SB-0775, As Passed Senate, November 29, 2006

SUBSTITUTE FOR

SENATE BILL NO. 775

     A bill to amend 1957 PA 261, entitled

"Michigan legislative retirement system act,"

by amending sections 24, 26, 28, 59a, and 79 (MCL 38.1024, 38.1026,

38.1028, 38.1059a, and 38.1079), section 24 as amended by 1987 PA

58, sections 26 and 59a as amended by 2002 PA 97, section 28 as

amended by 1981 PA 123, and section 79 as amended by 1998 PA 501.

THE PEOPLE OF THE STATE OF MICHIGAN ENACT:

     Sec. 24. (1) Unless otherwise provided by the member pursuant

to this act, the surviving spouse of a deceased member, deferred

vested member, or retirant having the service qualifications

required by section 23 shall be entitled to receive a survivor's

retirement allowance for life payable from the survivors'

retirement fund. The survivor's retirement allowance shall be

payable beginning on the day after the date of death of the member

or deferred vested member, or beginning in the month after the

month of death in the case of a retirant. If an eligible child or

children also survive the member, deferred vested member, or

retirant, and the child or children are under the care of the

eligible surviving spouse, the survivor's retirement allowance

shall begin as of the day after the date of death of the member or

deferred vested member or the month after the month of death in the

case of a retirant, without regard to whether the surviving spouse

has attained 55 years of age. The benefits to an eligible child or

children shall continue whether or not the surviving spouse

remarries. If the eligible child or children, or any of them, are

not under the care of the eligible surviving spouse, at the

specific designation of the deceased member, deferred vested

member, or retirant as provided in this act, a survivor's

retirement allowance shall begin for the benefit of the eligible

child or children as of the day after the date of death of the

member or deferred vested member, or beginning in the month after

the month of death in the case of a retirant. A deduction from the

monthly survivor's retirement allowance shall not be made for any

fraction of a month remaining at the time of a survivor's death or

becoming ineligible.

     (2) The survivor's retirement allowance shall be equal to 66-

2/3% of the retirement allowance which the deceased member,

deferred vested member, or retirant had earned on the date of

death, as a member, deferred vested member, or retirant. If an

eligible survivor, regardless of age, has in his or her care an

eligible child or children of the deceased member, deferred vested

member, or retirant, the survivor's retirement allowance shall be

75% of the retirement allowance, but when all the children have

become ineligible, the survivor's retirement allowance shall be 66-

2/3% of the retirement allowance.

     (3) An adopted child of a member for the purposes of this act

shall have the same status as a natural child of a member.

     (4) If there is not a surviving spouse but an eligible child

exists, or if an eligible child survives a surviving spouse, then

the survivor's retirement allowance otherwise payable to the

surviving spouse shall be paid in equal parts to each eligible

child until the child becomes ineligible, and the total of the

survivor's retirement allowance paid to any other child shall not

be diminished because of the attainment of ineligible age,

marriage, or death of an eligible child. The portion of the

survivor's retirement allowance that was paid to a formerly

eligible child who subsequently becomes ineligible shall be paid in

equal parts among the remaining eligible children, if any, until no

eligible children remain to be paid.

     (5) Marriage or attainment of ineligible age, whichever occurs

first, shall render a child of a member, deferred vested member, or

retirant ineligible for further consideration in the payment of a

survivor's retirement allowance or in the increase in the amount of

the survivor's retirement allowance under this act.

     (6) If the deceased member, deferred vested member, or

retirant is survived by an eligible child or children who are not

under the care of an eligible surviving spouse and if the deceased

member, deferred vested member, or retirant has filed a written

designation with the board, the survivor's retirement allowance or

a part of it shall be paid to or for the benefit of the eligible

child or children in the shares and in the manner as provided in

the written designation. The deceased member, deferred vested

member, or retirant may provide in the written designation that

payment of all or any part of the survivor's retirement allowance

to a surviving spouse not having the care of all of the eligible

children shall be deferred until the children become ineligible.

