FIRST CONFERENCE REPORT

The Committee of Conference on the matters of difference between the two Houses concerning

Senate Bill No. 1227, entitled

A bill to amend 1980 PA 300, entitled "The public school employees retirement act of 1979," by amending sections 4, 6, 7, 8, 25, 26, 41, 42, 43a, 43b, 43c, 61, 81, 86, and 87 (MCL 38.1304, 38.1306, 38.1307, 38.1308, 38.1325, 38.1326, 38.1341, 38.1342, 38.1343a, 38.1343b, 38.1343c, 38.1361, 38.1381, 38.1386, and 38.1387), section 4 as amended by 2008 PA 354, sections 6 and 7 as amended by 1995 PA 272, sections 8, 25, and 26 as amended by 1997 PA 143, section 41 as amended by 2007 PA 15, section 42 as amended by 1996 PA 268, section 43a as amended by 2007 PA 111, sections 43b and 81 as amended by 1989 PA 194, section 43c as amended by 1998 PA 213, and section 61 as amended by 2006 PA 158, and by adding sections 41b, 43e, 43f, and 81c and article 7.

Recommends:

First: That the House recede from the Substitute of the House as passed by the House.

Second: That the Senate and House agree to the Substitute of the Senate as passed by the Senate, amended to read as follows:

(attached)

Third: That the Senate and House agree to the title of the bill to read as follows:

A bill to amend 1980 PA 300, entitled "An act to provide a retirement system for the public school employees of this state; to create certain funds for this retirement system; to provide for the creation of a retirement board within the department of management and budget; to prescribe the powers and duties of the retirement board; to prescribe the powers and duties of certain state departments, agencies, officials, and employees; to prescribe penalties and provide remedies; and to repeal acts and parts of acts," by amending sections 4, 25, 26, 41, 42, 43c, 61, 81, 86, 87, and 91 (MCL 38.1304, 38.1325, 38.1326, 38.1341, 38.1342, 38.1343c, 38.1361, 38.1381, 38.1386, 38.1387, and 38.1391), section 4 as amended by 2008 PA 354, sections 25 and 26 as amended by 1997 PA

143, section 41 as amended by 2007 PA 15, section 42 as amended by 1996 PA 268, section 43c as amended by 1998 PA 213, section 61 as amended by 2006 PA 158, section 81 as amended by 1989 PA 194, and section 91 as amended by 2007 PA 110, and by adding sections 41b, 43e, 81b, 81c, and 92a and article 7.

_______________________ ________________________

Judson Gilbert II Martin Griffin

_______________________ ________________________

Mark Jansen Mark Meadows

_______________________ ________________________

Deborah Cherry James Bolger

Conferees for the Senate Conferees for the House

SENATE SUBSTITUTE FOR HOUSE SUBSTITUTE FOR

SENATE BILL NO. 1227

A bill to amend 1980 PA 300, entitled

"The public school employees retirement act of 1979,"

by amending sections 4, 25, 26, 41, 42, 43c, 61, 81, 86, 87, and 91

(MCL 38.1304, 38.1325, 38.1326, 38.1341, 38.1342, 38.1343c,

38.1361, 38.1381, 38.1386, 38.1387, and 38.1391), section 4 as

amended by 2008 PA 354, sections 25 and 26 as amended by 1997 PA

143, section 41 as amended by 2007 PA 15, section 42 as amended by

1996 PA 268, section 43c as amended by 1998 PA 213, section 61 as

amended by 2006 PA 158, section 81 as amended by 1989 PA 194, and

section 91 as amended by 2007 PA 110, and by adding sections 41b,

43e, 81b, 81c, and 92a and article 7.

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 technology,

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 1 or more of the

following:

(a) An individual retirement account described in section

408(a) of the internal revenue code, 26 USC 408.

(b) An individual retirement annuity described in section

408(b) of the internal revenue code, 26 USC 408.

internal revenue code, 26 USC 403.

(d) A qualified trust described in section 401(a) of the

internal revenue code, 26 USC 401.

(e) An annuity contract described in section 403(b) of the

internal revenue code, 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, 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.

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, 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 except for a member who contributes

to the member investment plan and first became a member on or after

July 1, 2010; otherwise, the averaging period shall be 60

consecutive calendar months. A member who contributes to the member

investment plan and first became a member on or after July 1, 2010

shall also have an averaging period of 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. 25. (1) The board shall have only the rights, authority,

and discretion in the proper discharge of its duties provided in

this act and former 1945 PA 136.

(2) The retirement board may promulgate rules pursuant to the

administrative procedures act of 1969, 1969 PA 306, MCL 24.201 to

24.328, for the implementation and administration of this act. The

retirement board shall not promulgate rules for the establishment,

implementation, administration, operation, investment, or

distribution of a Tier 2 retirement plan.

Sec. 26. (1) This section does not apply to Tier 2.

(2) ~~(1)~~ The state treasurer shall be treasurer of the

retirement system and shall have investment authority, including

the custodianship of the funds of the retirement system, and shall

have fiduciary responsibility with regard to the investment of

funds of the retirement system.

(3) ~~(2)~~ The state treasurer shall deposit the funds of the

retirement system in the same manner and subject to the law

governing the deposit of state funds by the treasurer. Income

earned by the retirement system's funds shall be credited to the

respective reserves under this act that earned the income.

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.

