HB-4073, As Passed House, May 14, 2010

 

 

 

 

 

 

 

 

 

SENATE SUBSTITUTE FOR

 

HOUSE BILL NO. 4073

 

 

 

 

 

 

 

 

 

 

 

 

     A bill to authorize and create irrevocable trusts for the

 

purpose of holding, investing, and distributing assets to be used

 

for certain postemployment health care benefits; to set forth

 

certain rights that public employees have in retirement health care

 

benefits under certain circumstances; to provide for the

 

establishment and amendment of certain irrevocable trust

 

agreements; and to prescribe certain powers and duties of certain

 

retirement systems, state departments, public officials, and public

 

employees.

 

THE PEOPLE OF THE STATE OF MICHIGAN ENACT:

 

     Sec. 1. This act shall be known and may be cited as the

 

"public employee retirement health care funding act".

 

     Sec. 2. As used in this act:

 

     (a) "Department" means the department of technology,

 

management, and budget.


 

     (b) "Employer contributions" means the amount transferred by

 

an employer to a funding account.

 

     (c) "Funding account" means an account created pursuant to

 

section 3(6) for the deposit of funds and payment of retirement

 

health care benefits under the applicable retirement act.

 

     (d) "Funding account dependent" means 1 or more of the

 

following:

 

     (i) A dependent as that term is used in section 20d of the

 

state employees retirement act, 1943 PA 240, MCL 38.20d, or a

 

"health benefit dependent" as that term is defined in section 54 of

 

the state employees retirement act, 1943 PA 240, MCL 38.54,

 

whichever is applicable.

 

     (ii) A health insurance dependent as that term is defined in

 

section 91 of the public school employees retirement act of 1979,

 

1980 PA 300, MCL 38.1391.

 

     (iii) A retirement allowance beneficiary as that term is defined

 

in section 109 of the judges retirement act of 1992, 1992 PA 234,

 

MCL 38.2109, or a health benefit dependent as that term is defined

 

in section 705 of the judges retirement act of 1992, 1992 PA 234,

 

MCL 38.2655, whichever is applicable.

 

     (iv) A survivor as that term is defined in section 13a of the

 

Michigan legislative retirement system act, 1957 PA 261, MCL

 

38.1013a, a beneficiary of a deceased retirant as that term is used

 

in section 50b of the Michigan legislative retirement system act,

 

1957 PA 261, MCL 38.1050b, or a health benefit dependent as that

 

term is defined in section 65 of the Michigan legislative

 

retirement system act, 1957 PA 261, MCL 38.1065, whichever is


 

applicable.

 

     (v) A retirement allowance beneficiary as that term is defined

 

in section 4 of the state police retirement act of 1986, 1986 PA

 

182, MCL 38.1604, or a dependent as that term is used in section 42

 

of the state police retirement act of 1986, 1986 PA 182, MCL

 

38.1642, whichever is applicable.

 

     (e) "Member" means a person who is a member, former member,

 

deferred member, qualified participant, or former qualified

 

participant as determined under the applicable retirement act.

 

     (f) "Past member" means a former member or former qualified

 

participant who has retired with retirement health care benefits

 

payable by a retirement system.

 

     (g) "Retirement act" means 1 or more of the following:

 

     (i) The state employees' retirement act, 1943 PA 240, MCL 38.1

 

to 38.69.

 

     (ii) The public school employees retirement act of 1979, 1980

 

PA 300, MCL 38.1301 to 38.1408.

 

     (iii) The judges retirement act of 1992, 1992 PA 234, MCL

 

38.2101 to 38.2670.

 

     (iv) The state police retirement act of 1986, 1986 PA 182, MCL

 

38.1601 to 38.1648.

 

     (v) The Michigan legislative retirement system act, 1957 PA

 

261, MCL 38.1001 to 38.1080.

 

     (h) "Retirement health care benefits" means expenses for

 

medical, dental, and vision to be paid for past members or their

 

funding account dependents under the applicable retirement act.

 

     (i) "Retirement system" means a retirement system established


 

under a retirement act.

 

     (j) "State" means this state.

 

     (k) "Trust" means an irrevocable trust created under section

 

3(1) of this act.

 

     (l) "Trustee" means a member of a retirement system board.

 

     Sec. 3. (1) One irrevocable trust is authorized and created by

 

this act for each retirement system. An irrevocable trust

 

established under this subsection shall at all times be established

 

and administered in accordance with section 115 of the internal

 

revenue code, 26 USC 115.

 

     (2) The governing board of each retirement system shall be the

 

grantor and shall administer the irrevocable trust created for that

 

retirement system in order to pay retirement health care benefits

 

to its past members and their funding account dependents. The

 

members of the retirement system board shall act as the trustees of

 

the irrevocable trust for that retirement system. The trustees

 

shall adopt a written trust agreement that meets all of the

 

requirements set forth in section 9. The trustees of the

 

irrevocable trust may establish and adopt policies and procedures

 

for administering the irrevocable trust.