     (7) If there is not a written designation by a member,

deferred vested member, or retirant, and if the surviving spouse is

not the biological parent of an eligible child or children, the

survivor's retirement allowance shall be divided equally among the

eligible survivors.

     (8) Unless designated by a member, deferred vested member, or

retirant, when an eligible child or all of the eligible children

become ineligible, the surviving spouse at the time of the member,

deferred vested member, or retirant's death shall receive the

entire survivor's retirement allowance.

     Sec. 26. (1)  Beginning January 1, 1999, the The retirement

system shall be administered by a board of trustees, consisting of

11 persons as follows:

     (a) Two members of the house of representatives appointed by

the speaker of the house of representatives.

     (b) Two members of the senate, appointed in the same manner as

members of standing committees of the senate are appointed.

     (c) Two retirants appointed by the speaker of the house of

representatives and 2 retirants appointed by the senate majority

leader.

     (d) One deferred vested member appointed by the speaker of the

house of representatives and 1 deferred vested member appointed by

the senate majority leader. If a deferred vested member serving on

the board becomes a retirant during his or her term of office, he

or she shall be entitled to serve the remainder of his or her term

of office.

     (e) One participant of Tier 2 who was a former member of Tier

1 appointed in 1999 by the senate majority leader and beginning in

2001 appointed alternately by the speaker of the house of

representatives and the senate majority leader. However, if there

is no participant of Tier 2 who meets the former member requirement

of this subdivision, then 1 additional deferred vested member

appointed in the manner prescribed in this subdivision.

     (2) Only members of the retirement system are eligible to

serve as members on the board of trustees except for the retirants

and Tier 2 participant authorized under subsection (1). Board

members appointed under subsection (1)(a) and (b) are appointed for

2-year terms. Board members appointed under subsection (1)(c) are

appointed for 4-year terms. Board members appointed for terms

beginning in 1999 under subsection (1)(d) are appointed for 2-year

terms. Board members appointed for terms beginning in 2001 under

subsection (1)(d) are appointed for 4-year terms. A board member

appointed for a term beginning in 1999 under subsection (1)(e) is

appointed for a 2-year term. Beginning in 2001, a board member

appointed under subsection (1)(e) is appointed for a 4-year term.

For terms beginning on or after January 1, 1999, board members

appointed under subsection (1)(c), (d), or (e) shall not serve as a

board member under those subdivisions for a combined total of more

than 8 years.

     (3) Each person, whether appointed as a trustee or becoming a

trustee ex officio, shall take an oath of office before the

secretary of state, clerk of the house, or secretary of the senate,

and, upon taking the oath, qualifies as a trustee. The oath of

office shall be as prescribed under section 1 of article XI of the

state constitution of 1963.

     (4) A member of the board of trustees serving as of December

31, 2010 shall continue to serve as a member until December 31,

2011. Beginning January 1, 2012, the board of trustees shall be

composed of 11 members as indicated in this section and in the

bylaws. Except as otherwise provided in this section, the 11

members of the board shall contain at least 4 members who are

retirants, 2 members who are deferred former qualified

participants, and at least 1 current member of Tier 2. If there are

insufficient persons who qualify under this section and are willing

to serve, then members shall be appointed as indicated in the

bylaws.

     Sec. 28.  A Beginning January 1, 2012, a vacancy in a

trusteeship shall be filled  for the unexpired term in the same

manner as original appointments are made as provided in the

bylaws.

     Sec. 59a. (1) This section is enacted pursuant to section

401(a) of the internal revenue code, 26 USC 401(a), that imposes

certain administrative requirements and benefit limitations for

qualified governmental plans. This state intends that the

retirement system be a qualified pension plan created in trust

under section 401 of the internal revenue code, 26 USC 401, and

that the trust be an exempt organization under section 501 of the

internal revenue code, 26 USC 501. The board of trustees shall

administer the retirement system to fulfill this intent.

     (2) Except as otherwise provided in this section, employer-

financed benefits provided by the retirement system under this act

shall not exceed the lesser of $90,000.00 or 100% of the member's

average compensation for high 3 years as described in section

415(b)(3) of the internal revenue code for retirement occurring at

age 62 or older.