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 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~~ Except as otherwise provided in this

subsection, 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. Beginning on July 1, 2010, the actuary

used by the retirement board shall assume a rate of return on

investments of 7.00% per annum for investments associated with

members who first became members on and after July 1, 2010, 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. 41b. (1) Beginning July 1, 2010, the retirement system

may determine a separate employer contribution rate for members who

first became a member on or after July 1, 2010. Except as provided

in this section, the retirement system shall determine the separate

employer contribution rate in the manner prescribed in section 41.

(2) To the extent and upon approval by the internal revenue

service, the retirement system for the Tier 1 plan and the plan

administrator for the Tier 2 plan may also determine the extent to

which some or all of the individuals performing services for an

entity not participating in the retirement system that receives any

funding from the state school aid fund established in section 11 of

article IX of the state constitution of 1963 may participate in the

Tier 1 and Tier 2 plans.

Sec. 42. (1) Beginning with the 1994-95 state fiscal year, a

reporting unit shall contribute the entire percentage, determined

under section 41(2), of the aggregate annual compensation of all

employees who are members under the noncontributory plan as

provided by section 63 to the reserve for employer contributions

and to the reserve for health benefits. The reporting unit

contribution under this subsection is the exclusive obligation of

the reporting unit payable out of general budget resources of the

reporting unit, including funds available under local millage and

other local resources and from the state school aid allocation to

the reporting unit, and shall not be a separate obligation by

specific reimbursement or otherwise of this state.

(2) As authorized by resolution or other enabling act of its

governing body, the employer shall pick up all contributions of a

member made pursuant to section 43a for all compensation paid on or

after January 1, 1987 and reported to the retirement system.

Although considered contributions of a member for certain purposes

under this act, all contributions picked up shall be treated as

paid by the employer in lieu of contributions by the employee.

Contributions picked up as provided in this subsection shall be

paid from the same source of funds that is used for paying

compensation to the member. The employer may pick up these

contributions by either a reduction to the member's cash salary, an

offset against a future salary increase, or a combination of a

reduction in salary and offset against a future salary increase.

This subsection does not apply, and the employer shall not deduct,

offset, or remit contributions, until the department receives

notification from the United States internal revenue service that

contributions picked up shall not be included as gross income of

the member until they are distributed or made available to the

member, retirant, retirement allowance beneficiary, or refund

beneficiary.

(3) The employer shall deduct from a member's compensation the

contributions for social security provided in ~~Act No. 205 of the~~

~~Public Acts of 1951, being sections 38.851 to 38.871 of the~~

~~Michigan Compiled Laws~~ 1951 PA 205, MCL 38.851 to 38.871.

Contributions shall be made while the member remains a public

school employee. Each reporting unit official shall deduct the

social security contributions from the compensation of each member

for each payroll period after the date the employee becomes a

member. Social security contributions shall be made notwithstanding

that the minimum compensation provided by law is changed. Each

member is considered to have agreed to the contributions prescribed

in this subsection.

(4) Each reporting unit official shall forward member

~~investment plan~~ contributions to the retirement system ~~monthly.~~ on

a schedule and in a manner determined by the retirement system.

(5) Each reporting unit official shall forward the entire

employer contribution required by this act to the retirement system

~~monthly.~~ on a schedule and in a manner determined by the retirement

system.

(6) ~~By January 11, April 11, July 11, and October 11 of each~~

~~year, each reporting unit official shall file with the executive~~

~~secretary of the retirement board a quarterly affidavit for the~~

~~preceding 3 months. The affidavit shall certify the aggregate~~

~~compensation that is reportable to the retirement system under~~

~~section 3a, sources of contributions, wages paid from federal~~

~~funds, and contributions required by law. Not later than July 11 of~~

~~each year, a report shall be filed with the executive secretary of~~

~~the retirement board, which shall list the persons employed,~~

~~together with other information, including salary, service, and~~

~~contributions, required for retirement reporting purposes.~~ Each

reporting unit official shall submit to the retirement system a

report that includes the information for retirement purposes,

including, but not limited to, persons employed, retirants

performing services at a reporting unit who are employed by an

entity other than the reporting unit or who are independent

contractors, wages or amounts paid, hours, and contributions

required under this act. The report shall contain the information

on a pay period basis and shall be submitted to the retirement

system on a schedule and in a manner determined by the retirement

system. The superintendent for a reporting unit or the chief

administrator for a reporting unit that does not have a

superintendent shall complete an annual certification that gives

authorization for the employees of the reporting unit to report the

information to the retirement system.

(7) If a reporting unit fails to submit a report or

contributions, or both, according to the schedule established by

the retirement board, a late fee shall be paid by the reporting

unit. If the remittance of contributions is late, the late fee

shall include interest for each day that the remittance of

contributions is late. The retirement board periodically may

establish the late fee, which shall not be less than $25.00, and

interest charges, which shall not be less than 6% per annum. If a

reporting unit fails to correct errors on a report before the

errors are discovered by the retirement system or if such errors

are intentional, the reporting unit shall pay the late fee and

interest charges as described in this subsection for each day that

the report is in error, unless reasonable cause is shown to the

satisfaction of the retirement system.

(8) Upon written notice from the retirement board, the

superintendent of public instruction and the state treasurer shall

withhold payment of state funds, in part or in whole, payable from

the state school aid appropriation or higher education

appropriations to a reporting unit that fails to comply with this

section.

Sec. 43c. A member other than a member who first became a

member on or after July 1, 2010 who contributes to the member

investment plan, or the retirement allowance beneficiary of that

member, shall be entitled to all of the following:

(a) A 36-month averaging period for the computation of final

average compensation, as provided in section 4.

