HB-5298, As Passed House, December 7, 2017

 

 

 

 

 

 

 

 

 

 

 

 

SUBSTITUTE FOR

 

HOUSE BILL NO. 5298

 

 

 

 

 

 

 

 

 

 

 

 

     A bill to create the protecting local government retirement

 

and benefits act; to provide the powers and duties of certain state

 

and local agencies and officials; and to create a municipal

 

stability board.

 

THE PEOPLE OF THE STATE OF MICHIGAN ENACT:

 

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

 

"protecting local government retirement and benefits act".

 

     Sec. 2. The legislature finds and declares that this act is

 

intended to reflect the July 2017 Report of Findings and

 

Recommendations for Action of the Responsible Retirement Reform for

 

Local Government Task Force.

 

     Sec. 3. As used in this act:

 

     (a) "Annual report" means the most recent audited financial

 

statement reporting a local unit of government's liability for


retirement pension benefits and retirement health benefits as

 

determined under applicable government accounting standards of the

 

Governmental Accounting Standards Board.

 

     (b) "Annual required contribution" means the sum of the normal

 

cost payment and the annual amortization payment for past service

 

costs to fund the unfunded actuarial accrued liability.

 

     (c) "Corrective action plan" means a plan that details the

 

actions to be taken by a local unit of government to address and

 

resolve the underfunded status of that local unit of government.

 

     (d) "Employee" means an individual holding a position by

 

election, appointment, or employment in a local unit of government.

 

     (e) "Evaluation system" means the local government retirement

 

and benefits fiscal impact evaluation system created under section

 

5 to provide for the identification of, and a corrective action

 

plan to resolve, the underfunded status of a local unit of

 

government under this act.

 

     (f) "Former employee" means an individual who was an employee

 

who terminated employment with the applicable local unit of

 

government.

 

     (g) "General fund operating revenues" means the sum of all

 

governmental activity fund revenues of a local unit of government

 

as determined by the state treasurer based on applicable government

 

accounting standards of the Governmental Accounting Standards

 

Board. General fund operating revenues do not include any fund of

 

the local unit of government that the state treasurer determines

 

based on applicable government accounting standards of the

 

Governmental Accounting Standards Board is a proprietary,


fiduciary, enterprise, or other restricted fund that may not be

 

expended to provide retirement health benefits or retirement

 

pension benefits.

 

     (h) "Local unit of government" means any of the following:

 

     (i) A city.

 

     (ii) A village.

 

     (iii) A township.

 

     (iv) A county.

 

     (v) A county road commission.

 

     (vi) An authority created under chapter VIA of the aeronautics

 

code of the state of Michigan, 1945 PA 327, MCL 259.108 to

 

259.125c.

 

     (vii) A metropolitan government or authority established under

 

section 27 of article VII of the state constitution of 1963.

 

     (viii) A metropolitan district created under the metropolitan

 

district act, 1929 PA 312, MCL 119.1 to 119.18.

 

     (ix) An authority created under 1939 PA 147, MCL 119.51 to

 

119.62.

 

     (x) A municipal electric utility system as that term is

 

defined in section 4 of the Michigan energy employment act of 1976,

 

1976 PA 448, MCL 460.804.

 

     (xi) A district, authority, commission, public body, or public

 

body corporate created by 1 or more of the entities described in

 

subparagraphs (i) to (x).

 

     (i) "Local unit of government" does not include this state, a

 

principal department of state government, a state institution of

 

higher education under section 4, 5, or 6 of article VIII of the


state constitution of 1963, a state agency, a state authority, or a

 

reporting unit under the public school employees retirement act of

 

1979, 1980 PA 300, MCL 38.1301 to 38.1437.

 

     (j) "Municipal stability board" or "board" means the municipal

 

stability board created in section 7.

 

     (k) "Normal cost" means the annual service cost of retirement

 

health benefits as they are earned during active employment of

 

employees of the local unit of government in the applicable fiscal

 

year, using an individual entry-age normal and level percent of pay

 

actuarial cost method.

 

     (l) "Retirant" means an individual who has retired with a

 

retirement benefit payable from a retirement system of a local unit

 

of government.

 

     (m) "Retirement benefit" includes a retirement health benefit

 

or retirement pension benefit, or both.

 

     (n) "Retirement health benefit" means an annuity, allowance,

 

payment, or contribution to, for, or on behalf of a former employee

 

or a dependent of a former employee to pay for any of the following

 

components:

 

     (i) Expenses related to medical, drugs, dental, hearing, or

 

vision care.

 

     (ii) Premiums for insurance covering medical, drugs, dental,

 

hearing, or vision care.

 

     (iii) Expenses or premiums for life, disability, long-term

 

care, or similar welfare benefits for a former employee.

 

     (o) "Retirement pension benefit" means an allowance, right,

 

accrued right, or other pension benefit payable under a defined


benefit pension plan to a participant in the plan or a beneficiary

 

of the participant.

 

     (p) "Retirement system" means a retirement system, trust,

 

plan, or reserve fund that a local unit of government establishes,

 

maintains, or participates in and that, by its express terms or as

 

a result of surrounding circumstances, provides retirement pension

 

benefits or retirement health benefits, or both. Retirement system

 

does not include a state unit as that term is defined in section 2

 

of the public employee retirement benefit protection act, 2002 PA

 

100, MCL 38.1682.

 

     (q) "Underfunded local unit of government" means a local unit

 

of government that is in underfunded status.

