II 

113TH CONGRESS 

1ST SESSION S. 779 

To amend the Internal Revenue Code of 1986 to provide for reporting and 

disclosure by State and local public employee retirement pension plans. 

IN THE SENATE OF THE UNITED STATES 

APRIL 23, 2013 

Mr. BURR (for himself, Mr. COBURN, and Mr. THUNE) introduced the 

following bill; which was read twice and referred to the Committee on Finance 

A BILL 

To amend the Internal Revenue Code of 1986 to provide 

for reporting and disclosure by State and local public 

employee retirement pension plans. 

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 

3 SECTION 1. SHORT TITLE. 

4 This Act may be cited as the ‘‘Public Employee Pen5 sion Transparency Act’’. 

6 SEC. 2. FINDINGS. 

7 The Congress finds the following: 

8 (1) Pursuant to clauses 1 and 3 of section 8 of 

9 article I of the Constitution of the United States, 

10 the Congress has the authority to condition the conVerDate Mar 15 2010 22:30 Apr 29, 2013 Jkt 029200 PO 00000 Frm 00001 Fmt 6652 Sfmt 6201 E:\BILLS\S779.IS S779

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1 tinuation of certain specified Federal tax benefits 

2 upon State or local government employee pension 

3 benefit plans on the provision of meaningful disclo4 sure under section 4980J of the Internal Revenue 

5 Code of 1986, as added by this Act. 

6 (2) State and local government employee pen7 sion benefit plans have promised pension benefits to 

8 approximately 20,000,000 Americans who are active 

9 employees of these entities. An additional 7,000,000 

10 retirees and their dependents currently receive bene11 fits from State or local government employee pen12 sion benefit plans. The interests of participants in 

13 many of such plans are in the nature of property 

14 rights under State law. 

15 (3) State and local government employee pen16 sion benefit plans are substantially facilitated by the 

17 favorable tax treatment of participants and bene18 ficiaries, investment earnings, and employee con19 tributions with respect to such plans provided by the 

20 Federal Government under the Internal Revenue 

21 Code of 1986. 

22 (4) The investment of State or local govern23 ment employee pension benefit plan assets, the dis24 tribution of benefits under such plans, and other re25 lated financial activities are facilitated through the 


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1 use of instrumentalities of, and substantially affect, 

2 interstate commerce. These activities, which are 

3 interstate in nature and have a substantial impact 

4 on the national economy, affect capital formation, 

5 regional growth and decline, the national markets 

6 for insurance, and the markets for securities and the 

7 trading of securities of State and local governments. 

8 (5) The financial status of State or local gov9 ernment employee pension benefit plans also has a 

10 direct impact on the national markets for insurance 

11 and trading of securities of State and local govern12 ments. 

13 (6) State or local government employee pension 

14 benefit plans additionally have a substantial impact 

15 on interstate commerce as a consequence of the 

16 interstate movement of participants. 

17 (7) State or local government employee pension 

18 benefit plans are becoming a large financial burden 

19 on certain State and local governments and have al20 ready resulted in tax increases and the reduction of 

21 services. 

22 (8) In fact, a recent study published in the 

23 Journal of Economic Perspectives found that the 

24 present value of the already promised pension liabil25 ities of the 50 States amount to $5,170,000,000,000 


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1 and that these pension plans are unfunded by 

2 $3,230,000,000,000. Another study determined that 

3 the total unfunded liability for all municipal plans in 

4 the United States is $574,000,000,000. 

5 (9) Some economists and observers have stated 

6 that the extent to which State or local government 

7 employee pension benefit plans are underfunded is 

8 obscured by governmental accounting rules and 

9 practices, particularly as they relate to the valuation 

10 of plan assets and liabilities. This results in a 

11 misstatement of the value of plan assets and an un12 derstatement of plan liabilities, a situation that 

13 poses a significant threat to the soundness of State 

14 and local budgets. 

15 (10) There currently is a lack of meaningful 

16 disclosure regarding the value of State or local gov17 ernment employee pension benefit plan assets and li18 abilities. This lack of meaningful disclosure poses a 

19 direct and serious threat to the financial stability of 

20 such plans and their sponsoring governments, im21 pairs the ability of State and local government tax22 payers and officials to understand the financial obli23 gations of their government, and reduces the likeli24 hood that State and local government processes will 

25 be effective in assuring the prudent management of 


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1 their plans. The status quo also constitutes a serious 

2 threat to the future economic health of the Nation 

3 and places an undue burden upon State and local 

4 government taxpayers, who will be called upon to 

5 fully fund existing, and future, pension promises. 

