SB-1226, As Passed Senate, September 23, 2010

HOUSE SUBSTITUTE FOR

SENATE BILL NO. 1226

     A bill to amend 1943 PA 240, entitled

"State employees' retirement act,"

by amending sections 38, 68, and 68c (MCL 38.38, 38.68, and

38.68c), section 38 as amended by 2007 PA 16, section 68 as added

by 1996 PA 487, and section 68c as amended by 2010 PA 54, and by

adding sections 19j, 20i, 35, and 68d.

THE PEOPLE OF THE STATE OF MICHIGAN ENACT:

     Sec. 19j. (1) Notwithstanding section 19, a member may retire

and receive a retirement allowance computed under this section if

the member meets all of the following requirements:

     (a) On the last day of the month preceding the effective date

of his or her retirement as stated in subdivision (f), the member's

combined age and length of credited service is equal to or greater

than 80 years, the member's length of credited service is equal to

or greater than 30 years, or the member is eligible to retire under

section 19 with a retirement allowance that is not subject to

reduction under section 19(2).

     (b) The member occupies a position in the classified state

civil service, has classified state civil service status, or is an

individual not described in subsection (2)(b).

     (c) The member is not eligible for a supplemental early

retirement under section 46 as a covered employee defined in

section 45, or if the member is eligible for a supplemental early

retirement under section 46 as a covered employee defined in

section 45, the member meets the requirements of subsection (6).

     (d) The member is not a conservation officer as described in

section 48, or if the member is a conservation officer as described

in section 48, the member meets the requirements of subsection (6).

     (e) The member was employed by this state or the legislature

within the 6-month period ending on the first day of the

incentivized retirement application period. A member who was laid

off or granted an approved leave of absence from state employment

within the 12-month period ending on the first day of the

incentivized retirement application period is considered to have

met the employment requirement of this subdivision.

     (f) The member executes and files an application in a manner

determined by the retirement system with the retirement board,

during the incentivized retirement application period, stating a

retirement allowance effective date that is on or after November 1,

2010 but not later than January 1, 2011. A member may withdraw an

application on or before the close of the incentivized retirement

application period. An application submitted by a member and not

withdrawn on or before the close of the incentivized retirement

application period is irrevocable.

     (2) Notwithstanding section 19, a member may retire and

receive a retirement allowance computed under this section if the

member meets all of the following requirements:

     (a) On the last day of the month preceding the effective date

of his or her retirement as stated in subdivision (f), the member's

combined age and length of credited service is equal to or greater

than 80 years, the member's credited service is equal to or greater

than 30 years, or the member is eligible to retire under section 19

with a retirement allowance that is not subject to reduction under

section 19(2).

     (b) The member is an employee of the legislative branch of

state government without classified civil service status, is an

employee of the judicial branch of state government, or is an

unclassified state employee not within the classified state civil

service.

     (c) The member is not eligible for a supplemental early

retirement under section 46 as a covered employee defined in

section 45, or if the member is eligible for a supplemental early

retirement under section 46 as a covered employee defined in

section 45, the member meets the requirements of subsection (6).

     (d) The member is not a conservation officer as described in

section 48, or if the member is a conservation officer as described

in section 48, the member meets the requirements of subsection (6).

     (e) The member was employed by this state within the 6-month

period ending on the first day of the incentivized retirement

application period. A member who was laid off or granted an

approved leave of absence from state employment within the 12-month

period ending on the first day of the incentivized retirement

application period is considered to have met the employment

requirement of this subdivision.

     (f) The member executes and files an application in a manner

determined by the retirement system with the retirement board,

during the incentivized retirement application period, stating a

retirement allowance effective date that is on or after November 1,

2010 but not later than January 1, 2011. A member may withdraw an

application on or before the close of the incentivized retirement

application period. An application submitted by a member and not

withdrawn on or before the close of the incentivized retirement

application period is irrevocable.

     (3) Notwithstanding any other provision of this act, a member

retiring under this section agrees that any amount that he or she

would otherwise be entitled to receive at retirement on account of

accumulated annual leave, sick leave, and other deferred leave

hours shall not be paid to the member and shall be forfeited. The

value of accrued annual leave up to 240 hours and the value of

voluntary and involuntary pay reduction plan B for services

rendered on or before October 1, 1981, forfeited under this

subsection by a member shall be included in the calculation for the

purposes of determining "final average compensation" for that

member under this section. This subsection does not apply to banked

leave time.

