Section 4521.2 - Deferred compensation plans, Commonwealth or political subdivision officers and employees(a) The Commonwealth of Pennsylvania, and any political subdivision or municipal authority of this Commonwealth, may establish eligible deferred compensation plans pursuant to section 457 of the Internal Revenue Code of 1986 ( Public Law 99-514, 26 U.S.C. § 457 ) for their elected or appointed officers and employes who perform services for the Commonwealth , a political subdivision or municipal authority.(b) As used in this section, "Commonwealth officer" or "employe" means: (1) any individual who is an elected or appointed official of the Commonwealth;(2) any individual employed by the Commonwealth; or(3) any individual employed by the Commonwealth where it is deemed an employer-employe relationship exists. The State Employees' Retirement Board shall make the final determination of who is a Commonwealth officer or employe. "Compensation" means pay for normal services rendered.
(c) Any eligible deferred compensation plans established for Commonwealth officers or employes shall be established by the State Employees' Retirement Board.(d) Any eligible deferred compensation plans established for the officers, employes or other individuals performing services for a political subdivision or municipal authority shall be established and administered by the governing body of the political subdivision or municipal authority.(e) In order to establish and administer eligible deferred compensation plans, the powers and duties of the State Employees' Retirement Board or the governing body of a political subdivision or municipal authority shall include, but not be limited to:(1) Entering into written agreements with one or more financial or other organizations to administer the deferred compensation plan for Commonwealth employes or employes of political subdivisions or municipal authorities and to invest funds held pursuant to such plan. Any such written agreement and deferred compensation plan shall conform with section 457 and any other provisions of the Internal Revenue Code of 1986 ( Public Law 99-514, 26 U.S.C. § 457 ) applicable to the plans.(2) Promulgating rules and regulations establishing procedures whereby eligible individuals may elect to participate in a plan, change their election amount or change their investment choices on a periodic basis as determined by the State Employees' Retirement Board or governing body of the political subdivision or municipal authority, which shall not be less frequently than quarterly, whereby eligible individuals may elect to cease deferrals entirely at any time with reasonable notice, not to exceed four weeks, and whereby such individuals may designate the amount of compensation to be deferred above a minimum monthly deposit of ten dollars; arranging for a deduction, from the compensation of eligible individuals, of the amounts to be deferred under a plan; establishing standards or criteria for the selection by the State Employees' Retirement Board or the governing body of the political subdivision or municipal authority of financial institutions, insurance companies or other organizations which may be qualified as managers on behalf of the Commonwealth, a political subdivision or municipal authority, of funds deferred under a plan on behalf of any eligible individual; establishing standards and criteria for the providing of options to eligible individuals concerning the method of investing amounts deferred under any plan and of informing eligible individuals of specific options offered by qualified managers; establishing standards and criteria for the disclosure to eligible individuals of the anticipated and actual income attributable to such amounts, property and rights and all fees, costs and charges to be made against such amounts deferred to cover the costs of administering and managing the funds.(3) An annual review of any qualified fund manager for the purpose of making certain it continues to meet all standards and criteria established.(4) Establishing procedures in the plan document where any officer or employe may:(i) cease making deferrals;(ii) withdraw deferred amounts in cases of financial hardship or separation of such individual from service with the Commonwealth, political subdivision or municipal authority, or as otherwise permitted under section 457 of the Internal Revenue Code of 1986; and(iii) dispose of a participant's account pursuant to a domestic relations order unless in conflict with the provisions of section 457 of the Internal Revenue Code of 1986.(5) All deferred compensation plans shall be administered in compliance with section 457 and any other provisions of the Internal Revenue Code of 1986 ( Public Law 99-514, 26 U.S.C. § 457 ) and applicable to the plans. Any income deferred under such authorized agreement shall continue to be included as regular compensation for computing retirement and benefits earned by any Commonwealth , political subdivision or municipal authority officer or employe, but any sum deferred shall not be included in the computation of any Federal income taxes to be withheld.(f) All amounts deferred under a deferred compensation plan shall constitute taxable income for purposes of the act of March 4, 1971 (P.L. 6, No. 2), known as the "Tax Reform Code of 1971," and shall constitute taxable income for State and local earned income taxes.