(b) An annual increase in the retirement allowance. The first

increase will occur on the first October 1 that is at least 1 full

year after the effective date of the retirement allowance.

Subsequent annual increases will occur on October 1 of each

subsequent year. The amount of the annual increase shall be equal

to 3% of the retirement allowance that would be payable as of the

date of the increase without application of this subdivision.

However, if the retirement allowance is being paid under section

85(2), the increase shall be based on the retirement allowance that

would have been paid under the payment option selected by the

member under section 85(1).

the survivor benefits provided in section 89 shall be reduced as

follows:

(i) The 15 years of credited service requirement shall be 10

years.

(ii) The 10 years of credited service requirement shall be 5

years.

Sec. 43e. (1) Except as otherwise provided in this section,

beginning July 1, 2010, each member shall contribute 3% of the

member's compensation to the appropriate funding account

established under the public employee retirement health care

funding act. For the school fiscal year that begins July 1, 2010,

members who were employed by a reporting unit and were paid less

than $18,000.00 in the prior school fiscal year and members who

were hired on or after July 1, 2010 with a starting salary less

than $18,000.00 shall contribute 1.5% of the member's compensation

to the appropriate funding account established under the public

employee retirement health care funding act. For each school fiscal

year that begins on or after July 1, 2011, members whose yearly

salary is less than $18,000.00 shall contribute 3% of the member's

compensation to the appropriate funding account established under

the public employee retirement health care funding act. The member

contributions shall be deducted by the employer and remitted as

employer contributions in a manner that the retirement system shall

determine.

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

appropriate irrevocable trust created in the public employee

retirement health care funding act for the deposit of funds and the

payment of retirement health care benefits.

Sec. 61. (1) Except as otherwise provided in this section, if

a retirant is receiving a retirement allowance other than a

disability allowance payable under this act or under former 1945 PA

136, on account of either age or years of personal service

performed, or both, and becomes employed by a reporting unit, the

following shall take place:

(a) The retirant shall not be entitled to a new final average

compensation or additional service credit under this retirement

system unless additional service is performed equivalent to 5 or

more years of service credit or, if the retirant has contributed to

the member investment plan, the equivalent of 3 or more years of

service credit. The retirant may elect to have the retirement

allowance recomputed based on the added credit or the final average

compensation resulting from the added service, or both. A

retirement allowance shall not be recomputed until the retirant

pays into the retirement system an amount equal to the retirant's

new final average compensation multiplied by the percentage

determined under section 41(2) for normal cost and unfunded

actuarial accrued liabilities, not including the percentage

required for the funding of health benefits, multiplied by the

total service credit in the period in which the retirant's

additional service was performed.

(b) The retirant's retirement allowance shall be reduced by

the lesser of the amount that the earnings in a calendar year

exceed the amount permitted without a reduction of benefits under

the social security act, chapter 531, 49 Stat. 620, or 1/3 of the

retirant's final average compensation. For purposes of computing

allowable earnings under this subdivision, the final average

compensation shall be increased by 5% for each full year of

retirement.

(2) The retirement system may offset retirement benefits

payable under this act against amounts owed to the retirement

system by a retirant or retirement allowance beneficiary.

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

following circumstances exist:

(a) The retirant is a former teacher or administrator employed

in a teaching or research capacity by a university that is

considered a reporting unit for the limited purpose described in

section 7(3).

(b) The retirant is not eligible to use any service or

compensation attributable to the employment described in

subdivision (a) for a recomputation of his or her retirement

allowance.

this subsection shall report such employment to the retirement

system by July 1 of each year. The report to be filed shall include

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

employed, and the total annual compensation paid to the retirant.

(4) Until July 1, 2011, subsection (1) does not apply to a

retirant if all of the following circumstances exist:

(a) The retirant is employed by a reporting unit that has an

approved emergency situation, not including a situation caused by a

labor dispute, that necessitates the hiring of a retirant in the

capacity of a teacher, principal, stationary engineer,

administrator, or other category as determined by the

superintendent of public instruction to prevent depriving students

of an education. The chief executive officer or superintendent of

the school district shall include with the written notification

documentation showing that more than 8% of all classes in the

district during the 1998-99 school year are taught by full-time

substitute teachers who are not certificated in the subjects or

grade levels which they teach. Within 30 days after receipt of the

notification and documentation under this subdivision, the

department of education shall notify the chief executive officer or

superintendent and the retirement system of its approval or

disapproval of the emergency situation. If disapproved by the

department of education, this subsection does not apply.

(b) The retirant is employed under an emergency situation

described in subdivision (a) for a period not to exceed 6 years.

compensation attributable to the employment described in

subdivision (a) for a recomputation of his or her retirement

allowance.

(5) ~~On or before July 1, 1999, the~~ The state superintendent of

public instruction shall compile a listing of critical shortage

disciplines. This listing shall be updated annually.

(6) Until July 1, 2011, subsection (1) does not apply to a

retirant if all of the following circumstances exist:

(a) The retirant is employed by a reporting unit that has a

situation, not including a situation caused by a labor dispute,

that necessitates the hiring of a retirant in an area that has been

identified by the state superintendent of public instruction as a

critical shortage discipline pursuant to subsection (5).

(b) The retirant is employed under a situation described in

subdivision (a) for a period not to exceed 6 years.

compensation attributable to the employment described in

subdivision (a) for a recomputation of his or her retirement

allowance.

(7) ~~The provisions of subsections (4) and~~ Subsection (6) shall

only apply for retirants who have been retired for at least 12

months before becoming employed under this section.

