HB-4530, As Passed House, April 17, 2007
March 22, 2007, Introduced by Reps. Gonzales and Cushingberry and referred to the Committee on Appropriations.
A bill to amend 1980 PA 300, entitled
"The public school employees retirement act of 1979,"
by amending sections 4, 41, and 41a (MCL 38.1304, 38.1341, and
38.1341a), section 4 as amended by 2003 PA 17, section 41 as
amended by 2002 PA 94, and section 41a as amended by 1996 PA 488.
THE PEOPLE OF THE STATE OF MICHIGAN ENACT:
Sec. 4. (1) "Compound interest" means interest compounded
annually on July 1 on the contributions on account as of the
previous July 1 and computed at the rate of investment return
determined under section 104a(1) for the last completed state
fiscal year.
(2) "Contributory service" means credited service other than
noncontributory service.
(3) "Deferred member" means a member who has ceased to be a
public school employee and has satisfied the requirements of
section 82 for a deferred vested service retirement allowance.
(4) "Department" means the department of management and
budget.
(5)
"Designated date" means September 30, 1997 2006.
(6) "Direct rollover" means a payment by the retirement system
to the eligible retirement plan specified by the distributee.
(7) "Distributee" includes a member or deferred member.
Distributee also includes the member's or deferred member's
surviving spouse or the member's or deferred member's spouse or
former spouse under an eligible domestic relations order, with
regard to the interest of the spouse or former spouse.
(8) Beginning January 1, 2002, except as otherwise provided in
this subsection, "eligible retirement plan" means an individual
retirement account described in section 408(a) of the internal
revenue code, an individual retirement annuity described in section
408(b) of the internal revenue code, an annuity plan described in
section 403(a) of the internal revenue code, or a qualified trust
described in section 401(a) of the internal revenue code, an
annuity contract described in section 403(b) of the internal
revenue code, or an eligible plan under section 457(b) of the
internal revenue code which is maintained by a state, political
subdivision of a state, or an agency or instrumentality of a state
or political subdivision of a state and which agrees to separately
account for amounts transferred into such eligible plan under
section 457(b) of the internal revenue code from this retirement
system, that accepts the distributee's eligible rollover
distribution. However, in the case of an eligible rollover
distribution to a surviving spouse, an eligible retirement plan
means an individual retirement account or an individual retirement
annuity described above.
(9) Beginning January 1, 2002, "eligible rollover
distribution" means a distribution of all or any portion of the
balance to the credit of the distributee. Eligible rollover
distribution does not include any of the following:
(a) A distribution made for the life or life expectancy of the
distributee or the joint lives or joint life expectancies of the
distributee and the distributee's designated beneficiary.
(b) A distribution for a specified period of 10 years or more.
(c) A distribution to the extent that the distribution is
required under section 401(a)(9) of the internal revenue code.
(d) The portion of any distribution that is not includable in
federal gross income, determined without regard to the exclusion
for net unrealized appreciation with respect to employer
securities, except to the extent that the portion of a distribution
that is not includable in federal gross income is paid to either of
the following:
(i) An individual retirement account or annuity described in
section 408(a) or (b) of the internal revenue code.
(ii) A qualified defined contribution plan as described in
section 401(a) or 403(a) of the internal revenue code that agrees
to separately account for amounts transferred, including separately
accounting for the portion of the distribution that is includable
in gross income and the portion of the distribution which is not
includable in gross income.
(10) "Employee organization professional services leave" or
"professional services leave" means a leave of absence that is
renewed annually by the reporting unit so that a member may accept
a position with a public school employee organization to which he
or she belongs and which represents employees of a reporting unit
in employment matters. The member shall be included in membership
of the retirement system during a professional services leave if
all of the conditions of section 71(5) and (6) are satisfied.
(11) "Employee organization professional services released
time" or "professional services released time" means a portion of
the school fiscal year during which a member is released by the
reporting unit from his or her regularly assigned duties to engage
in employment matters for a public school employee organization to
which he or she belongs. The member's compensation received or
service rendered, or both, as applicable, by a member while on
professional services released time shall be reportable to the
retirement system if all of the conditions of section 71(5) and (6)
are satisfied.
(12) "Final average compensation" means the aggregate amount
of a member's compensation earned within the averaging period in
which the aggregate amount of compensation was highest divided by
the member's number of years, including any fraction of a year, of
credited service during the averaging period. The averaging period
shall be 36 consecutive calendar months if the member contributes
to the member investment plan; otherwise, the averaging period
shall be 60 consecutive calendar months. If the member has less
than 1 year of credited service in the averaging period, the number
of consecutive calendar months in the averaging period shall be
increased to the lowest number of consecutive calendar months that
contains 1 year of credited service.