 

     (3) Each trust shall be managed and operated separately and

 

independent of the other retirement system trusts. The trustees may

 

contract with public and private entities for the provision of

 

bookkeeping, benefit payments, and other plan functions. The

 

department, the department of treasury, and the department of the

 

attorney general shall provide services to the trust as requested

 

by the trustees.


 

     (4) The assets in the irrevocable trusts shall be invested in

 

accord with the public employee retirement system investment act,

 

1965 PA 314, MCL 38.1132 to 38.1140m. Except as otherwise provided

 

in this subsection, the state treasurer shall be the investment

 

fiduciary of the irrevocable trusts and shall have exclusive

 

authority and responsibility to employ or contract with personnel

 

and for services that the state treasurer determines necessary for

 

the proper investment of the assets in the irrevocable trusts. The

 

governing board of the legislative retirement system may elect, or

 

revoke an election, to be the investment fiduciary of the funding

 

account assets within its irrevocable trust and retain the

 

exclusive authority to employ or contract with personnel and for

 

services that are necessary for the proper investment of those

 

assets.

 

     (5) Each trust shall receive state appropriations, employer

 

contributions, employee contributions, investment earnings, refunds

 

and reimbursements, and other permitted deposits, and shall make

 

distributions for the payment of retirement health care benefits

 

authorized by the trustees for the administration of such trust.

 

However, an amount in excess of twice the annual current

 

obligations of the trust shall not be deposited in or received by

 

the trust unless the state treasurer certifies that the proposed

 

deposit will not materially reduce the amount of federal funds

 

received by the state to support payments made under the social

 

welfare act, 1939 PA 280, MCL 400.1 to 400.119b. The trustees are

 

authorized to establish an administrative and investment fee

 

structure to be charged against the funding account within the


 

trust to defray the costs of administering the trust. An

 

irrevocable trust established under this section shall be kept

 

separate from the pension assets of retirement systems.

 

     (6) A funding account shall be established by the trustees for

 

the funding and prefunding of payments of retirement health care

 

benefit obligations under the applicable retirement act, and the

 

trustees may create accounts that the trustees determine are

 

necessary for the administration of the trust. For each retirement

 

system, past members shall have contractual rights only in the

 

aggregate to the payment of health care benefits provided by the

 

applicable retirement act to the extent assets exist in the funding

 

account for that retirement system. This act shall not be construed

 

to define or otherwise assure, deny, diminish, increase, or grant

 

any right or privilege to health care benefits or other

 

postemployment benefits to any person or to assure, deny, diminish,

 

increase, or grant health care benefits or other postemployment

 

benefits, rights, and privileges previously or already granted to

 

members or past members and their dependents by the applicable

 

retirement act.

 

     (7) The governing board of a retirement system may from time

 

to time authorize the deposit into the funding account of any

 

eligible funds on deposit in an account within its retirement

 

system for the purpose of payment of eligible retirement health

 

care benefits. Distributions from the funding account may be made

 

to satisfy the requirements of the retirement system for all

 

retirement health care benefits provided by the retirement system.

 

     (8) The trustees shall cause the annual financial statements


 

of the trust to be prepared in accordance with generally accepted

 

accounting principles and an audit to be conducted of those

 

financial statements by a qualified independent certified

 

accounting firm for each fiscal year in accordance with generally

 

accepted auditing standards.

 

     Sec. 4. Except as otherwise provided in sections 8 and 17,

 

assets contributed to the irrevocable trust are irrevocable and may

 

not be refused, refunded, or returned to the employer or employee

 

making such contribution.

 

     Sec. 5. The assets of the irrevocable trust are to be used

 

solely to perform this essential function of state government. The

 

trust shall only provide retirement health care benefits as

 

provided under this act and pay fees and expenses for the

 

administrative costs in carrying out this essential governmental

 

function.

 

     Sec. 6. The assets of the irrevocable trust and the ability of

 

a member or past member of a retirement system to receive

 

retirement health care benefits shall not be subject to execution,

 

garnishment, attachment, the operation of bankruptcy or insolvency

 

laws, or other process of law and shall be unassignable.

 

     Sec. 7. The assets of the irrevocable trust shall be used

 

exclusively for the benefit of past members and their funding

 

account dependents and shall not be diverted for a purpose other

 

than the payment of retirement health care benefits and the

 

administrative costs of providing such benefits.

 

     Sec. 8. (1) Any assets remaining in the funding account after

 

all payments for eligible retirement health care benefits have been


 

paid and all other liabilities of the trust have been satisfied

 

shall be distributed to this state or other employers within the

 

applicable retirement system so long as the employers are

 

organizations the income of which is excluded under section 115(1)

 

of the internal revenue code, 26 USC 115.