6 (11) State or local government employee pen7 sion benefit plans affect the national public interest 

8 and meaningful disclosure of the value of their as9 sets and liabilities is necessary and desirable in 

10 order to adequately protect plan participants and 

11 their beneficiaries and the general public. Meaning12 ful disclosure would also further efforts to provide 

13 for the general welfare and the free flow of com14 merce. 

15 SEC. 3. REPORTING OF INFORMATION WITH RESPECT TO 

16 STATE OR LOCAL GOVERNMENT EMPLOYEE 

17 PENSION BENEFIT PLANS TREATED AS A TAX 

18 EXEMPTION, ETC., REQUIREMENT FOR STATE 

19 AND LOCAL BONDS. 

20 (a) IN GENERAL.—Subpart B of part IV of sub21 chapter B of chapter 1 of the Internal Revenue Code of 

22 1986 is amended by adding at the end the following new 

23 section: 


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1 ‘‘SEC. 149A. REPORTING WITH RESPECT TO STATE OR 

2 LOCAL GOVERNMENT EMPLOYEE PENSION 

3 BENEFIT PLANS. 

4 ‘‘(a) IN GENERAL.—In the case of a failure to satisfy 

5 any requirement of subsection (a) or (b) of section 4980J 

6 with respect to any plan maintained with respect to em7 ployees of one or more States or political subdivisions of 

8 one or more States, no specified Federal tax benefit shall 

9 be allowed or made with respect to any specified bond 

10 issued by any such State or political subdivision (or by 

11 any bonding authority acting on behalf, or for the benefit, 

12 of such State or political subdivision) during the non13 compliance period. 

14 ‘‘(b) NONCOMPLIANCE PERIOD.—For purposes of 

15 this section, the term ‘noncompliance period’ means, with 

16 respect to any State or political subdivision in connection 

17 with any failure described in subsection (a), the period be18 ginning on the date that the Secretary notifies such State 

19 or political subdivision of such failure and ending on the 

20 date that such failure is cured (as determined by the Sec21 retary). 

22 ‘‘(c) SPECIFIED BOND.—For purposes of this section, 

23 the term ‘specified bond’ means— 

24 ‘‘(1) any State or local bond within the meaning 

25 of section 103, 


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1 ‘‘(2) any qualified tax credit bond within the 

2 meaning of section 54A, and 

3 ‘‘(3) any build America bond within the mean4 ing of section 54AA. 

5 ‘‘(d) SPECIFIED FEDERAL TAX BENEFIT.—For pur6 poses of this section, the term ‘specified Federal tax ben7 efit’ means— 

8 ‘‘(1) any exemption from gross income allowed 

9 under section 103 (relating to interest on State and 

10 local bonds), 

11 ‘‘(2) any credit allowed under section 54A (re12 lating to credit to holders of qualified tax credit 

13 bonds), 

14 ‘‘(3) any credit allowed under section 54AA (re15 lating to build America bonds), and 

16 ‘‘(4) any credit or payment allowed or made 

17 under section 6431 (relating to credit for qualified 

18 bonds allowed to issuer).’’. 

19 (b) REPORTING REQUIREMENTS.—Chapter 43 of 

20 such Code is amended by adding at the end the following 

21 new section: 


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1 ‘‘SEC. 4980J. FAILURE OF STATE OR LOCAL GOVERNMENT 

2 EMPLOYEE PENSION BENEFIT PLANS TO 

3 MEET REPORTING REQUIREMENTS. 

4 ‘‘(a) ANNUAL REPORT.—For purposes of section 

5 149A, the requirements of this subsection are as follows: 

6 ‘‘(1) IN GENERAL.—The plan sponsor of a 

7 State or local government employee pension benefit 

8 plan shall file with the Secretary, in such form and 

9 manner as shall be prescribed by the Secretary, a re10 port for each plan year beginning on or after Janu11 ary 1, 2014, setting forth the following information 

12 with respect to the plan, as determined by the plan 

13 sponsor as of the end of such plan year: 

14 ‘‘(A) A schedule of funding status, which 

15 shall include a statement as to the current li16 ability of the plan, the amount of plan assets 

17 available to meet that liability, the amount of 

18 the net unfunded liability (if any), and the 

19 funding percentage of the plan. 

