptions used for the most recent prior actuarial valuation unless clearly unreasonable and on the demographics of the current active and benefit recipient pension plan population.

(d) Additional documentation to accompany application. An application for authorization to utilize an alternative actuarial cost method for the actuarial valuation report shall also include additional documentation that may be used by the Commission in evaluating the application. The additional documentation shall be supplied by the actuary of the municipal pension plan. The additional documentation shall be as follows:

(1) An indication of the number of instances in the prior practice of the actuary during which the actuary had occasion to use the requested alternative actuarial cost method.

(2) If the requested alternative actuarial cost method has been used previously by the actuary, an indication of the key relevant factors or attributes of the pension plan involved in a prior occurrence and a comparison of those factors or attributes with the pertinent factors or attributes of the municipal pension plan covered by the application.

(3) A copy of a published professional article, study or similar work known to the actuary that analyzes the requested alternative actuarial cost method and compares it to the actuarial cost method prescribed in section 202(b) of the act.

(e) Acceptable alternative actuarial cost methods. An acceptable alternative actuarial cost method shall be an actuarial cost method that meets the following criteria:

(1) Is considered to be a generally accepted actuarial method by the American Academy of Actuaries.

(2) Is permitted under regulations issued by the Internal Revenue Service for the determination of minimum funding requirements under section 412 of the Internal Revenue Code (26 U.S.C.A. § 412).

(3) Results in the accumulation of plan assets equal to or in excess of the present value of accrued pension plan benefits, which shall be demonstrated by the actuary of the applicable municipal pension plan.

(f) Criteria for authorization. The authorization of an alternative actuarial cost method for the actuarial valuation report shall be granted only if the following occurs:

(1) A valid application for authorization of an alternative actuarial cost method has been filed by the municipality.

(2) The application is filed in a timely fashion.

(3) The application specifies an alternative actuarial cost method that meets the requirements of subsection (e)(1) and (2), and for which the required demonstration specified in subsection (e)(3) has been prepared.

(4) The application, with clear specific identification of each item, includes the various application contents items in subsection (c) and relevant items of additional documentation in subsection (d).

(5) The application, on its face, presents the required indication of the reasons or the demonstration of results for each contents item set forth in the applicable paragraph of subsection (c).

(6) The application presents the following:

(i) Reasons with respect to the contents item in subsection (c)(1) that, in the opinion of a majority of the Commission members considering the question, are compelling.

(ii) A demonstration with respect to the contents item in subsection (c)(2) that, in the opinion of a majority of the Commission members considering the question, is clear, reasonably probable and compelling.