§ 36. Method of financing.

(a) Funds of System.

(1) Established.

In this System there are:

(i) an Annuity Savings Fund;

(ii) an Annuity Reserve Fund;

(iii) a Pension Accumulation Fund; and

(iv) a Pension Reserve Fund.

(2) Credits to Funds.

The Board of Trustees shall credit the assets of this System to the appropriate fund according to the purpose for which the assets are held.

(b) Annuity Savings Fund.

(1) In general.

The Annuity Savings Fund consists of the assets for each member's annuity portion of the member's retirement benefit.

(2) Credits to Fund.

The Board of Trustees shall credit to each member's individual account in the Annuity Savings Fund:

(i) the contributions made by the member; plus

(ii) interest on the member's accumulated contributions, compounded annually at the rate provided for in § 30(9), from the effective date of membership through termination of membership.

(3) Payments from Fund.

From the Annuity Savings Fund, the Board of Trustees shall pay the accumulated contributions of a member that, as provided in this § 36:

(i) are withdrawn by the member; or

(ii) if a member dies, are paid to the member's estate or designated beneficiary.

(4) Transfers to Annuity Reserve Fund.

When a member retires, the Board of Trustees shall transfer his or her accumulated contributions from the Annuity Savings Fund to the Annuity Reserve Fund.

(5) Compensation rate treated as continuing through pay period.

To determine the earnable compensation of a member in a payroll period, the Board of Trustees may treat the rate of annual compensation payable to the member on the 1^st day of the payroll period as continuing throughout the payroll period.

(6) less than full pay period.

No deductions may be made from the earnable compensation of a member either entering or leaving service who has worked less than a full payroll period.

(7) Contributions required.

(i) The member contributions provided for in this section shall be made notwithstanding any resulting reduction in the actual compensation received below the minimum compensation provided for by law for a member.

(ii) Each member is deemed to have agreed to make the member contributions required by this section and to have received full compensation.

(iii) Except for the benefits provided under this section, the payment of compensation less any member contribution is a complete discharge of all claims for services rendered by an employee during the time covered by the payment.

(8) Certification and payment of member contributions.

(i) The Board of Trustees shall certify to the Department of Finance the percentage of compensation to be deducted from each member's earnable compensation.

(ii) As each payroll is paid, the Department of Finance shall certify to the Board of Trustees, the member contributions deducted from the compensation of each member employed.

(iii) On receipt of the certification from the Department of Finance that a member's contributions have been deducted from the member's compensation, the Board of Trustees shall credit those contributions to the member's account in the Annuity Savings Fund.

(9) Redeposits.

Subject to the approval of the Board of Trustees, any member may redeposit, by a single payment or by an increased rate of contributions an amount equal to the total amount that the member previously withdrew, plus regular interest as provided for under § 32.

(c) Annuity Reserve Fund.

The Annuity Reserve Fund shall be the fund from which shall be paid all annuities and all benefits in lieu of annuities, payable as provided in this subtitle. Should a beneficiary retired on account of disability be restored to active service with a compensation not less than his average final compensation at the time of his last retirement, his annuity reserve shall be transferred form the Annuity Reserve Fund to the Annuity Savings Fund and credited to his individual account therein.

(d) Pension Accumulation Fund.

(1) The Pension Accumulation Fund shall be the fund in which shall be accumulated all reserves for the payment of all pensions and other benefits payable from contributions made by the City of Baltimore and from which shall be paid all pensions and other benefits on account of members with prior service credit and lump sum death benefits for all members payable from the said contributions. Contributions to and payments from the Pension Accumulation Fund shall be made as follows:

(2) On account of each member there shall be paid annually into the Pension Accumulation Fund by the City of Baltimore, for the preceding fiscal year, a certain percentage of the earnable compensation of each member to be known as the "normal contribution," and an additional percentage of his earnable compensation to be known as the "accrued liability contribution". The rates per centum of such contributions shall be fixed on the basis of the liabilities of the retirement system as shown by actuarial valuation.

(3) On the basis of regular interest and of such mortality and other tables as shall be adopted by the Board of Trustees, the actuary engaged by the Board shall make a valuation to determine the required contribution by the City of Baltimore to the Pension Accumulation Fund.

The actuary shall determine a normal cost for each employee which is equal to the amount of annual contribution which is necessary to provide his benefit if such contributions had been made annually from his date of employment to his date of retirement. The total of amounts so determined shall be known as "normal cost contribution".