20 ‘‘(B) A schedule of contributions by the 

21 plan sponsor for the plan year, indicating which 

22 are or are not taken into account under sub23 paragraph (A). 

24 ‘‘(C) Alternative projections which shall be 

25 specified in regulations of the Secretary for 

26 each of the next 60 plan years following the 


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1 plan year of the cash flows associated with the 

2 current liability, together with a statement of 

3 the assumptions used in connection with such 

4 projections. The Secretary shall specify in such 

5 regulations the projection assumptions to be 

6 used as necessary to achieve comparability 

7 across plans. 

8 ‘‘(D) A statement of the actuarial assump9 tions used for the plan year, including the rate 

10 of return on investment of plan assets and as11 sumptions as to such other matters as the Sec12 retary may prescribe by regulation. 

13 ‘‘(E) A statement of the number of partici14 pants who are each of the following— 

15 ‘‘(i) those who are retired or sepa16 rated from service and are receiving bene17 fits, 

18 ‘‘(ii) those who are retired or sepa19 rated and are entitled to future benefits, 

20 and 

21 ‘‘(iii) those who are active under the 

22 plan. 

23 ‘‘(F) A statement of the plan’s investment 

24 returns, including the rate of return, for the 

25 plan year and the 5 preceding plan years. 


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1 ‘‘(G) A statement of the degree to which, 

2 and manner in which, the plan sponsor expects 

3 to eliminate any unfunded current liability that 

4 may exist for the plan year and the extent to 

5 which the plan sponsor has followed the plan’s 

6 funding policy for each of the preceding 5 plan 

7 years. The Secretary shall prescribe by regula8 tion the specific criteria to be used for meeting 

9 the requirements of this paragraph. 

10 ‘‘(H) A statement of the amount of pen11 sion obligation bonds outstanding. 

12 ‘‘(I) A statement of the current cost of the 

13 plan for the plan year. 

14 ‘‘(2) TIMING OF REPORT.—The plan sponsor of 

15 a State or local government employee pension ben16 efit plan shall make the filing required under para17 graph (1) for each plan year not later than 210 days 

18 after the end of such plan year (or within such time 

19 as may be required by regulations prescribed by the 

20 Secretary in order to reduce duplicative filing). 

21 ‘‘(b) ADDITIONAL REPORTING REQUIREMENTS.— 

22 For purposes of section 149A, the requirements of this 

23 subsection are as follows: 


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1 ‘‘(1) SUPPLEMENTARY REPORTS.—In any case 

2 in which, in determining the information filed in the 

3 annual report for a plan year under subsection (a)— 

4 ‘‘(A) the value of plan assets is determined 

5 using a standard other than fair market value, 

6 or 

7 ‘‘(B) the interest rate or rates used to de8 termine the value of liabilities or as the dis9 count value for liabilities are not the interest 

10 rates described in paragraph (3), the plan spon11 sor shall include in the annual report filed for 

12 such plan year pursuant to subsection (a) the 

13 supplementary report for such plan year de14 scribed in paragraph (2) of this subsection. 

15 ‘‘(2) USE OF PRESCRIBED VALUATION METHOD

16 AND INTEREST RATES.—A supplementary report for 

17 a plan year filed for a plan year pursuant to this 

18 subsection shall include the information specified as 

19 required in the annual report under subparagraphs 

20 (A), (F), (G) and (I) of subsection (a)(1), deter21 mined as of the end of such plan year by valuing 

22 plan assets at fair market value and by using the in23 terest rates described in paragraph (3) to value li24 abilities and as the discount value for liabilities. 


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1 ‘‘(3) INTEREST RATES BASED ON U.S. TREAS2 URY OBLIGATION YIELD CURVE RATE.— 

3 ‘‘(A) IN GENERAL.—The interest rates de4 scribed in this subsection are, with respect to 

5 any day, the rates of interest which shall be de6 termined by the Secretary for such day on the 

7 basis of the U.S. Treasury obligation yield 

8 curve for such day. 

