Act 600 of 1956 - The Municipal Police Pension Law
Compliance
Act 600 applies to police pension plans for full-time police officers in a borough, town or township, and those regional police departments established after May 10, 1996. Municipalities with one or two full-time police officers may comply with Act 600; however, municipalities with three or more full-time police officers and regional police departments must comply with Act 600. (Plans operating under Act 15, the Pennsylvania Municipal Retirement Law, will differ slightly). Act 600 includes mandatory and optional provisions for benefits.
Note: As of the date of this manual, it is the opinion of the Department of the Auditor General that all home rule municipalities, which would otherwise be required to follow Act 600, must comply with the provisions of Act 600.
Mandatory Provisions
Age and Service Requirements for Retirement
A participant must attain age 55 and complete 25 years of service in the same municipality to be eligible for a normal retirement benefit.
Monthly Pension Benefit
The monthly pension benefit is fifty percent of the average monthly salary. The average monthly salary must be based on a period of not less than 36 months and not more than 60 months immediately prior to retirement. For those municipalities where police officers are covered by the Federal Social Security Act, the municipality may, at its discretion, offset the monthly pension benefit upon attainment of normal social security retirement age. The offset may be up to 75 percent of the primary social security benefit as calculated using wages earned by the participant while employed as a police officer by the municipality.
Employee Contributions
Plans not covered by social security have a mandatory employee contribution rate of between 5 and 8 percent of the officer's total monthly compensation. For plans whose members are covered by social security, the mandatory rate is 5 percent, if there is no social security offset.
If the retirement benefit is offset by social security, the maximum mandatory employee contribution will be calculated as follows:
5% minus (3% social security offset percentage)
For example, if your plan includes a 75 percent offset, the mandatory employee contribution rate is calculated this way:
5% (3% 75%)=5% 2.25%=2.75%.
Return of Employee Contributions
Employees who are ineligible to receive a pension benefit for any reason must have their total contributions plus interest refunded by the plan upon termination of employment. If the reason for payment is due to the death of the employee, then the refund is paid to the beneficiary.
Intervening Military Service
A regularly appointed member of the police force who has been employed as such for at least six months, and who enters active military service for the United States, must receive retirement credit for the period of active military service. To be eligible, the person must return to employment within six months of separation from such military service and be ineligible to receive military retirement pay as a result of that service.
In -Service Disability
The plan must provide for a disability benefit if a police officer incurs a total and permanent disability as a direct result of, and in the line of duty of, employment as a police officer. Specific benefit provisions are to be determined by the governing body.
Optional Provisions
Reduced Retirement Age
A reduction in the retirement age from 55 to as low as 50 may be provided if an actuarial cost study indicates that it is feasible. The completion of at least 25 years of service is still required.
Reduce Social Security Offset
The social security offset to pension benefits may be reduced or eliminated. Such a reduction would change the mandatory employee contribution rate (refer to “Employee Contributions” on page 9).
Vesting Provisions
A vesting provision may be added allowing an employee who terminates with 12 or more years of service to receive a partial pension benefit. The benefit would commence when the employee would have become eligible for normal retirement.
Elimination/Reduction of Employee Contributions
Employee contributions may be reduced or eliminated on an annual basis if this does not result in the need for a municipal contribution. This elimination/reduction must be actuarially certified and authorized by the governing body annually by ordinance or resolution.
Surviving Spouse Benefit
A benefit designed to pay the spouse of a deceased police officer who was retired or eligible to retire at the time of death. The benefit is equal to 50 percent of the normal pension benefit to which the participant was entitled or was actually receiving.
Killed-in-Service Provision
The plan may adopt a benefit for spouses or dependent children of officers killed in service. The benefit structure is to be determined by the municipality.
Length of Service Increments
Additional retirement benefits may accrue to participants for each year of completed service in excess of 25 years. The maximum additional benefit may not exceed $100 per month.
Cost-of-Living Adjustments (COLA)
The plan may provide for an annual increase of retiree benefit payments, which may not exceed the percentage change in the Consumer Price Index. The total benefit plus increases may not exceed 75 percent of the average salary used for computing retirement benefit. Further, the total increases may not exceed 30 percent of the original benefit. No COLA shall be granted which would impair the actuarial soundness of the fund. For plans whose assets exceed the Present Value of Future Benefits, that is, fully-funded, the COLA increase may exceed the limits listed above for the retirees that have received benefits for 20 or more years.
Non-Intervening Military Service
This provision provides that a participant may purchase retirement credit for up to five years of active military service with the United States which occurred before employment with the municipality began, if the participant is not eligible to receive military retirement pay for that service. The participant must pay an amount equal to the statewide average normal cost for similar municipalities (but not more than 10 percent), times the participant's average annual compensation during the first three years of employment as a police officer, plus interest at the rate of 4.75 percent compounded annually, from the participant's date of hire to the date of payment.
Early Retirement Provision
This recently enacted provision allows members with 20 or more years of service the option of retiring prior to normal retirement. The benefit is the actuarially reduced accrued benefit. The actuarial reduction is based on the interest rate and mortality table used in the latest actuarial report submitted to the state.
Example: A police officer is hired at age 30 with a normal retirement age of 55. The officer is currently 50 with an average monthly salary of $4,000. The latest actuarial report submitted to the state used a UP-84 mortality table and 7.5 percent interest rate assumption resulting in a reduction factor of 62.7 percent. The benefit would be calculated in the following manner.
| Normal Retirement Benefit | ||||
| Average Monthly Salary | x |
50% |
= |
Monthly Benefit |
| $4,000 | x |
50% |
= |
$2,000 |
| Accrued Benefit (payable at Normal Retirement Date) (NRD) | ||||
| Actual Yrs of ÷ Yrs from Hire | x |
Monthly Normal |
= |
Accrued Benefit |
| Early Retirement Benefit (payable immediately) | ||||
| Accrued Benefit | x |
Actuarial Equivelant |
= |
Early Retirement |
* Reducing Factor |
||||
| $1,600 | x |
62.7% |
= |
$1,003.20 |
