On October 9, 2009, Gov. Rendell signed into law Act 51 of 2009 (“Act 51”), which removed the 100 percent Killed-in-Service benefit from Act 600 and created a similar but not identical benefit under the Emergency and Law Enforcement Personnel Death Benefits Act (“Death Benefits Act”), 53 P.S. § 891 et seq. While the Death Benefits Act creates a 100 percent survivor benefit for firefighters, ambulance service or rescue squad members, and police officers who die in the line of duty, only borough and township police officers, under Act 600, previously had a Killed-in-Service benefit guaranteed by state pension law. This article is limited to the interplay between Act 600 and Act 51. While a cursory reading of the new law suggests a limited change to the existing benefit, Act 51 significantly impacts the current benefit available to surviving spouses and creates challenges for municipal employers in eliminating the now-illegal benefit from an Act 600 Pension Plan. This brief analysis reviews the Act 600 survivor benefits available prior to the passage of Act 51, the new benefit created by Act 51, and identifies the issues that must be addressed in order to transition safely to the new Act 51 benefit.
Summary of Pre-Act 51 Benefits
After Act 30 became law in 2002 and prior to the passage of Act 51, an Act 600 police pension plan was required to provide a 100 percent final salary Killed-in-Service (“KIS”) benefit payable from the pension plan regardless of the deceased officer’s age or years of service. This 100 percent KIS benefit was excludable from gross income and did not provide for any cost of living adjustment. In addition, any Workers’ Compensation monies paid to the surviving spouse or dependants did not reduce or otherwise offset the above Act 600 KIS benefit. Furthermore, independent of the 100 percent KIS benefit under Act 600 and the payment of Workers’ Compensation monies, the Death Benefits Act provided for a $100,000 life insurance payment for the surviving spouse or dependants.
Killed-in-Service Benefit After the Passage of Act 51
Act 51 mandates that the Commonwealth’s general fund provide a monthly 100 percent final salary KIS benefit to a surviving spouse, or to dependants if no surviving spouse exists. The definition of eligible dependants—children up to age 18 who do not attend college and up to age 23 if attending college—remains the same as it had been under Act 600. In addition, the Act 51 monthly KIS benefit contains a cost of living adjustment that is revised annually. However, any Workers’ Compensation monies paid to survivors reduces, dollar-for-dollar, the monthly KIS benefit paid by the Commonwealth.
Furthermore, any age and service benefit paid from the Act 600 pension fund would also reduce, dollar-for-dollar, the monthly KIS benefit paid by the Commonwealth. For example, if the deceased officer had completed more than 12 years of service but not yet reached his normal retirement date, then the surviving spouse and dependants would qualify for a partially vested pension benefit that would be paid on the date that the officer would have reached his normal retirement date. If the deceased officer had already reached his or her superannuation date at the time he or she was killed in the line of duty, the surviving spouse or dependants would qualify for immediate payments of normal retirement benefits reduced by the percentage set for survivor benefits. With the Act 51 monthly KIS benefit, any normal retirement benefits would reduce, dollar-for-dollar, the Act 51 monthly KIS benefit.
When the tax implications are considered, the impact to the surviving spouse could be dramatic. While the Act 51 monthly benefit would be excludable from gross income, any Act 600 normal retirement benefits paid to a surviving spouse would be treated as taxable income. Although it is too early to determine, it would be reasonable to expect that the Commonwealth will reduce its monthly KIS benefit by the gross amount of the Act 600 normal retirement benefit and not by the after-tax net amount. The surviving spouse or dependents can avoid the adverse impact of receiving an Act 600 normal retirement benefit by rejecting that benefit and simply requesting a return of the deceased officer’s pension contributions.
Transitional Issues Related to Implementing the Act 51
While Act 51 provides that it becomes effective immediately, this is not true for police officers who are covered by a collective bargaining agreement. Pennsylvania courts have held that the general assembly cannot enact a law that voids or otherwise changes the terms of an existing collective bargaining agreement. Consequently, to the extent that your current police contract explicitly, or implicitly through past practice, contains an obligation to provide the Act 600 KIS benefit, you cannot unilaterally eliminate that benefit until either (1) it is negotiated out of the collective bargaining agreement, or (2) the current labor contract expires and contract language providing for an Act 600 KIS benefit is removed. Consequently, you should continue to maintain any Killed-in-Service pension insurance coverage. For your convenience, a copy of Act 51 is attached, along with a draft Ordinance/Resolution for removing the KIS benefit from your Pension Plan.
We strongly recommend that you consult your solicitor or special labor counsel to ensure that you have properly eliminated the 100 percent KIS benefit from your Act 600 pension plan.