(8) Notwithstanding any other provision of this act, for any

retirant who retires on and after July 1, 2010, and following a

bona fide termination, including not working in the month of the

retirant's retirement effective date, and who becomes employed by a

reporting unit and the retirant's amount of earnings in a calendar

year exceeds 1/3 of the retirant's final average compensation, the

retirant shall forfeit his or her retirement allowance and the

retirement system subsidy for health care benefits from the

retirement system for as long as the retirant is employed at the

reporting unit. Any retirant who has forfeited the retirement

system subsidy for health care benefits and wants to retain health

care benefits shall pay the retirant's and retirement system's

costs for such health care benefits. Upon termination of employment

at the reporting unit, the retirement allowance and health care

benefits shall resume without recalculation.

(9) Notwithstanding any other provision of this act, for any

retirant who retires on and after July 1, 2010, who performs core

services at a reporting unit as determined by the retirement

system, but who is employed by an entity other than the reporting

unit or is an independent contractor, the retirant shall forfeit

his or her retirement allowance and the retirement system subsidy

for health care benefits from the retirement system for as long as

the retirant is performing core services at the reporting unit. Any

retirant who has forfeited the retirement system subsidy for health

care benefits and wants to retain health care benefits shall pay

the retirant's and retirement system's costs for such health care

benefits. Upon termination of services at the reporting unit, the

retirement allowance and health care benefits shall resume without

recalculation.

Sec. 81. (1) A Except as provided in section 81c, a member who

no longer is working as a public school employee or in any other

capacity for which service credit performed in this state is

allowed under this act, upon the member's written application to

the retirement system, shall be entitled to a retirement allowance

provided for in section 84 if 1 of the following applies:

(a) The member is 55 years of age or older and has 30 or more

years of credited service as provided under this act of which at

least 15 years were served as a public school employee.

(b) The member is 60 years of age or older and has accumulated

10 or more years of credited service as a public school employee.

years of credited service, but less than 30 years of credited

service of which the last 5 consecutive years are immediately

preceding the member's retirement allowance effective date.

(2) ~~For~~ Except as provided in section 81c, for a member who

contributes to the member investment plan, the eligibility

requirements of subsection (1) shall be modified as provided in

section 43b.

Sec. 81b. (1) Notwithstanding section 81, a member may retire

with a retirement allowance computed according to this section if

all of the following apply:

(a) The member files a written application with the retirement

board within the incentivized retirement application period stating

a retirement allowance effective date that is on or after July 1,

2010 but not later than September 1, 2010. A member may withdraw a

written application submitted by a member on or before June 11,

2010. A written application submitted by a member and not withdrawn

on or before June 11, 2010 is irrevocable.

(b) On the last day of the month immediately preceding the

retirement allowance effective date stated in the application, the

member's combined age and length of credited service is equal to or

greater than 80 years or the member is eligible to retire under

section 81 with a retirement allowance that is not subject to

reduction under section 84(2).

the 6-month period ending May 1, 2010. A member who has worked in

the 6-month period ending May 1, 2010 and is on layoff or on an

approved leave of absence status from reporting unit employment is

considered to have met the employment requirement of this

subdivision.

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

member who retires with a retirement effective date on or before

September 1, 2010 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 the member's final average compensation if

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

is eligible to retire under section 81 with a retirement allowance

that is not subject to reduction under section 84(2). If the member

is eligible to retire under section 81 with a retirement allowance

that is not subject to reduction under section 84(2) and 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, upon his or her retirement as provided in this section, a

member who retires with a retirement effective date on or before

September 1, 2010 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 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.

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

superintendent for a reporting unit or the chief administrator for

a reporting unit that does not have a superintendent may extend the

effective date of retirement under subsection (1) of a member

employed by that reporting unit to a date not later than September

1, 2011. Each reporting unit having a member who elects to retire

under this section may extend the retirement effective date of 1

member under this section. Up to an additional 2,500 extensions

shall be allotted to reporting units using a pro-rata methodology

determined by the retirement system. The retirement system shall

notify reporting units of any additional extension allotments by

May 22, 2010. To make an extension under this subsection, the

superintendent or chief administrator shall submit to the

retirement system notification of members whose retirement dates

the superintendent or chief administrator will extend along with

the written concurrence of the member on or before June 15, 2010.

The superintendent or chief administrator shall not request, and

the retirement system shall not implement, the extension of a

member that exceeds the number of extensions allotted to his or her

reporting unit.

(4) For purposes of 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

June 11, 2010.

(5) 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.

Sec. 81c. (1) A member who first becomes a member on or after

July 1, 2010 who no longer is working as a public school employee

or in any other capacity for which service credit performed in this

state is allowed under this act, upon the member's written

application to the retirement system, shall be entitled to a

retirement allowance provided for in section 84(1) if the member is

60 years of age or older and has accumulated 10 or more years of

credited service pursuant to section 68 as a public school

employee.

(2) The eligibility requirements of subsection (1) shall not

be modified as provided in section 43b.

(3) The reduction provided for in section 84(2) shall not

apply to a person who retires pursuant to this section.

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

who first becomes a member on or after July 1, 2010 shall not

purchase or transfer service credit under article 4 and shall not

have any purchased or transferred service credit included in the

calculation of a retirement allowance upon retirement.

Sec. 86. (1) A member whom the retirement board finds to have

become totally and permanently disabled for purposes of employment

by his or her reporting unit by reason of personal injury or mental

or physical illness before termination of reporting unit service

and employment shall receive a disability allowance if all of the

following requirements are met:

(a) The member has not met age and service requirements of

section ~~81(a)~~ 81(1)(a) or (b) or, if the member first became a

member on or after July 1, 2010, the member has not met age and

service requirements of section 81c(1).