     (3) The limitation on employer financed benefits provided by

the retirement system under subsection (2) applies unless

application of subsections (4) and (5) produces a higher

limitation, in which case the higher limitation applies.

     (4) If a member retires before age 62, the amount of

$90,000.00 in subsection (2) is actuarially reduced to reflect

payment before age 62. The retirement system shall use an interest

rate of 5% per year compounded annually to calculate the actuarial

reduction in this subsection. If this subsection produces a

limitation of less than $75,000.00 at age 55, the limitation at age

55 is $75,000.00 and the limitations for ages under age 55 shall be

calculated from a limitation of $75,000.00 at age 55.

     (5) Section 415(d) of the internal revenue code requires the

commissioner of internal revenue to adjust the $90,000.00

limitation in subsection (2) to reflect cost of living increases,

beginning with calendar year 1988. This subsection shall be

administered using the limitations applicable to each calendar year

as adjusted by the commissioner of internal revenue under section

415(d) of the internal revenue code. The retirement system shall

adjust the benefits subject to the limitation each year to conform

with the adjusted limitation.

(2) Notwithstanding any other provision of this act, the

retirement system shall be administered in compliance with section

415 of the internal revenue code, 26 USC 415, and regulations under

that section that are applicable to governmental plans. Employer-

financed benefits provided by the retirement system under this act

shall not exceed the applicable limitations of section 415 of the

internal revenue code, 26 USC 415, as adjusted by the commissioner

of internal revenue under section 415(d) of the internal revenue

code, 26 USC 415(d), to reflect cost of living increases, and the

retirement system shall adjust the benefits subject to the

limitation each calendar year to conform with the adjusted

limitation. For purposes of section 415(b) of the internal revenue

code, 26 USC 415(b), the applicable limitation shall apply to

aggregated benefits received from all qualified pension plans for

which the office of retirement services coordinates administration

of that limitation.

(3)  (6)  The assets of the retirement system shall be held in

trust and invested for the sole purpose of meeting the legitimate

obligations of the retirement system and shall not be used for any

other purpose. The assets shall not be used for or diverted to a

purpose other than for the exclusive benefit of the members, vested

former members, retirants, and retirement allowance beneficiaries

before satisfaction of all retirement system liabilities.

(4)  (7)  The retirement system shall return post-tax member

contributions made by a member and received by the retirement

system to a member upon retirement, pursuant to internal revenue

service regulations and approved internal revenue service exclusion

ratio tables.

(5)  (8)  The required beginning date for retirement

allowances and other distributions shall not be later than April 1

of the calendar year following the calendar year in which the

employee attains age 70-1/2 or April 1 of the calendar year

following the calendar year in which the employee retires.

(6)  (9)  If the retirement system is terminated, the interest

of the members, deferred vested members, retirants, and retirement

allowance beneficiaries in the retirement system is nonforfeitable

to the extent funded as described in section 411(d)(3) of the

internal revenue code, 26 USC 411(d)(3), and related internal

revenue service regulations applicable to governmental plans.

(7)  (10)  Notwithstanding any other provision of this act to

the contrary that would limit a distributee's election under this

act, a distributee may elect, at the time and in the manner

prescribed by the board of trustees, to have any portion of an

eligible rollover distribution paid directly to an eligible

retirement plan specified by the distributee in a direct rollover.

This subsection applies to distributions made on or after January

1, 1993.

(8)  (11)  For purposes of determining actuarial equivalent

retirement allowances under this act, the actuarially assumed

interest rate shall be 7% with utilization of the 1971 group

annuity and mortality table.

     (12) Notwithstanding any other provision of this section, the

retirement system shall be administered in compliance with the

provisions of section 415 of the internal revenue code and revenue

service regulations under this section that are applicable to

governmental plans. If there is a conflict between this section and

another section of this or any other act of this state, this

section prevails.