     (4) The director of a principal department of the executive

branch of state government may request that the effective date of

retirement under subsection (1) or (2) of a member employed by that

department be extended to a date not later than July 1, 2011. To

make a request under this subsection, the director shall submit a

written request and the written concurrence of the member to the

director of the office of the state employer and the state budget

director on or before the close of the incentivized retirement

application period. Upon receipt of the written request and

concurrence, the director of the office of the state employer and

the state budget director may extend the effective date of

retirement of a member otherwise eligible to retire under

subsection (1) or (2) to a date not later than July 1, 2011. Upon

written approval of the senate majority leader for a member who is

an employee of the senate, the speaker of the house of

representatives for a member who is an employee of the house of

representatives, the senate majority leader and the speaker of the

house of representatives for a member who is an employee of the

office of the auditor general, director or chair of the legislative

retirement system for a member who is an employee of the

legislative retirement system, or the chair and alternate chair of

the legislative council for a member who is an employee of an

agency under the jurisdiction of the legislative council, and upon

written concurrence of the member, the effective date of retirement

for that member may be extended to a date not later than July 1,

2011. Upon written approval of the chief justice for a member who

is an employee of the judicial branch, including, but not limited

to, members described in section 44a, and upon written concurrence

of the member, the effective date of retirement for that member may

be extended to a date not later than July 1, 2011. The individual

or individuals who approve the extension of an effective date of

retirement for a member who is an employee of the legislature,

supreme court, or court of appeals shall submit written

notification to the office of retirement services of all extensions

approved on or before October 29, 2010.

     (5) Upon his or her retirement as provided in this section, a

member with a retirement allowance effective date on or before

January 1, 2011 shall receive a retirement allowance equal to the

member's number of years and fraction of a year of credited service

multiplied by 1.6% of his or her final average compensation if the

member's final average compensation is $90,000.00 or less, and the

member is eligible to retire under section 19 with a retirement

allowance that is not subject to reduction under section 19(2). If

the member has a retirement allowance effective date on or before

January 1, 2011, the member is eligible to retire under section 19

with a retirement allowance that is not subject to reduction under

section 19(2), and that member has a final average compensation

that is greater than $90,000.00, the retirement allowance shall be

equal to the member's number of years and fraction of a year of

credited service multiplied by 1.6% of his or her final average

compensation up to a final average compensation of $90,000.00 and

the remaining portion of the retirement allowance shall be equal to

the member's number of years and fraction of a year of credited

service multiplied by 1.5% of the portion of final average

compensation over $90,000.00. For members eligible under this

section because the member's combined age and length of credited

service is equal to or greater than 80 years or because the

member's length of credited service is equal to or greater than 30

years, upon his or her retirement as provided in this section, a

member who retires with a retirement effective date on or before

January 1, 2011 shall receive a retirement allowance equal to the

member's number of years and fraction of a year of credited service

multiplied by 1.55% of the member's final average compensation if

the final average compensation is $90,000.00 or less. For members

eligible to retire under this section because the member's combined

age and length of credited service is equal to or greater than 80

years or because the member's length of credited service is equal

to or greater than 30 years whose final average compensation is

greater than $90,000.00, the retirement allowance shall be

calculated so that the member receives a portion of his or her

retirement allowance equal to the member's number of years and

fraction of a year of credited service multiplied by 1.55% of his

or her final average compensation up to a final average

compensation of $90,000.00 and the remaining portion of the

retirement allowance shall be calculated as equal to the member's

number of years and fraction of a year of credited service

multiplied by 1.5% of the portion of final average compensation

over $90,000.00. No additional increase in multiplier shall be used

based on an extension under subsection (4).

     (6) A member who is a conservation officer as described in

section 48 or a member who is eligible for a supplemental early

retirement under section 46 as a covered employee defined in

section 45 may make the election and be eligible for a retirement

allowance under this section if the member meets the eligibility

requirements of this section. A member who meets the eligibility

requirements and makes an election under this section shall receive

a retirement allowance calculated under this section and shall not

be eligible for any supplemental benefit that he or she may have

been eligible for had he or she retired under sections 45 to 48.