(b) The member has at least 10 years of credited service in

effect before termination of employment.

the retirement board not more than 12 months after the date the

member terminated public school employment.

(d) The person undergoes an examination by 1 or more

practicing physicians or medical officers designated by the

retirement board who certify to the retirement board that the

member is totally and permanently disabled for performing the

duties for the member's position or similar position for which the

member is qualified by reason of training, experience, or both.

(2) The retirement board may extend the application time limit

provided in subsection (1) not more than 24 months for a member or

deferred member who satisfies the other requirements of subsection

(1), if evidence of extenuating circumstances is presented to the

satisfaction of the retirement board.

(3) The member's disability retirement allowance shall be

computed pursuant to section 84. The effective date of the

disability retirant's allowance shall be determined pursuant to

section 83.

Sec. 87. (1) A member whom the retirement board finds to have

become totally and permanently disabled from any gainful employment

by reason of personal injury or mental or physical illness while

serving as an employee of that reporting unit shall receive a duty

disability retirement allowance if all of the following

requirements are met:

(a) The member has not met age and service requirements of

section ~~81(a)~~ 81(1)(a) or (b) or, if the member first became a

member on or after July 1, 2010, the member has not met age and

service requirements of section 81c(1).

(b) The member is in receipt of weekly worker's disability

compensation on account of employment by a reporting unit.

the retirement board not more than 12 months after the date the

member terminated public school employment.

(d) The member undergoes an examination by 1 or more

practicing physicians or medical officers designated by the

retirement board who certify to the retirement board that the

member is totally and permanently disabled for performing the

duties for the member's position for which the member is qualified

by reason of training, or experience, or both.

(2) The member's duty disability retirement allowance shall be

computed pursuant to section 84. The effective date of the duty

disability retirant's allowance shall be the first of the month

following the month in which the member terminates employment and

is in receipt of weekly worker's disability compensation. The years

of service credit used in computing the retirant's duty disability

retirement allowance shall not be less than 10 years. If the member

has less than 5 consecutive years of credited service, the average

of the member's annual compensation shall be used.

(3) Upon recovery and return to reporting unit service or upon

termination of the statutory period for the payment of a disability

retirant's worker's disability compensation, if any, arising on

account of the retirant's reporting unit service, the retirant

shall be given service credit for the period and the retirant's

disability retirement allowance shall be adjusted to include the

additional credit.

Sec. 91. (1) Except as otherwise provided in this section, the

retirement system shall pay the entire monthly premium or

membership or subscription fee for hospital, medical-surgical, and

sick care benefits for the benefit of a retirant or retirement

allowance beneficiary who elects coverage in the plan authorized by

the retirement board and the department. Except as otherwise

provided in subsection (8), this subsection does not apply to a

retirant who first becomes a member after June 30, 2008.

(2) The retirement system may pay up to the maximum of the

amount payable under subsection (1) toward the monthly premium for

hospital, medical-surgical, and sick care benefits for the benefit

of a retirant or retirement allowance beneficiary enrolled in a

group health insurance or prepaid service plan not authorized by

the retirement board and the department, if enrolled before June 1,

1975, for whom the retirement system on July 18, 1983 was making a

payment towards his or her monthly premium.

(3) A retirant or retirement allowance beneficiary receiving

hospital, medical-surgical, and sick care benefits coverage under

subsection (1) or (2), until eligible for medicare, shall have an

amount equal to the cost chargeable to a medicare recipient for

part B of medicare deducted from his or her retirement allowance.

(4) The retirement system shall pay 90% of the monthly premium

or membership or subscription fee for dental, vision, and hearing

benefits for the benefit of a retirant or retirement allowance

beneficiary who elects coverage in the plan authorized by the

retirement board and the department. Payments shall begin under

this subsection upon approval by the retirement board and the

department of plan coverage and a plan provider. Except as

otherwise provided in subsection (8), this subsection does not

apply to a retirant who first becomes a member after June 30, 2008.

(5) The retirement system shall pay up to 90% of the maximum

of the amount payable under subsection (1) toward the monthly

premium or membership or subscription fee for hospital, medical-

surgical, and sick care benefits coverage described in subsections

(1) and (2) for each health insurance dependent of a retirant

receiving benefits under subsection (1) or (2). Payment shall not

exceed 90% of the actual monthly premium or membership or

subscription fee. The retirement system shall pay 90% of the

monthly premium or membership or subscription fee for dental,

vision, and hearing benefits described in subsection (4) for the

benefit of each health insurance dependent of a retirant receiving

benefits under subsection (4). Payment for health benefits coverage

for a health insurance dependent of a retirant shall not be made

after the retirant's death, unless the retirant designated a

retirement allowance beneficiary as provided in section 85 and the

dependent was covered or eligible for coverage as a health

insurance dependent of the retirant on the retirant's date of

death. Payment for health benefits coverage shall not be made for a

health insurance dependent after the later of the retirant's death

or the retirement allowance beneficiary's death. Payment under this

subsection and subsection (6) began October 1, 1985 for health

insurance dependents who on July 10, 1985 were covered by the

hospital, medical-surgical, and sick care benefits plan authorized

by the retirement board and the department. Payment under this

subsection and subsection (6) for other health insurance dependents

shall not begin before January 1, 1986. Except as otherwise

provided in subsection (8), this subsection does not apply to a

retirant who first becomes a member after June 30, 2008.