(13) "Health benefits" means hospital, medical-surgical, and
sick care benefits and dental, vision, and hearing benefits for
retirants, retirement allowance beneficiaries, and health insurance
dependents provided pursuant to section 91.
(14) "Internal revenue code" means the United States internal
revenue code of 1986.
(15) "Long-term care insurance" means group insurance that is
authorized by the retirement system for retirants, retirement
allowance beneficiaries, and health insurance dependents, as that
term is defined in section 91, to cover the costs of services
provided to retirants, retirement allowance beneficiaries, and
health insurance dependents, from nursing homes, assisted living
facilities, home health care providers, adult day care providers,
and other similar service providers.
(16) "Member investment plan" means the program of member
contributions described in section 43a.
Sec. 41. (1) The annual level percentage of payroll
contribution rate to finance benefits being provided and to be
provided by the retirement system shall be determined by actuarial
valuation pursuant to subsection (2) upon the basis of the risk
assumptions that the retirement board and the department adopt
after consultation with the state treasurer and an actuary. An
annual actuarial valuation shall be made of the retirement system
in order to determine the actuarial condition of the retirement
system and the required contribution to the retirement system. An
annual actuarial gain-loss experience study of the retirement
system shall be made in order to determine the financial effect of
variations of actual retirement system experience from projected
experience.
(2) The contribution rate for benefits payable in the event of
the death of a member before retirement or the disability of a
member shall be computed using a terminal funding method of
valuation. Except as otherwise provided in this subsection, the
contribution rate for other benefits shall be computed using an
individual projected benefit entry age normal cost method of
valuation. Except as otherwise provided in this section, for the
1995-96 state fiscal year and for each subsequent fiscal year, the
contribution rate for health benefits provided under section 91
shall be computed using a cash disbursement method. For each fiscal
year after the fiscal year in which the actuarial accrued liability
for health benefits under section 91 is at least 100% funded by the
health advance funding subaccount created under section 34(2), the
contribution rate for health benefits provided under section 91
shall be computed using an individual projected benefit entry age
normal cost method of valuation. The contribution rate for service
likely to be rendered in the current year, the normal cost
contribution rate, shall be equal to the aggregate amount of
individual projected benefit entry age normal costs divided by 1%
of the aggregate amount of active members' valuation compensation.
The
Except as otherwise provided
under this subsection, the
contribution rate for unfunded service rendered before the
valuation date, the unfunded actuarial accrued liability
contribution rate, shall be the aggregate amount of unfunded
actuarial accrued liabilities divided by 1% of the actuarial
present value over a period not to exceed 50 years of projected
valuation compensation, where unfunded actuarial accrued
liabilities are equal to the actuarial present value of benefits,
reduced by the actuarial present value of future normal cost
contributions and the actuarial value of assets on the valuation
date. For the 2006-2007 state fiscal year, the contribution rate
for unfunded service rendered before the valuation date shall be
equal to 4.5% of the aggregate amount of unfunded actuarial accrued
liabilities divided by 1% of the actuarial valuation annual
compensation.
(3) Before November 1 of each year, the executive secretary of
the retirement board shall certify to the director of the
department the aggregate compensation estimated to be paid public
school employees for the current state fiscal year.
(4) On the basis of the estimate under subsection (3), the
annual actuarial valuation, and any adjustment required under
subsection (6), the director of the department shall compute the
sum due and payable to the retirement system and shall certify this
amount to the reporting units.
(5) The reporting units shall make payment of the amount
certified under subsection (4) to the director of the department in
12 equal monthly installments.
(6) Not later than 90 days after termination of each state
fiscal year, the executive secretary of the retirement board shall
certify to the director of the department and each reporting unit
the actual aggregate compensation paid to public school employees
during the preceding state fiscal year. Upon receipt of that
certification, the director of the department shall compute any
adjustment required to the amount due to a difference between the
estimated and the actual aggregate compensation and the estimated
and the actual actuarial employer contribution rate. The
difference, if any, shall be paid as provided in subsection (9).
This subsection does not apply in a fiscal year in which a deposit
occurs pursuant to subsection (14).
(7) The director of the department may require evidence of
correctness and may conduct an audit of the aggregate compensation
that the director of the department considers necessary to
establish its correctness.
(8) A reporting unit shall forward employee and employer
social security contributions and reports as required by the
federal old-age, survivors, disability, and hospital insurance
provisions of title II of the social security act, chapter 531, 49
Stat.