(4)(i) For each employee, the Board of Trustees shall calculate an accrued liability equal to the accumulation of the annual normal cost contribution described in paragraph (3) of this subsection from date of employment to the valuation date on the basis of the actuarial assumptions adopted by the Board of Trustees.

(ii) The accrued liability calculated in accordance with subparagraph (i) shall be added to the reserve for retirement benefits payable to retired members from the Pension Accumulation Fund to obtain the total accrued liability.

(iii) The assets of the Pension Accumulation Fund shall be applied against the total accrued liability calculated for all participants to determine the amount of unfunded accrued liability.

(iv) If the total accrued liability exceeds the assets in the Pension Accumulation Fund, an accrued liability contribution shall be determined as the amount that is sufficient to meet regular interest on the unfunded accrued liability and to amortize the principal of the unfunded accrued liability over the period determined by the Board of Trustees.

(v) If the assets in the Pension Accumulation Fund exceed the total accrued liability, the excess assets shall be amortized over the period determined by the Board of Trustees to reduce the required contribution by the City of Baltimore.

(5) The required contribution by the City of Baltimore is the amount equal to the normal cost, plus the accrued liability contribution or less the amortization of the excess assets, as the case may be. However, the aggregate payment by the City must be sufficient, when combined with the amount in the fund, to provide the pensions and other benefits payable out of the fund during the then-current year.

(6) All pensions and all benefits in lieu of pensions, with the exception of those payable on account of members who received no prior service allowance, and all lump sum death benefits on account of death in active service payable from contributions of the City of Baltimore shall be paid from the Pension Accumulation Fund.

(7) On the retirement of a member not entitled to credit for prior service, an amount equal to that member's pension reserve shall be transferred from the Pension Accumulation Fund to the Pension Reserve Fund.

(e) Pension Reserve Fund.

The Pension Reserve Fund is the fund from which the pension is paid to members not entitled to credit for prior service and benefits in lieu thereof. If such a beneficiary retired on account of disability is restored to active service with compensation not less than his or her average final compensation at the time of his or her last retirement, the pension reserve thereon shall be transferred from the Pension Reserve Fund to the Pension Accumulation Fund. If the pension of such a disability beneficiary is reduced as a result of an increase in his or her earning capacity, the amount of the annual reduction in his or her pension shall be paid annually into the Pension Accumulation Fund during the period of that reduction.

(f) Payment of funds.

(1) Annually, the Board of Trustees shall certify to the Director of Finance the amount of the City's contribution, as determined by the System's actuary and presented in the System's fiscal year end actuarial valuation report approved and adopted by the Board of Trustees.

(2) This certification shall be made no later than 90 days before the 1^st day of the new fiscal year following the certification, at which date the contribution becomes due to the system.

(3) The certified amount of the contribution shall be included in the new fiscal year's Ordinance of Estimates.

(g) {Repealed}

(h) Percent of compensation contributable.

(1) Notwithstanding the funding provisions hereinabove set forth in this section, effective with the 1^st full payroll period commencing closest to July 1, 1973, the contribution by a member to the retirement system shall equal 5% of his regular compensation, such contribution to continue throughout such member's entire period of service. However, any member in the system prior to July 1, 1967, who elected to continue contributing at his rate of contribution as established prior to July 1, 1967, and to discontinue contributions at age 50, after 25 years of service, shall continue at a rate which is 1% less than his present rate of contribution. Overtime pay shall not be included within the term "regular compensation".

Effective with the 1^st full payroll period commencing closest to January 1, 1989, each member who would otherwise contribute 5% of his regular compensation shall contributed 6½% of his regular compensation, such contribution to continue until the 1^st full payroll period commencing closest to July 1, 1989, when it shall become 6¾% of his regular compensation; effective with the 1^st full payroll period commencing closest to July 1, 1990, each member shall contribute 7% of his regular compensation, such contribution to continue throughout such member's remaining period of service.

(2) For members in the system prior to July 1, 1967, who elected to discontinue contributions at age 50 in accordance with the preceding paragraph of this § 36(h), effective with the 1^st full payroll period commencing closest to January 1, 1989, such member shall contribute 1½% of his regular compensation, such contribution to continue until the 1^st full payroll period commencing closest to July 1, 1989, when it shall become 1¾% of his regular compensation; effective with the 1^st full payroll period commencing closest to July 1, 1990, each such member shall contribute 2% of his regular compensation, such contribution to continue throughout such member's remaining period of service.

(3) Effective with the 1^st full payroll period commencing closest to January 1, 1989, the contributions described in this § 36(h) shall be treated as being "picked up" by the City of Baltimore within the meaning of § 414(h)(2) of the Internal Revenue Code of 1986 as amended.

