HB-6638, As Passed House, December 3, 2008
November 12, 2008, Introduced by Rep. Hopgood and referred to the Committee on Senior Health, Security, and Retirement.
A bill to amend 1980 PA 300, entitled
"The public school employees retirement act of 1979,"
by amending sections 4 and 108 (MCL 38.1304 and 38.1408), section 4
as amended by 2007 PA 15 and section 108 as amended by 2002 PA 94.
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, 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 1 or more of
the following:
(a) An individual retirement account described in section
408(a)
of the internal revenue code, an 26 USC 408.
(b) An individual retirement annuity described in section
408(b)
of the internal revenue code, an 26 USC 408.
(c) An annuity plan described in section 403(a) of the
internal
revenue code, or a 26 USC
403.
(d) A qualified trust described in section 401(a) of the
internal
revenue code, an 26 USC
401.
(e) An annuity contract described in section 403(b) of the
internal
revenue code, or an 26 USC
403.
(f) An eligible plan under section 457(b) of the internal
revenue code, 26 USC 457, 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, 26 USC 457, 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.
(g) Beginning January 1, 2008, except as otherwise provided in
this subsection, "eligible retirement plan" means a Roth individual
retirement account as described in section 408A of the internal
revenue code, 26 USC 408A.
(9)
Beginning January 1, 2002 2007, "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, 26
USC 401.
(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.
(d) The portion of any distribution that is not includable in
federal gross income, except to the extent such portion of the
distribution is paid to any of the following:
(i) An individual retirement account or annuity described in
section 408(a) or 408(b) of the internal revenue code, 26 USC 408.
(ii) A qualified plan described in section 401(a) of the
internal revenue code, 26 USC 401, or an annuity contract described
in section 403(b) of the internal revenue code, 26 USC 403, and the
plan providers agree to separately account for the amounts paid,
including any portion of the distribution that is includable in
federal gross income, and the portion of the distribution which is
not so includable.
(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. 108. (1) This section is enacted pursuant to federal law
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 department 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 $10,000.00 per year for a retirant who has 15 or
more
years of credited service at retirement.
(3)
Employer-financed benefits provided by the retirement
system
under this act shall not exceed the limitation under
subsection
(2) unless application of this subsection results in a
higher
limitation. The higher limitation of this subsection applies
to
employer-financed benefits provided by the retirement system
and,
for purposes of section 415(b) of the internal revenue code,
applies
to aggregated benefits received from all qualified pension
plans
administered by the department of management and budget,
office
of retirement systems. Employer-financed benefits provided
by
the retirement system shall not exceed the lesser of the
following:
(a)
One of the following amounts that is applicable to the
member:
(i) If a member retires at age 62 or older, $90,000.00
or the
adjusted
amount described in subsection (4) per year.
(ii) If a member retires at or after age 55 but before
age 62,
the
actuarially reduced amount of the limitation prescribed in
subparagraph
(i) per year. The retirement system shall use an
interest
rate of 5% per year compounded annually to calculate the
actuarial
reduction in this subparagraph. However, the limitation
in
this subparagraph shall not be actuarially reduced below
$75,000.00.
(iii) If a member retires before age 55, the actuarially
reduced
amount
of the limitation prescribed in subparagraph (ii) per year.
The
retirement system shall use an interest rate of 5% per year
compounded
annually to calculate the actuarial reduction in this
subparagraph.
(b)
100% of the member's average compensation for high 3 years
as
described in section 415(b)(3) of the internal revenue code.
(4)
Section 415(d) of the internal revenue code requires the
secretary
of the treasury or his or her delegate to annually adjust
the
$10,000.00 limitation described in subsection (2) and the
$90,000.00
limitation described in subsection (3)(a)(i) for
increases
in cost of living, beginning in 1988. This section shall
be
administered using the limitations applicable to each calendar
year
as adjusted by the secretary of the treasury or his or her
delegate
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) The retirement system shall be administered in compliance
with the provisions of section 415 of the internal revenue code, 26
USC 415, and regulations under that section that are applicable to
governmental plans and beginning January 1, 2010, applicable
provisions of the final regulations issued by the internal revenue
service on April 5, 2007. Employer-financed benefits provided by
the retirement system under this act shall not exceed the
applicable limitations set forth in 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, to reflect cost-of-living increases, and the retirement
system shall adjust the benefits, including benefits payable to
retirants and retirement allowance beneficiaries, 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, 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. If there is a conflict between this section and
another section of this act, this section prevails.
(3) (5)
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,
deferred members, retirants, and retirement allowance
beneficiaries.
(4) (6)
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) (7)
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. The required minimum
distribution requirements imposed by section 401(a)(9) of the
internal revenue code, 26 USC 401, shall apply to this act and be
administered in accordance with a reasonable and good faith
interpretation of the required minimum distribution requirements
for all years to which the required minimum distribution
requirements apply to the act.
(6) (8)
If the retirement system is
terminated, the interest
of the members, deferred 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, and the related internal revenue
service regulations applicable to governmental plans.
(7) (9)
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 retirement board, 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) (10)
For purposes of determining
actuarial equivalent
retirement allowances under sections 45 and 85(1)(b), (1)(c),
(1)(d), and (2), the actuarially assumed interest rate shall be 8%
with utilization of the 1983 group annuity and mortality table.
(11)
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 that 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) (12)
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, 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) (13)
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. This subsection applies to all qualified military service on
or after December 12, 1994. Effective January 1, 2007, in
accordance with section 401(a)(37) of the internal revenue code, 26
USC 401, if a member dies while performing qualified military
service, for purposes of determining any death benefits payable
under this act, the member shall be treated as having resumed and
then terminated employment on account of death.