(6) The payment described in subsection (5) shall also be made

for each health insurance dependent of a deceased member or

deceased duty disability retirant if a retirement allowance is

being paid to a retirement allowance beneficiary because of the

death of the member or duty disability retirant as provided in

section 43c(c), 89, or 90. Payment for health benefits coverage for

a health insurance dependent shall not be made after the retirement

allowance beneficiary's death.

(7) The payments provided by this section shall not be made on

behalf of a retiring section 82 deferred member or health insurance

dependent of a deferred member having less than 21 full years of

attained credited service or the retiring deferred member's

retirement allowance beneficiary, and shall not be made on behalf

of a retirement allowance beneficiary of a deferred member who dies

before retiring. The retirement system shall pay, on behalf of a

retiring section 82 deferred member or health insurance dependent

of a deferred member or a retirement allowance beneficiary of a

deceased deferred member, either of whose allowance is based upon

not less than 21 years of attained credited service, 10% of the

payments provided by this section, increased by 10% for each

attained full year of credited service beyond 21 years, not to

exceed 100%. This subsection applies to any member who first became

a member on or before June 30, 2008 and attains deferred status

under section 82 after October 31, 1980.

(8) For a member or deferred member who first becomes a member

after June 30, 2008, the retirement system shall pay up to 90% of

the monthly premium or membership or subscription fee for the

hospital, medical-surgical, and sick care benefits plan, the dental

plan, vision plan, and hearing plan, or any combination of the

plans for the benefit of the retirant and his or her retirement

allowance beneficiary and health insurance dependents, or for the

benefit of the deceased member's retirement allowance beneficiary

if the retirant or deceased member has 25 years or more of service

credit under this act, and the retirant, deceased retirant, or

deceased member was at least 60 years of age at the time of

application for benefits under this section. If the retirant or

deceased member is less than 60 years of age at the time of

application for benefits under this section, the retirement system

shall pay 90% of the monthly premium or membership or subscription

fee for the hospital, medical-surgical, and sick care benefits

plan, the dental plan, vision plan, and hearing plan, or any

combination of the plans for the benefit of the retirant and his or

her retirement allowance beneficiary and the retirant's health

insurance dependents, or for the benefit of the deceased member's

retirement allowance beneficiary if the retirant or deceased member

has 25 or more years of service credit granted under section 68. If

a retirant, deceased retirant, or deceased member described in this

subsection has 10 or more but less than 25 years of service credit

under this act and the retirant was at least 60 years of age at the

time of application for benefits under this section, the retirement

system shall pay a portion of the monthly premium or membership or

subscription fee for the plans or combination of plans equal to the

product of 3% and the retirant's, deceased retirant's, or deceased

member's years of service for the first 10 years and 4% for each

year after the first 10 years. This subsection does not apply to a

member who receives a disability retirement allowance under section

86 or 87 or to a deceased member's retirement allowance beneficiary

under section 90.

(9) The retirement system shall not pay the premiums or

membership or subscription fees under subsection (8) until the

retirant or retirement allowance beneficiary requests enrollment in

the plans or combination of plans in writing in the manner

prescribed by the retirement system. Not more than 1 year's service

credit shall be counted for purposes of subsection (8) and this

subsection in any school fiscal year.

(10) A member who retires under section 43b or 81 and who

elects to purchase service credit on or after July 1, 2008 is not

eligible for payments under this section for the hospital, medical-

surgical, and sick care benefits plan, the dental plan, vision

plan, or hearing plan, or any combination of the plans described in

this section until the first date that the member would have been

eligible to retire under section 43b or 81 if he or she had not

purchased the service credit and had accrued a sufficient amount of

service credit under section 68. A member who first becomes a

member on or after July 1, 2008 shall not be eligible for health

benefits under this subsection until at least the time of

application under subsection (8). The retirement system shall apply

a method that enables it to make the determination under this

subsection.

(11) Except for a member who retires under section 86 or 87 or

a member who meets the requirements under subsection (7) or (8),

the retirement system shall not pay the benefits provided in

subsection (1) or (4) unless the member was employed and has

received a minimum total of 1/2 of a year of service credit granted

pursuant to section 68 during the 2 school fiscal years immediately

preceding the member's retirement allowance effective date or the

member has received a minimum of 1/10 of a year of service credit

granted pursuant to section 68 during each of the 5 school fiscal

years immediately preceding the member's retirement allowance

effective date. This subsection does not apply to a member who is

unable to meet the service credit requirements of this subsection

because of 1 or more periods of unpaid leaves of absence approved

by the reporting unit during the period of leave of absence, as a

result of a mental or physical disability supported by the member's

doctor during the period of leave of absence.

(12) Any retirant or retirement allowance beneficiary excluded

from payments under this section may participate in the hospital,

medical-surgical, and sick care benefits plan, the dental plan,

vision plan, or hearing plan, or any combination of the plans

described in this section in the manner prescribed by the

retirement system at his or her own cost.

(13) The hospital, medical-surgical, and sick care benefits

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

retirants, retirement allowance beneficiaries, and health insurance

dependents pursuant to this section shall contain a coordination of

benefits provision that provides all of the following:

(a) If the person covered under the hospital, medical-

surgical, and sick care benefits plan is also eligible for medicare

or medicaid, or both, then the benefits under medicare or medicaid,

or both, shall be determined before the benefits of the hospital,

medical-surgical, and sick care benefits plan provided pursuant to

this section.