 

     (2) Upon dissolution of the irrevocable trust, any assets

 

remaining after the payment of debts and the satisfaction of

 

liabilities are to be distributed to 1 or more states, political

 

subdivisions of states, the District of Columbia, or other

 

organizations the income of which is excluded under section 115(1)

 

of the internal revenue code, 26 USC 115.

 

     Sec. 9. The written trust agreement for each retirement system

 

shall contain all of the following provisions consistent with this

 

act:

 

     (a) Recitals describing the creation and purpose of the trust.

 

     (b) Language reflecting the requirements of sections 4 through

 

7.

 

     (c) Sections outlining the management and operation of the

 

trust.

 

     (d) A description of the various accounts that carry out the

 

functions of the trust.

 

     (e) Provisions setting forth the powers and duties of the

 

trustees.

 

     Sec. 10. (1) This state, an employer of a member within a

 

retirement system, a member, or any other person may contribute

 

amounts to a funding account within an applicable trust for the

 

prefunding of retirement health care benefits.


 

     (2) If a funding account contribution is made to the

 

applicable trust, the contribution shall promptly be credited to

 

the funding account within the applicable trust.

 

     (3) Trustees shall credit the applicable account with the

 

appropriate investment earnings on those assets.

 

     Sec. 11. (1) The trustees shall establish a separately written

 

plan document which shall govern the terms and conditions of

 

payments of retirement health care benefits consistent with the

 

funding and payment under the applicable retirement act.

 

     (2) If the governing board of a retirement system has made a

 

deposit described in section 3(7), the trust shall use the funds in

 

the funding account to satisfy the requirements of the retirement

 

system for all retirement health care benefits provided by the

 

retirement system consistent with this act and the plan document

 

established under this section.

 

     (3) Any funds in the funding account may be counted toward and

 

used in the calculation of the annual required contribution as used

 

by the governmental accounting standards board and for purposes of

 

the annual financial statements prepared pursuant to section 3(8).

 

     Sec. 12. (1) If the department receives notification from the

 

United States internal revenue service that this act or any portion

 

of this act will cause any retirement system to be disqualified for

 

tax purposes under the internal revenue code, or prevent any

 

irrevocable trust from meeting the requirements of section 115 of

 

the internal revenue code, 26 USC 115, then the portion that will

 

cause the disqualification does not apply.

 

     (2) The provisions of this act are severable. If any part of


 

this act is declared invalid or unconstitutional, that declaration

 

shall not affect the remaining part of this act.

 

     Sec. 13. The trusts created by this act shall not be deemed to

 

be invalid by reason of any indefiniteness or uncertainty of the

 

persons designated as beneficiaries in this act and agreements

 

creating the trusts, nor shall the trusts be deemed to be invalid

 

as violating any existing law against perpetuities or against

 

suspension of the power of alienation of title to property or

 

against trusts for the purpose of the accumulation of income, but

 

each trust may continue for the amount of time that may be

 

necessary to accomplish the purpose for which it was created.

 

     Sec. 14. All assets and income of the trusts shall be exempt

 

from taxation by the state or any political subdivision of this

 

state. Distributions from the trusts will not be treated as taxable

 

income to the past members or their funding account dependents by

 

this state or any political subdivision of this state.

 

     Sec. 15. (1) A trustee shall not be any of the following:

 

     (a) Personally liable for any liability, loss, or expense

 

suffered by the trust, unless the liability, loss, or expense

 

arises out of or results from the willful misconduct or intentional

 

wrongdoing of the trustee.

 

     (b) Responsible for the adequacy of the trust to meet and

 

discharge any obligation under the applicable retirement act and

 

this act.

 

     (c) Required to take action to enforce the payment of any

 

contribution or appropriation to the trust.

 

     (2) The trustees may be indemnified by the trusts and from the


 

fund of the trusts against costs, liabilities, losses, damages, and

 

expenses, including their attorney fees, as more fully provided in

 

the respective trust agreements, unless such costs, liabilities,

 

losses, damages, or expenses arise out of or result from the

 

willful misconduct or intentional wrongdoing of a trustee.

 

     Sec. 17. If a change or error in any records of the trust

 

results in a member, past member, or his or her dependent paying

 

into or receiving from the trust more or less than the member, past

 

member, or his or her dependent should have paid or would have been

 

entitled to receive had the records been correct, the trustees

 

shall correct the error and, as far as practicable, shall

 

incrementally adjust future payments to correct for the change or

 

error.

 

     Enacting section 1. This act does not take effect unless

 

Senate Bill No. 1227 of the 95th Legislature is enacted into law.