     (7) Any additional costs to the retirement system as a result

of the retirement allowance calculations under this section shall

be amortized over a 5-year period.

     (8) As used in this section, "incentivized retirement

application period" means the period beginning on the effective

date of the amendatory act that added this section and ending on

November 5, 2010 at 5 p.m. eastern standard time unless the member

selects a retirement allowance effective date of November 1, 2010.

If the member selects a retirement allowance effective date of

November 1, 2010, then the incentivized retirement application

period ends on October 22, 2010 at 5 p.m. eastern daylight time.

     Sec. 20i. Upon his or her retirement as provided for in

section 19j, beginning January 1, 2011, a member shall receive a

supplement for 60 months to his or her retirement allowance

payments equal to 1/60 of the amount forfeited in section 19j(3).

The total amount of the supplement shall also be treated in the

same manner as accumulated contributions credited to the retirant

in the employees saving fund for purposes of a calculation

Senate Bill No. 1226 (H-38) as amended September 23, 2010

performed for this supplement in the same manner as section 20(3).

The amounts in this section do not include banked leave time. The

employer shall make payments to the retirement system in amounts

equal to the supplement required under this section. These payments

shall be made from funds appropriated to the appointing authority

in a manner determined by the employer.

     Sec. 35. (1) Except as otherwise provided in this section,

beginning with the first pay date after November 1, 2010 and ending

September 30, 2013, each member and each qualified participant

shall contribute an amount equal to 3.0% of the member's or

qualified participant's compensation to the appropriate funding

account established under the public employee retirement health

care funding act, 2010 PA 77, MCL 38.2731 to 38.2747. The member

and qualified participant contributions shall be deducted by the

employer and remitted as employer contributions to the funding

account in a manner that the state budget office and the retirement

system shall determine. The state budget office and the retirement

system shall determine a method of deducting the contributions

provided for in this section from the compensation of each member

and qualified participant for each payroll and each payroll period.

     (2) As used in this act, "funding account" means the

appropriate irrevocable trust created in the public employee

retirement health care funding act, 2010 PA 77, MCL 38.2731 to

38.2747, for the deposit of funds and the payment of retirement

health care benefits.

[(3) The department of technology, management, and budget shall ensure, to the maximum extent possible, that payments made under this section shall be applied for any tax credits or tax liability reduction under the health care and education reconciliation act of 2010, Public Law 111-152.]

     Sec. 38. (1) The annual level percent of payroll contribution

rate to finance the benefits provided under this act shall be

determined by actuarial valuation pursuant to subsections (2) and

(3), upon the basis of the risk assumptions adopted by the

retirement board with approval of the department of management and

budget, and in consultation with the investment counsel and the

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. The actuary shall report to the legislature by

April 15 of each year on the actuarial condition of the retirement

system as of the end of the previous fiscal year and on the

projections of state contributions for the next fiscal year. The

actuary shall certify in the report that the techniques and

methodologies used are generally accepted within the actuarial

profession and that the assumptions and cost estimates used fall

within the range of reasonable and prudent assumptions and cost

estimates. 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 monthly 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

actuarial valuation an individual projected benefit entry age

normal cost method of valuation.

     (3) Except as otherwise provided in this subsection, the

contribution rate for benefits other than those provided for in

subsection (2) shall be computed using an individual projected

benefit entry age normal cost method of valuation. For the 1995-96

state fiscal year and for each subsequent fiscal year in which the

actuarial accrued liability for health benefits is less than 100%

funded, the contribution rate for benefits provided under section

20d shall be computed using a cash disbursement method. Beginning

in the fiscal year after the fiscal year in which the actuarial

accrued liability for health benefits under section 20d is at least

100% funded by the health advance funding subaccount created under

section 11(9), and continuing for each subsequent fiscal year, the

contribution rate for health benefits provided under section 20d

shall be computed using an individual projected benefit entry age

normal cost method of valuation. The contribution rate for service

that may be rendered in the current year, the normal cost

contribution rate, shall be equal to the aggregate amount of

individual entry age normal costs divided by 1% of the aggregate

amount of active members' valuation compensation. The unfunded

actuarial accrued liability shall be 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. Except as otherwise provided in this subsection,

the unfunded actuarial accrued liability shall be amortized in

accordance with generally accepted governmental accounting

standards over a period equal to or less than 40 years. For the

fiscal year that begins on October 1, 2006 only, the contribution

for the unfunded actuarial accrued liability shall be equal to 4.5%

of the unfunded actuarial accrued liability.