9 ‘‘(B) U.S. TREASURY OBLIGATION YIELD

10 CURVE.—For purposes of this subsection, the 

11 term ‘U.S. Treasury obligation yield curve’ 

12 means, with respect to any day, a yield curve 

13 which shall be prescribed by the Secretary for 

14 such day on interest-bearing obligations of the 

15 United States. 

16 ‘‘(c) DEFINITIONS AND SPECIAL RULES.—For pur17 poses of this section— 

18 ‘‘(1) STATE OR LOCAL GOVERNMENT EM19 PLOYEE PENSION BENEFIT PLAN.—The terms ‘State 

20 or local government employee pension benefit plan’ 

21 and ‘plan’ mean any plan, fund, or program, other 

22 than a defined contribution plan (within the mean23 ing of section 414(i)), which was heretofore or is 

24 hereafter established or maintained, in whole or in 

25 part, by a State, a political subdivision of a State, 


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1 or any agency or instrumentality of a State or polit2 ical subdivision of a State, to the extent that by its 

3 express terms or as a result of surrounding cir4 cumstances such plan, fund, or program— 

5 ‘‘(A) provides retirement income to em6 ployees, or 

7 ‘‘(B) results in a deferral of income by em8 ployees for periods extending to the termination 

9 of covered employment or beyond, regardless of 

10 the method of calculating the contributions 

11 made to the plan, the method of calculating the 

12 benefits under the plan, or the method of dis13 tributing benefits from the plan. 

14 ‘‘(2) FUNDING PERCENTAGE.—The term ‘fund15 ing percentage’ for a plan year means the ratio (ex16 pressed as a percentage) which— 

17 ‘‘(A) the value of plan assets as of the end 

18 of the plan year bears to 

19 ‘‘(B) the current liability of the plan for 

20 the plan year. 

21 ‘‘(3) CURRENT LIABILITY.—The term ‘current 

22 liability’ of a plan for a plan year means the present 

23 value of all benefits accrued or earned under the 

24 plan as of the end of the plan year. 

25 ‘‘(4) PRESENT VALUE.— 


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1 ‘‘(A) IN GENERAL.—The present value of 

2 an accrued benefit shall be determined by dis3 counting its future cash flows in accordance 

4 with subsection (b)(3). The present value of all 

5 benefits accrued for a participant shall be cal6 culated as the sum of the present value of the 

7 accrued benefit for each exit event multiplied by 

8 the probability of the associated exit event. 

9 ‘‘(B) EXIT EVENT.—An ‘exit event’ occurs 

10 when the employment of a plan participant ter11 minates. For each currently employed plan par12 ticipant as of the measurement date, there are 

13 one or more potential future exit events. Each 

14 exit event is associated with a termination date, 

15 a cause of termination (e.g., retirement, death, 

16 disability, quit, etc.), a contractual benefit, and 

17 a probability that the participant will exit em18 ployment via the particular event. 

19 ‘‘(5) ACCRUED BENEFIT.— 

20 ‘‘(A) IN GENERAL.—An ‘accrued benefit’ is 

21 determined for each exit event as the projected 

22 benefit multiplied by service earned as of the 

23 measurement date divided by service projected 

24 to be earned by the event date. For participants 

25 retired or separated from service as of the 


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1 measurement date, the accrued benefit equals 

2 the projected benefit. 

3 ‘‘(B) PROJECTED BENEFIT.—As of the 

4 measurement date, a ‘projected benefit’ (con5 sisting of future cash flows) is calculated for 

6 each possible exit event using service projected 

7 to be earned to the event date and salary as of 

8 the measurement date. Such projected benefit 

9 shall reflect any cost-of-living adjustments pay10 able in the future based on the law in effect as 

11 of the measurement date. 

12 ‘‘(6) MEASUREMENT DATE.—The term ‘meas13 urement date’ means the date as of which the value 

14 of the pension obligation is determined (sometimes 

15 referred to as the ‘valuation date’). 

16 ‘‘(7) CURRENT COST.—The term ‘current cost’ 

17 of a plan for a plan year means the present value 

18 as of the end of the plan year of all benefits accrued 

19 or earned under the plan during the plan year. 

20 ‘‘(8) PLAN SPONSOR.—The term ‘plan sponsor’ 

21 means, in connection with a State or local govern22 ment employee pension benefit plan, the State, polit23 ical subdivision of a State, or agency or instrumen24 tality of a State or a political subdivision of a State 

25 which establishes or maintains the plan. 