620, 42 U.S.C. USC 401 to 405, 406 to 418, 420 to 423, 424a
to 426-1, and 427 to 433.
(9) For an employer of an employee of a local public school
district or an intermediate school district, for differences
occurring in fiscal years beginning on or after October 1, 1993, a
minimum of 20% of the difference between the estimated and the
actual aggregate compensation and the estimated and the actual
actuarial employer contribution rate described in subsection (6),
if any, shall be paid by that employer in the next succeeding state
fiscal year and a minimum of 25% of the remaining difference shall
be paid by that employer in each of the following 4 state fiscal
years, or until 100% of the remaining difference is submitted,
whichever first occurs. For an employer of other public school
employees, for differences occurring in fiscal years beginning on
or after October 1, 1991, a minimum of 20% of the difference
between the estimated and the actual aggregate compensation and the
estimated and the actual actuarial employer contribution rate
described in subsection (6), if any, shall be paid by that employer
in the next succeeding state fiscal year and a minimum of 25% of
the remaining difference shall be paid by that employer in each of
the following 4 state fiscal years, or until 100% of the remaining
difference is submitted, whichever first occurs. In addition,
interest shall be included for each year that a portion of the
remaining difference is carried forward. The interest rate shall
equal the actuarially assumed rate of investment return for the
state fiscal year in which payment is made. This subsection does
not apply in a fiscal year in which a deposit occurs pursuant to
subsection (14).
(10) Beginning on the designated date, all assets held by the
retirement system shall be reassigned their fair market value, as
determined by the state treasurer, as of the designated date, and
in calculating any unfunded actuarial accrued liabilities, any
market gains or losses incurred before the designated date shall
not be considered by the retirement system's actuaries.
(11) Beginning on the designated date, the actuary used by the
retirement board shall assume a rate of return on investments of
8.00% per annum, as of the designated date, which rate may only be
changed with the approval of the retirement board and the director
of the department.
(12) Beginning on the designated date, the value of assets
used shall be based on a method that spreads over a 5-year period
the difference between actual and expected return occurring in each
year after the designated date and such methodology may only be
changed with the approval of the retirement board and the director
of the department.
(13) Beginning on the designated date, the actuary used by the
retirement board shall use a salary increase assumption that
projects annual salary increases of 4%. In addition to the 4%, the
retirement board shall use an additional percentage based upon an
age-related scale to reflect merit, longevity, and promotional
salary increase. The actuary shall use this assumption until a
change in the assumption is approved in writing by the retirement
board and the director of the department.
(14) For fiscal years that begin on or after October 1, 2001,
if the actuarial valuation prepared pursuant to this section
demonstrates that as of the beginning of a fiscal year, and after
all credits and transfers required by this act for the previous
fiscal year have been made, the sum of the actuarial value of
assets and the actuarial present value of future normal cost
contributions exceeds the actuarial present value of benefits, the
amount based on the annual level percent of payroll contribution
rate pursuant to subsections (1) and (2) may be deposited into the
health advance funding subaccount created by section 34.
(15) Notwithstanding any other provision of this act, if the
retirement board establishes an arrangement and fund as described
in section 6 of the public employee retirement benefit protection
act, the benefits that are required to be paid from that fund shall
be paid from a portion of the employer contributions described in
this section or other eligible funds. The retirement board shall
determine the amount of the employer contributions or other
eligible funds that shall be allocated to that fund and deposit
that amount in that fund before it deposits any remaining employer
contributions or other eligible funds in the pension fund.
Sec. 41a. For fiscal years that begin on or after March 28,
1996, the retirement system shall determine a separate contribution
rate for a reporting unit that is a university listed in section
6(5). The retirement system shall determine the separate
contribution rate in the manner prescribed in section 41, except
that the unfunded actuarial accrued liability shall be amortized
over 40 years beginning October 1, 1996 and ending on September 30,
2036, with the payment schedule for universities being based on and
applied to the combined payrolls of the universities' employees who
are members and who were hired before January 1, 1996 and the
universities' employees who would have been members on or after
January
1, 1996, but for the enactment of Act No. 272 of the Public
Acts
of 1995 1995 PA 272. The amount of the unfunded accrued
liability on which the separate contribution rate is determined
shall be that amount which a reporting unit that is a university
listed in section 6(5) is legally responsible for and is calculated
by actuarial analysis. Any reduction in the unfunded liability of
the system pursuant to governmental action affecting the entire
system will be allocated to all reporting units including
universities as determined by the system's actuary. For the 2006-
2007 state fiscal year, the contribution for unfunded actuarial
accrued liability shall be equal to 4.5% of the unfunded actuarial
accrued liability.