     (4) The legislature annually shall appropriate to the

retirement system the amount determined pursuant to subsections (2)

and (3). The state treasurer shall transfer monthly to the

retirement system an amount equal to the product of the

contribution rates determined in subsections (2) and (3) times the

aggregate amount of active member compensation paid during that

month. Not later than 60 days after the termination of each state

fiscal year, the executive secretary of the retirement board shall

certify to the director of the department of management and budget

the actual aggregate compensations paid to active members during

the preceding state fiscal year. Upon receipt of that

certification, the director of the department of management and

budget shall compute the difference, if any, between actual state

contributions received during the preceding state fiscal year and

the product of the contribution rates determined in subsections (2)

and (3) times the aggregate compensations paid to active members

during the preceding state fiscal year. Except as otherwise

provided in subsection (5), the difference, if any, shall be

submitted in the executive budget to the legislature for

appropriation in the next succeeding state fiscal year. This

subsection does not apply for those fiscal years in which a deposit

occurs pursuant to subsection (6).

     (5) 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 contribution rate described in subsection

(4), if any, may be submitted in the executive budget to the

legislature for appropriation in the next succeeding state fiscal

year and a minimum of 25% of the remaining difference shall be

submitted in the executive budget to the legislature for

appropriation 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 for those fiscal years in

which a deposit occurs pursuant to subsection (6).

     (6) For each fiscal year that begins on or after October 1,

2001, if the actuarial valuation prepared pursuant to this section

for each fiscal year 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 annual level percent of payroll contribution rate as

determined pursuant to subsections (1), (2), and (3) may be

deposited into the health advance funding subaccount created under

section 11(9).

     (7) 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. 68. (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 64(2).

     (b) The former qualified participant meets or exceeds the

benefit commencement age employed in the actuarial present value

calculation under section 51 and the service requirements that

would have applied to that former participant under Tier 1 for

receiving health insurance coverage under section 20d, if that

former participant was a member of Tier 1.

     (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 20d. , 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

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 20d.

     (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 64(2)(a), 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 For a former qualified participant who commenced

state employment before April 1, 2010 and for his or her health

benefit dependents, the portion of the health insurance coverage

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

the product of 3% and the former qualified participant's years of

service, up to 30 years, and but shall not exceed the lesser of 90%

of the payments for health insurance coverage or the portion of the

health insurance coverage premiums payable by this state for a

retirant, his or her beneficiary, and his or her dependents under

section 20d. If the individual elects the health insurance coverage

provided under section 20d, the state shall transfer its portion of

the amount calculated under this subsection to the health insurance

reserve fund created by section 11. For a former qualified

participant who commenced state employment on or after April 1,

2010 and for his or her health benefit dependents, the portion of

the health insurance coverage premium paid by this state under this

subsection shall be equal to the product of 3% and the former

qualified participant's years of service, up to 30 years, but shall

not exceed the lesser of the portion of the health insurance

coverage premiums payable by this state for a retirant, his or her

beneficiary, and his or her dependents under section 20d or the

portion of the health insurance coverage premiums payable by this

state for a member who occupies a position in the classified state

civil service or has classified civil service status commencing

state employment on or after April 1, 2010.

     (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 64(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 20d. If the individual elects the

health insurance coverage provided under section 20d, the state

shall transfer its portion of the amount calculated under this

subsection to the health insurance reserve fund created by section

11.

     (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 20d 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. Beginning

January 1, 2011, any former qualified participant or health benefit

dependent who is eligible to elect health insurance coverage under

this section and who previously elected coverage under a different

plan than the plan authorized under section 20d may either elect

coverage under this section or may at his or her own cost

participate in coverage under a different plan than the plan

authorized under section 20d.