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

this section is also covered under another plan that contains a

coordination of benefits provision, the benefits shall be

coordinated as provided by the coordination of benefits act, 1984

PA 64, MCL 550.251 to 550.255.

this section 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 of the plan

provided pursuant to this section.

(14) Beginning January 1, 2009, upon the death of the

retirant, a retirement allowance beneficiary who became a

retirement allowance beneficiary under section 85(8) or (9) is not

a health insurance dependent and is not entitled to health benefits

under this section except as provided in this subsection. Beginning

January 1, 2009, a surviving spouse selected as a retirement

allowance beneficiary under section 85(8) or (9) may elect the

insurance coverages provided in this section provided that payment

for the elected coverages is the responsibility of the surviving

spouse and is paid in a manner prescribed by the retirement system.

(15) For purposes of this section:

(a) "Health insurance dependent" means any of the following:

(i) Except as provided in subsection (14), the spouse of the

retirant or the surviving spouse to whom the retirant or deceased

member was married at the time of the retirant's or deceased

member's death.

(ii) An unmarried child, by birth or adoption, of the retirant

or deceased member, until December 31 of the calendar year in which

the child becomes 19 years of age.

(iii) An unmarried child, by birth or adoption, of the retirant

or deceased member, until December 31 of the calendar year in which

the child becomes 25 years of age, who is enrolled as a full-time

student, and who is or was at the time of the retirant's or

deceased member's death a dependent of the retirant or deceased

member as defined in section 152 of the internal revenue code.

(iv) An unmarried child, by birth or adoption, of the retirant

or deceased member who is incapable of self-sustaining employment

because of mental or physical disability, and who is or was at the

time of the retirant's or deceased member's death a dependent of

the retirant or deceased member as defined in section 152 of the

internal revenue code.

(v) The parents of the retirant or deceased member, or the

parents of his or her spouse, who are residing in the household of

the retirant or retirement allowance beneficiary.

(vi) An unmarried child who is not the child by birth or

adoption of the retirant or deceased member but who otherwise

qualifies to be a health insurance dependent under subparagraph

(ii), (iii), or (iv), if the retirant or deceased member is the legal

guardian of the unmarried child.

(b) "Medicaid" means benefits under the federal medicaid

program established under title XIX of the social security act, 42

USC 1396 to 1396v.

program established under title XVIII of the social security act,

42 USC 1395 to 1395hhh.

Sec. 92a. (1) There is appropriated for the fiscal year ending

September 30, 2010, $4,500,000.00 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.

$4,500,000.00.

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

September 30, 2011.

ARTICLE 7

Sec. 120. Notwithstanding any other provision of this act, the

Tier 2 plan under this article will be implemented by the

department as soon as administratively feasible but not later than

January 1, 2011.

Sec. 121. (1) For the purposes of this article, the words and

phrases defined in sections 122 to 124 have the meanings ascribed

to them in those sections.

(2) Notwithstanding any other provision of this act, the Tier

2 plan under this article shall be implemented by the department as

soon as administratively feasible but not later than January 1,

2011.

Sec. 122. (1) "Accumulated balance" means the total balance in

a qualified participant's, former qualified participant's, or

refund beneficiary's individual account in Tier 2.

(2) "Compensation" means the remuneration paid a participant

on account of the participant's services rendered to his or her

employer equal to the sum of the following:

(a) A participant's W-2 earnings for services performed for

the employer.

(b) Any amount contributed or deferred at the election of the

participant which is excluded from gross income under section 125,

132(f)(4), 401(k), 403(b), or 457 of the internal revenue code, 26

USC 125, 132, 401, 403, and 457.

Sec. 123. (1) "Employer" means a reporting unit.

(2) "Former qualified participant" means an individual who was

a qualified participant and who terminates the employment upon

which his or her participation is based for any reason.

Sec. 124. (1) "Plan document" means the document that contains

the provisions and procedures of Tier 2 in conformity with this act

and the internal revenue code.

(2) "Qualified participant" means an individual who is a

participant of Tier 2 and who is first employed and entered upon

the payroll of his or her employer on or after July 1, 2010, and

who also qualifies to be a member of Tier 1.

(3) "Refund beneficiary" means an individual nominated by a

qualified participant or a former qualified participant under

section 134 to receive a distribution of the participant's

accumulated balance in the manner prescribed in section 135.

(4) "State treasurer" means the treasurer of this state.

Sec. 125. (1) The department shall administer Tier 2 and shall

be the fiduciary and trustee of Tier 2. The department may appoint

an advisory board to assist the department in carrying out its

duties as fiduciary and trustee. The department and the state

treasurer shall comply with Executive Reorganization Order No.

1999-5, MCL 38.2721, in the administration of Tier 2.

(2) The department shall determine the provisions and

procedures of Tier 2 and the plan document in conformity with this

act and the internal revenue code.

(3) The department has the exclusive authority and

responsibility to employ or contract with personnel and for

services that the department determines necessary for the proper

administration of and investment of assets of Tier 2, including,

but not limited to, managerial, professional, legal, clerical,

technical, and administrative personnel or services.

(4) Each employer shall be deemed to have adopted and shall

comply with the provisions and procedures of Tier 2 and the plan

document.

Sec. 126. (1) A qualified participant, former qualified

participant, or refund beneficiary may request a hearing on a claim

involving his or her rights under Tier 2. Upon written request, the

department shall provide for a hearing that shall be conducted

pursuant to chapter 4 of the administrative procedures act of 1969,

1969 PA 306, MCL 24.271 to 24.287. An individual may be represented

by counsel or other authorized agent at a hearing conducted under

this section.