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1 ‘‘(9) PARTICIPANT.— 

2 ‘‘(A) IN GENERAL.—The term ‘participant’ 

3 means, in connection with a State or local gov4 ernment employee pension benefit plan, an indi5 vidual— 

6 ‘‘(i) who is an employee or former em7 ployee of a State, political subdivision of a 

8 State, or agency or instrumentality of a 

9 State or a political subdivision of a State 

10 which is the plan sponsor of such plan, and 

11 ‘‘(ii) who is or may become eligible to 

12 receive a benefit of any type from such 

13 plan or whose beneficiaries may be eligible 

14 to receive any such benefit. 

15 ‘‘(B) BENEFICIARY.—The term ‘bene16 ficiary’ means a person designated by a partici17 pant, or by the terms of the plan, who is or 

18 may become entitled to a benefit thereunder. 

19 ‘‘(10) PLAN YEAR.—The term ‘plan year’ 

20 means, in connection with a plan, the calendar or 

21 fiscal year on which the records of the plan are kept. 

22 ‘‘(11) STATE.—The term ‘State’ includes any 

23 State of the United States, the District of Columbia, 

24 the Commonwealth of Puerto Rico, the United 

25 States Virgin Islands, American Samoa, Guam, and 


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1 the Commonwealth of the Northern Mariana Is2 lands. 

3 ‘‘(12) FAIR MARKET VALUE.—The term ‘fair 

4 market value’ has the meaning of such term under 

5 section 430(g)(3)(A) (without regard to section 

6 430(g)(3)(B)). 

7 ‘‘(d) MODEL REPORTING STATEMENT.—The Sec8 retary shall develop model reporting statements for pur9 poses of subsections (a) and (b). Plan sponsors of State 

10 or local government employee pension plans may elect, in 

11 such form and manner as shall be prescribed by the Sec12 retary, to utilize the applicable model reporting statement 

13 for purposes of complying with requirements of such sub14 sections. 

15 ‘‘(e) TRANSPARENCY OF INFORMATION FILED.—The 

16 Secretary shall create and maintain a public Web site, 

17 with searchable capabilities, for purposes of posting the 

18 information received by the Secretary pursuant to sub19 sections (a) and (b). Any such information received by the 

20 Secretary (including any updates to such information re21 ceived by the Secretary) shall be posted on the Web site 

22 not later than 60 days after receipt and shall not be treat23 ed as return information for purposes of this title.’’. 

24 (c) CLERICAL AMENDMENTS.— 


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1 (1) The table of sections for subpart B of part 

2 IV of subchapter B of chapter 1 of such Code is 

3 amended by adding at the end the following new 

4 item: 

‘‘Sec. 149A. Reporting with respect to State or local government employee pension benefit plans.’’. 

5 (2) The table of sections for chapter 43 of such 

6 Code is amended by adding at the end the following 

7 new item: 

‘‘Sec. 4980J. Failure of State or local government employee pension benefit 

plans to meet reporting requirements.’’. 

8 SEC. 4. GENERAL PROVISIONS AND RULES OF CONSTRUC9 TION. 

10 (a) LIMITATIONS ON FEDERAL RESPONSIBILITIES

11 RELATING TO PLAN OBLIGATIONS AND LIABILITIES.— 

12 The United States shall not be liable for any obligation 

13 related to any current or future shortfall in any State or 

14 local government employee pension plan. Nothing in this 

15 Act (or any amendment made by this Act) or any other 

16 provision of law shall be construed to provide Federal Gov17 ernment funds to diminish or meet any current or future 

18 shortfall in, or obligation of, any State or local government 

19 employee pension plan. The preceding sentence shall also 

20 apply to the Federal Reserve. 

21 (b) NO FEDERAL FUNDING STANDARDS.—Nothing 

22 in this Act (or any amendment made by this Act) shall 

23 be construed to alter existing funding standards for State 


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1 or local government employee pension plans or to require 

2 Federal funding standards for such plans. 

3 (c) DEFINITIONS.—Terms used in this section which 

4 are also used in section 4980J of the Internal Revenue 

5 Code of 1986 shall have the same meaning as when used 

6 in such section. 

Æ 


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