(g) Neither the Commonwealth, the State Employees' Retirement Board , any political subdivision nor any municipal authority shall be responsible for any investment loss incurred in the program, or for the failure of any investment to earn any specific or expected return or to earn as much as any other investment opportunity, whether or not such other investment opportunity was offered to participants in the program, nor shall the Commonwealth contribute to its deferred compensation program. The expenses arising from allowing individuals to elect to participate in a deferred compensation plan, to choose a fund manager, to deduct from compensation amounts deferred under a plan and to transfer to the fund manager amounts so deducted shall be borne by the Commonwealth, the political subdivision or municipal authority. All other expenses arising from the administration of a deferred compensation plan shall be assessed against the accounts created on behalf of participating individuals either by the fund managers or by the Commonwealth, a political subdivision or municipal authority. The obligation of the Commonwealth, political subdivision or municipal authority officer or employe shall be a contractual obligation only with no preferred or special interest in deferred funds to such officer, employe or contractor except as otherwise provided by this act.(h)(1) All assets and income which have been or shall be withheld or deferred by the Commonwealth, political subdivision or municipal authority in accordance with this section shall be held in trust in any funding vehicle permitted by section 457 of the Internal Revenue Code of 1986 for the exclusive benefit of the plan's participants and their beneficiaries until such time as the funds are distributed to the participant or his beneficiary in accordance with the terms of the agreement between the participant and the State Employees' Retirement Board or between the participant and the governing body of the political subdivision or municipal authority. All such assets and income withheld or deferred by the Commonwealth shall be held in trust as set forth in this paragraph in a special fund created within the State Treasury of which the State Treasurer shall be the custodian. Such deferred compensation plans shall exist and serve in addition to and shall not be a part of any retirement or pension system for officers and employes.(2) The members of the State Employees' Retirement Board shall be the trustees of the deferred compensation plan established for Commonwealth officers and employes. Any political subdivision or municipal authority administering a plan as a trust under this section shall be required to name one or more persons as trustee of such plan, and to establish provisions relating to the removal or resignation of a trustee, the appointment of a successor and the methods by which the trustee may take necessary action as required under the plan.(3) The trust established for Commonwealth officers and employes is declared to be a spendthrift trust, and any construction of a participant's plan account as self-settled shall not cause the plan account to be treated as other than a spendthrift trust.(4) Any benefit or interest available under a deferred compensation plan established under this section, or any right to receive or direct payments under such a plan, or any distribution of payment made under such a plan shall not, except as expressly specified by the plan, be subject to assignment, alienation, garnishment, attachment, transfer, anticipation, sale, mortgage, pledge, hypothecation, commutation, execution or levy, whether by voluntary or involuntary act of any interested person.(i) Investment of deferred funds by any corporation, institution, insurance company or custodial bank which the State Employees' Retirement Board or governing body of a political subdivision or municipal authority has approved shall not be unreasonably delayed, and in no case shall the investment of deferred funds be delayed more than thirty days from the date of payroll deduction to the date that funds are invested. Any interest earned on such funds pending investment shall be allocated to the Commonwealth, political subdivision or municipal authority and credited to the accounts of employes who are then participating in the plan unless such interest is used to defray administrative costs and fees which would otherwise be required to be borne by employes who are then participating in the plan.(k) A participant may withdraw from the agreement in accordance with the approved plan by notice, in writing, signed by the participant and approved by the administrator and such withdrawal shall discontinue future deferrals by the Commonwealth, the political subdivision or the municipal authority, but shall not operate to withdraw any funds theretofore contributed, except in cases of approved financial hardship or as otherwise authorized by the plan.(l) Every officer or employe of the Commonwealth, political subdivision or municipal authority shall be eligible for participation in a deferred compensation plan under this section.1811, March 30, P.L. 145, No. 99, § 8.2, added 1987, Nov. 6, P.L. 394, No. 81, § 2, effective in 120 days. Amended 1998, Dec. 21, P.L. 1265, No. 162, § 1, effective in 60 days.