(2) Chapters 2, 3, and 5 of the administrative procedures act

of 1969, 1969 PA 306, MCL 24.224 to 24.264 and 24.291 to 24.292, do

not apply to the establishment, implementation, administration,

operation, investment, or distribution of Tier 2.

Sec. 127. Each qualified participant, former qualified

participant, and refund beneficiary shall direct the investment of

the individual's accumulated employer and employee contributions

and earnings to 1 or more investment choices within available

categories of investment provided by the department. The

limitations on the percentage of total assets for investments

provided in the public employee retirement system investment act,

1965 PA 314, MCL 38.1132 to 38.1140m, do not apply to Tier 2.

Sec. 128. The administrative expenses of Tier 2 shall be paid

by the qualified participants, former qualified participants, and

refund beneficiaries who have not closed their accounts in a manner

determined by the department.

Sec. 129. A qualified participant shall not participate in any

other public sector retirement benefits plan for simultaneous

service rendered to the same public sector employer. Except as

otherwise provided in this act or by the department, this section

does not prohibit a qualified participant from participating in a

retirement plan established by this state or other public sector

employer under the internal revenue code. For the purposes of this

section, "public sector employer" includes, but is not limited to,

a reporting unit.

Sec. 131. (1) This section is subject to the vesting

requirements of section 132.

(2) Unless the qualified participant as described in section

124(2) affirmatively elects not to contribute or elects to

contribute a lesser amount, the qualified participant shall

contribute 2% of his or her compensation to his or her Tier 2

account. The qualified participant's employer shall make a

contribution to the qualified participant's Tier 2 account in an

amount equal to 50% of the first 2% of compensation contribution

made by the qualified participant under this subsection.

(3) A qualified participant as described in section 124(2) may

make contributions in addition to contributions made under

subsection (2) to his or her Tier 2 account as permitted by the

department and the internal revenue code.

(4) Upon the written determination of the director of the

office of retirement services, an employee of an employer that is

not a qualified participant as described in section 124(2) may

elect to make contributions to a Tier 2 account as permitted by the

department and the internal revenue code. An employee as described

in this subsection shall be treated as a qualified participant

under this article for the limited purposes of his or her Tier 2

account.

(5) Upon the written determination of the director of the

office of retirement services, an employer may annually elect to

make additional matching contributions, including those in addition

to matching contributions made under subsection (2), to an

employee's Tier 2 account as permitted by the plan document and the

internal revenue code. Matching contributions under this subsection

shall be made in amounts equal to 50% of the contributions made by

the employee not to exceed the first 4% of contributions made in

whole percentages only, for any employee in addition to amounts

that are already matched under this section, if any.

Sec. 132. A qualified participant is immediately 100% vested

in his or her contributions made to Tier 2. A qualified participant

shall vest in the employer contributions made on his or her behalf

to Tier 2 according to the following schedule:

(a) Upon completion of 2 years of service, 50%.

(b) Upon completion of 3 years of service, 75%.

Sec. 134. A qualified participant or former qualified

participant may nominate 1 or more individuals as a refund

beneficiary by filing written notice of nomination with the

department. If the qualified participant or former qualified

participant is married at the time of the nomination and the

participant's spouse is not the refund beneficiary for 100% of the

account, the nomination is not effective unless the nomination is

signed by the participant's spouse if the signature of the

participant's spouse is required by the plan document. However, the

department may waive this requirement if the spouse's signature

cannot be obtained because of extenuating circumstances.

Sec. 135. (1) A qualified participant is eligible to receive

distribution of his or her accumulated balance in Tier 2 upon

becoming a former qualified participant.

(2) Upon the death of a qualified participant or former

qualified participant, the accumulated balance of that deceased

participant is considered to belong to the refund beneficiary, if

any, of that deceased participant. If a valid nomination of refund

beneficiary is not on file with the department, the department, in

a lump sum distribution, shall distribute the accumulated balance

in accordance with the plan document.

(3) A former qualified participant or refund beneficiary may

elect 1 or a combination of several of the following methods of

distribution of the accumulated balance:

(a) A lump sum distribution to the recipient.

(b) A lump sum direct rollover to another qualified plan, to

the extent allowed by federal law.

(d) No current distribution, in which case the accumulated

balance shall remain in Tier 2 until the former qualified

participant or refund beneficiary elects a method or methods of

distribution under subdivisions (a) to (c), to the extent allowed

by federal law.

Sec. 137. (1) Distributions from employer contributions made

pursuant to section 131(2) and earnings on those employer

contributions, and distributions from employee contributions made

pursuant to section 131(2) and earnings on those employee

contributions, are exempt from any state, county, municipal, or

other local tax. Distributions from employer contributions made

pursuant to section 131(2) and earnings on those employer

contributions and distributions from employee contributions made

pursuant to section 131(2) and earnings on those employee

contributions are subject to the public employee retirement benefit

protection act, 2002 PA 100, MCL 38.1681 to 38.1689.

(2) The department has the right of setoff to recover

overpayments made under this act and to satisfy any claims arising

from embezzlement or fraud committed by a qualified participant,

former qualified participant, refund beneficiary, or other person

who has a claim to a distribution or any other benefit from Tier 2.

(3) The department shall correct errors in the records and

actions in Tier 2 under this act, and shall seek to recover

overpayments and shall make up underpayments.

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.

Enacting section 2. This amendatory act does not take effect

unless House Bill No. 4073 of the 95th Legislature is enacted into

law.