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.