     (7) If the department of technology, 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.

     (8) As used in this section, "health insurance coverage" means

the hospitalization and medical insurance, dental coverage, vision

coverage, and any other health care insurance provided in section

20d.

     Sec. 68c. (1) Except as otherwise provided in this section, a

retirant who is receiving a retirement allowance under this act and

is employed by this state beginning on or after October 1, 2, 2007

agrees to forfeit his or her right to receive that retirement

allowance during this period of state employment. The retirement

system shall cease payment of the retirement allowance to a

retirant described in this subsection during this period of state

employment and shall reinstate payment of the retirement allowance

without recalculation when the period of state employment ceases.

This subsection does not apply to a retirant who is employed by

this state on September 30, 2007 October 1, 2007 so long as he or

she remains in the position held by the retirant on September 30,

2007 October 1, 2007. As used in this subsection, "employed by this

state" means employed directly by this state as an employee or

indirectly by this state through a contractual arrangement with

other parties. Beginning after October 1, 2010, "employed by this

state" shall also include engagement by the state as an independent

contractor. This subsection does not apply to a retirant who is

engaged as an independent contractor on October 1, 2010 so long as

the retirant remains engaged in the same contract that was held by

the retirant on October 1, 2010 without amendment or extension.

     (2) A hospital, medical-surgical, and sick care benefits plan,

dental plan, vision plan, and hearing plan that covers retirants,

retirant allowance beneficiaries, former qualified participants,

and health benefit dependents under this act shall contain a

coordination of benefits provision that provides all of the

following:

     (a) If the person covered under any of the plans is also

eligible for medicare, then the benefits under medicare shall be

determined before the health insurance benefits under this act.

     (b) If a person covered under any of the plans provided by

this act is also covered under another plan that contains a

coordination of benefits provision, the benefits shall be

coordinated as provided in the coordination of benefits act, 1984

PA 64, MCL 550.251 to 550.255.

     (c) If the person covered under any of the plans provided by

this act is also covered under another plan that does not contain a

coordination of benefits provision, the benefits under the other

plan shall be determined before the benefits provided pursuant to

this act.

     (3) Subsection (1) does not apply to a retirant if all of the

following apply:

     (a) The retirant is hired to provide health care services to

individuals under the jurisdiction of the department of

corrections.

     (b) The retirant is hired in a position that is limited in

term, no benefits are paid, and pay is on a per diem basis.

     (c) The department of corrections provides written notice to

the state budget office and the department of technology,

management, and budget that attempts have been made to fill the

position through postings and recruitment and that the position

vacancy still exists.

     (d) The department of corrections reports the employment of a

retirant under this subsection within 30 days of employment of the

retirant to the state budget office and the department of

technology, management, and budget. The report shall include the

name of the retirant, the capacity in which the retirant is

employed, and the total compensation paid to the retirant.

     (4) Subsection (1) does not apply to the appointment of a

retirant who was an assistant attorney general as a special

assistant attorney general when the attorney general determines

that, as a result of his or her previous employment with the state,

the retirant possesses specialized expertise and experience

necessary for the appointment and that the appointment is the most

cost-effective option for this state.

     Sec. 68d. (1) There is appropriated for the fiscal year ending

September 30, 2010, $1,600,000.00 to the office of retirement

services in the department of technology, management, and budget

for administration of the changes under the amendatory act that

added this section.

     (2) The appropriation authorized in subsection (1) is a work

project appropriation, and any unencumbered or unallotted funds are

carried forward into the following fiscal year. The following is in

compliance with section 451a(1) of the management and budget act,

1984 PA 431, MCL 18.1451a:

     (a) The purpose of the project is to administer changes under

the amendatory act that added this section.

     (b) The work project will be accomplished through a plan

utilizing interagency agreements, employees, and contracts.

     (c) The total estimated completion cost of the work project is

$1,600,000.00.

     (d) The estimated completion date for the work project is

September 30, 2011.

     Enacting section 1. If any section or part of a section of

this act is for any reason held to be invalid or unconstitutional,

the holding does not affect the validity of the remaining sections

of this act or the act in its entirety.