(9)  (13)  Notwithstanding any other provision of this act,

the compensation of a member of the retirement system shall be

taken into account for any year under the retirement system only to

the extent that it does not exceed the compensation limit

established in section 401(a)(17) of the internal revenue code, 26

USC 401(a)(17), as adjusted by the commissioner of internal

revenue. This subsection applies to any person who first becomes a

member of the retirement system on or after October 1, 1996.

(10)  (14)  Notwithstanding any other provision of this act,

contributions, benefits, and service credit with respect to

qualified military service will be provided under the retirement

system in accordance with section 414(u) of the internal revenue

code, 26 USC 414(u). This subsection applies to all qualified

military service on or after December 12, 1994.

     Sec. 79. (1) A former qualified participant may elect health

insurance benefits in the manner prescribed in this section if he

or she meets both of the following requirements:

     (a) The former qualified participant is vested in health

benefits under section 75(2).

     (b) The former qualified participant meets 1 of the following

requirements:

     (i) He or she meets or exceeds the benefit commencement age

employed in the actuarial present value calculation under section

62 and the service requirements that would have applied to that

former participant under Tier 1 for receiving health insurance

coverage under section 50b, if that former participant was a member

of Tier 1.

     (ii) He or she is 55 years of age or older.

     (2) A former qualified participant who is eligible to elect

health insurance coverage under subsection (1) may elect health

insurance coverage in a health benefit plan or plans as authorized

by section 50b.  , or in another plan as provided in subsection

(6).  A former qualified participant who is eligible to elect

health insurance coverage under subsection (1) may also elect

health insurance coverage for his or her health benefit dependents,

if any. A surviving health benefit dependent of a deceased former

qualified participant who is eligible to elect health insurance

coverage under subsection (1) may elect health insurance coverage

to begin at the death of the deceased former qualified participant

in the manner prescribed in this section.

     (3)  Except as otherwise provided in subsection (6), an  An

individual who elects health insurance coverage under this section

shall become a member of a health insurance coverage group

authorized pursuant to section 50b.

     (4) For a former qualified participant who is eligible to

elect health insurance coverage under subsection (1) and who is

vested in those benefits under section 75(2)(a) or (c), and for his

or her health benefit dependents, this state shall pay a portion of

the health insurance premium as calculated under this subsection on

a cash disbursement method. An individual described in this

subsection who elects health insurance coverage under this section

shall pay to the retirement system the remaining portion of the

health insurance coverage premium not paid by this state under this

subsection. The portion of the health insurance coverage premium

paid by this state under this subsection shall be 90% of the

payments for health insurance coverage under section 50b. If the

individual elects the health insurance coverage provided under

section 50b, this state shall transfer its portion of the amount

calculated under this subsection to the health insurance fund

created by section 22c.

     (5) For a former qualified participant who is eligible to

elect health insurance coverage under subsection (1) and who is

vested in those benefits under section 75(2)(b), and for his or her

health benefit dependents, this state shall pay a portion of the

health insurance premium as calculated under this subsection on a

cash disbursement method. An individual described in this

subsection who elects health insurance coverage under this section

shall pay to the retirement system the remaining portion of the

health insurance coverage premium not paid by this state under this

subsection. The portion of the health insurance coverage premium

paid by this state under this subsection shall be equal to the

premium amounts paid on behalf of retirants of Tier 1 for health

insurance coverage under section 50b. If the individual elects the

health insurance coverage provided under section 50b, the state

shall transfer its portion of the amount calculated under this

subsection to the health insurance fund created by section 22c.

     (6) A former qualified participant or health benefit dependent

who is eligible to elect health insurance coverage under this

section and who elects health insurance coverage under a different

plan than the plan authorized under section 50b may elect to have

an amount up to the amount of the retirement system's share of the

monthly health insurance premium subsidy provided in this section

paid by the retirement system directly to the other health

insurance plan or to a medical savings account established pursuant

to section 220 of the internal revenue code, to the extent allowed

by law or under the provisions and procedures of Tier 2.

(6)  (7)  If the department of management and budget receives

notification from the United States internal revenue service that

this section or any portion of this section will cause the

retirement system to be disqualified for tax purposes under the

internal revenue code, then the portion that will cause the

disqualification does not apply.