Such picked-up contributions shall not be excluded from "average final compensation" in computing the amount of any retirement allowance under the system or any other benefit paid or payable in connection with the member's employment. Each member shall at all times be fully vested in such contributions.

As soon as administratively practicable, the City shall request a private letter ruling from the Internal Revenue Service to the effect that the contributions so picked up by the City on behalf of members of the retirement system shall be treated as employer contributions described in Code § 414(h)(2) and will not be includable in the member's gross income for federal income tax purposes for the year in which they are contributed. In the event the Internal Revenue Service rules that the City's pick up of contributions does not satisfy the requirements of Code § 414(h)(2), or in the event § 414(h)(2) is repealed, the contribution rates set forth in this § 36(h) shall remain in effect, and the contributions shall no longer be treated as picked up by the City but shall be paid instead directly by the member.

(4) Effective with the 1^st full payroll period commencing after the date of enactment of Ordinance 93-262, each member who would otherwise contribute 7% of his regular compensation according to paragraph (1) above shall instead contribute 6% of his regular compensation, such contribution to continue throughout such member's remaining period of service.

(5) Effective with the 1^st full payroll period commencing after the applicable effective date shown below, each member shall contribute the percentage of his or her regular compensation that corresponds to the effective date, this contribution to continue throughout the member's remaining period of service:

(i) Optional transfers; supplementary contributions.

Any employee who on July 1, 1967, is a member of the Employees' Retirement System of the City of Baltimore, or any other pension or retirement fund supported wholly or partly by the City of Baltimore, and is otherwise eligible to be a member of this system, may file with the Board of Trustees on a form prescribed by the Board an election to transfer to the membership of the Retirement System, such election to be filed no later than July 1, 1968, or within 6 months after the appointment of a guardian with respect to the property of an employee who has been determined to be a disabled person whose disability existed on July 1, 1968, provided such election is filed prior to July 1, 1972. An eligible employee who during the aforesaid period files an election to transfer membership to the Retirement System may contribute to such system in excess of the normal contribution as otherwise herein defined the difference between contributions paid by him into the Employees' Retirement System or any other pension or retirement fund supported wholly or partly by the City of Baltimore, and the amount that he would have been required to pay into the Retirement System from July 1, 1962, to the effective date of his transfer to the Retirement System, such difference to be paid to the Retirement System prior to retirement, with interest to date of payment. In the event that he does not elect to make these additional contributions, any retirement allowance to which he may be entitled shall be reduced by the actuarial equivalent of such contributions which have not been made, together with interest thereon. The total annuity that would have been payable had he been required to make payment of these additional contributions shall be used in determining the amount of the supplemental pension provided under § 34(a)(6).

(j) Interest and earnings.

(1) For the purpose of actuarial valuations, the system's assets shall be carried at current market value and shall be valued on each June 30 valuation date at the then current market value.

(2) The Board of Trustees shall annually credit regular interest, less the investment management, custodian, and investment advisor costs on the average account balances for the preceding year, to each of the funds. After payment of fees for pension fund management, custodian, and investment advice or services as provided in §§ 35(g) and 43(a), any excess earnings or deficit earnings of the Funds of this system ("Funds" shall exclude the Paid-Up Benefit Fund and the Contingency Reserve Fund) shall be determined by the system's actuary in accordance with an appropriate asset valuation method giving effect to actual earnings of the Funds over the assumed rate of earnings based on the regular interest rate used for valuation purposes.

(3) Any excess earnings shall be applied by the Board of Trustees in the following order:

(i) to provide post retirement benefit increases as provided by § 36A of this subtitle;

(ii) to meet the conditions of any asset valuation method then in use by the system;

(iii) to meet any requirements, as recommended by the system's actuary, adopted by the Board of Trustees, and, if necessary, approved by the Mayor and City Council, for changes in the assumed rate of regular interest used for valuation purposes or for changes in mortality or other assumptions; and

(iv) subject to paragraphs (6) through (11) of this subsection, the remaining excess earnings, if any, may next be applied by the Board of Trustees, at the recommendation of the system's actuary, in such amount or amounts as they determine (a) to decrease the amount to be contributed by the City of Baltimore, and/or (b) to decrease the period over which the unfunded accrued liability will be amortized as provided in § 36(d)(4).

(4) Any deficit earnings shall be applied by the Board of Trustees in the following order:

(i) to meet the conditions of any asset valuation method then in use by the system; and

(ii) the remaining deficit earnings, if any, may next be applied by the Board of Trustees, at the recommendation of the system's actuary, in such amount or amounts as they determine:

(a) to increase the amount to be contributed by the City of Baltimore, and/or

(b) to increase the period over which the unfunded accrued liability will be amortized as provided in § 36(d)(4).

(5) For the purposes of the June 30, 1997, valuation through the June 30, 2000, valuation, the asset valuation method used by the system shall be the valuation method used for the June 30, 1996, valuation.

(6) Beginning with the June 30, 1996, valuation date, any excess earnings or deficit earnings of the system as of the June 30 valuation date not allocated by the Board of Trustees under paragraphs (1) - (4) ("unallocated earnings") shall be applied as follows:

(i) ⅓ of the unallocated earnings shall be credited or charged to the Benefit Improvement Fund for the exclusive purpose of funding benefit improvements for members and beneficiaries of the system;

(ii) ⅔ of unallocated earnings shall be credited or charged to the Employer Reserve Fund for the exclusive purpose of reducing the required annual contributions of the City to the system.

(7)(i) Effective with unallocated earnings as of June 30, 1997, the first $10-million of unallocated earnings credited to the Benefit Improvement Fund shall not be available for funding the cost of benefit improvements and the first $20-million of unallocated earnings credited to the Employer Reserve Fund shall not be available for reducing the City's annual contributions, but shall instead become permanent, minimum stabilization fund balances restricted in use only for application against future earnings deficits of the system.

(ii) Beginning June 30, 2000, unallocated earnings shall first be applied to increase the minimum stabilization fund balances for the Benefit Improvement Fund and the Employer Reserve Fund, according to the following schedule. If the unallocated earnings are insufficient to increase the balances as specified, the unallocated earnings in subsequent years shall first be applied to meet the requirements of this schedule.

Minimum Stabilization Fund Balance Increases

(In Millions)

*Actual Balances as of June 30, 1999

(iii) Future earnings deficits shall be applied in the same ⅓ - ⅔ ratio as excess earnings, provided that such deficits first be charged against the minimum stabilization fund balances in each of the Benefit Improvement Fund and the Employer Reserve Fund. Any remaining deficits shall then be charged against the unrestricted portions of the Benefit Improvement Fund and the Employer Reserve Fund. In the event that future deficits are applied against these minimum stabilization fund balances, such balances must be replenished before any additional unallocated earnings are credited to the unrestricted portions of the Benefit Improvement Fund and the Employer Reserve Fund.

(8) Excess earnings credited to the Benefit Improvement Fund shall be used to fund retirement laws providing benefits for members and beneficiaries of the system. The cost of these benefits shall be calculated by the system's actuary and shall be charged against the Benefit Improvement Fund by using an actuarial present value method of costing in conjunction with actuarial assumptions and methods in place as of the effective date of the ordinance creating or improving the benefits, as modified if necessary to reflect changes in expected experience to the Plan on account of the ordinance.

(9) Any unused balance in the Benefit Improvement Fund or the Employer Reserve Fund shall be carried forward to the next fiscal year. Positive and negative balances in the unrestricted portions of the Benefit Improvement Fund and the Employer Reserve Fund at the June 30 valuation date shall be credited or charged with interest at the rate of 8.25%, compounded annually.

(10) Notwithstanding paragraphs (6) and (7) of this subsection, $16.7-million of the unallocated earnings of the system as of June 30, 1996, shall be credited to the Benefit Improvement Fund, and $33.3-million of unallocated earnings of this system as of June 30, 1996, shall be credited to the Employer Reserve Fund, without establishing the minimum stabilization fund balances in either fund.

(11) Unallocated excess earnings shall be credited or deficit earnings shall be charged against the Benefit Improvement Fund and the Employer Reserve Fund through the June 30, 2005, valuation date.

(12) Any balance in the Benefit Improvement Fund or the Employer Reserve Fund at June 30, 2005, whether positive or negative, shall be combined with the minimum stabilization fund balance in each respective fund as of June 30, 2005, to produce a "combined balance" for each respective fund.

(13) Any positive combined balance in the Benefit Improvement Fund or the Employer Reserve Fund at June 30, 2005, shall continue to earn interest at the rate of 8.25% per annum, compounded annually, and may be used, respectively, to fund benefits or to reduce the City's annual contribution until the balance in each fund is reduced to zero.

(14) Any negative combined balance in the Benefit Improvement Fund or the Employer Reserve Fund at June 30, 2005, shall be applied by the Board of Trustees in accordance with an appropriate asset valuation method, as recommended by the system's actuary.