 

     (r) "Underfunded status" means that the state treasurer has

 

determined that the local unit of government is underfunded under

 

the review provided in section 5 and the local unit of government

 

does not have a waiver under section 6.

 

     Sec. 4. (1) Beginning July 1, 2018, if a local unit of

 

government offers or provides an employee of the local unit of

 

government, or a former employee first employed by the local unit

 

of government before the effective date of this act, with a

 

retirement health benefit, all of the following apply to the local

 

unit of government:

 

     (a) The local unit of government must pay at least both of the

 

following:

 

     (i) Normal costs for employees first hired after June 30,

 

2018.

 

     (ii) Retiree premiums that are due for retirants in the


retirement system.

 

     (b) The local unit of government shall electronically submit a

 

summary retiree health care report in a form prescribed by the

 

department of treasury on an annual basis to the governing body of

 

the local unit of government and the department of treasury no

 

later than 6 months after the end of the local unit of government's

 

fiscal year. The department of treasury shall post on its website

 

an executive summary of each summary retiree health care report

 

submitted to the department of treasury under this subdivision. The

 

executive summary must include the applicable system's unfunded

 

actuarial accrued liability. The department of treasury shall

 

submit each executive summary required under this subdivision to

 

the senate and the house of representatives appropriations

 

committees and the senate and house fiscal agencies not less than

 

30 days after posting.

 

     (c) At least every 5 years, the local unit of government shall

 

have an actuarial experience study conducted by the plan actuary

 

for each retirement system of the local unit of government.

 

     (d) At least every 8 years, the local unit of government shall

 

do at least 1 of the following:

 

     (i) Have a peer actuarial audit conducted by an actuary that

 

is not the plan actuary.

 

     (ii) Replace the plan actuary.

 

     (e) A local unit of government that is eligible to use a

 

specified alternative measurement method under Governmental

 

Accounting Standards Board standards is exempt from the

 

requirements under subdivisions (c) and (d).


     (2) As used in this section, "summary retiree health care

 

report" means a report that includes all of the following for each

 

retirement system of the local unit of government that provides

 

retirement health benefits:

 

     (a) The name of the retirement system.

 

     (b) The names of the retirement system's investment

 

fiduciaries.

 

     (c) The names of the retirement system's service providers.

 

     (d) The retirement system's assets and liabilities and changes

 

in net plan assets on a plan-year basis.

 

     (e) The retirement system's funded ratio based on the ratio of

 

valuation assets to actuarial accrued liabilities on a plan-year

 

basis.

 

     (f) The assumed rate of return of the retirement system.

 

     (g) The actual rate of return of the retirement system for the

 

previous 1-year period, the previous 5-year period, and the

 

previous 10-year period.

 

     (h) The discount rate used by the retirement system.

 

     (i) The retirement system's amortization method for unfunded

 

liability, indicating whether it is open or closed.

 

     (j) The retirement system's amortization method, indicating

 

whether it is level percent or level dollar, and the assumed

 

payroll growth rate.

 

     (k) The retirement system's remaining amortization time

 

period.

 

     (l) The annual required contribution for the retirement

 

system, indicating the normal cost and the amortization payment


toward the unfunded actuarial accrued liability.

 

     (m) The retirement system's health care inflation assumption.

 

     (n) The number of active employees and retirants in the

 

retirement system.

 

     (o) The amount of premiums paid on behalf of retirants in the

 

retirement system.

 

     Sec. 5. (1) The state treasurer shall annually establish

 

uniform actuarial assumptions of retirement systems that include,

 

but are not limited to, investment returns, salary increase rates,

 

mortality tables, discount rates, and health care inflation.

 

     (2) The state treasurer shall create an evaluation system and

 

provide for review and oversight under this act of an underfunded

 

local unit of government beginning on the effective date of the

 

determination by the state treasurer that the local unit of

 

government is in underfunded status.

 

     (3) Each year beginning after December 31, 2017, the state

 

treasurer shall determine the underfunded status of each local unit

 

of government.

 

     (4) The state treasurer shall determine that a local unit of

 

government is in underfunded status if any of the following apply:

 

     (a) The actuarial accrued liability of a retirement health

 

system of the local unit of government is less than 40% funded,

 

according to the most recent annual report, and, if the local unit

 

of government is a city, village, township, or county, the annual

 

required contribution for all of the retirement health systems of

 

the local unit of government is greater than 12% of the local unit

 

of government's annual general fund operating revenues, based on


the most recent fiscal year.

 

     (b) The actuarial accrued liability of a retirement pension

 

system of the local unit of government is less than 60% funded,

 

according to the most recent annual report, and, if the local unit

 

of government is a city, village, township, or county, the annual

 

required contribution for all of the retirement pension systems of

 

the local unit of government is greater than 10% of the local unit

 

of government's annual general fund operating revenues, based on

 

the most recent fiscal year.

 

     (c) The local unit of government has not reported the annual

 

cost of the liability of the retirement health system or retirement

 

pension system using the uniform actuarial assumptions under

 

subsection (1).

 

     (d) The local unit of government fails to make the payments as

 

described under section 4(1).

 

     (5) For purposes of the report under subsection (6), a local

 

unit of government shall annually calculate the funded ratios of

 

each retirement system of the local unit of government using the

 

uniform actuarial assumptions established under subsection (1).

 

     (6) A local unit of government shall electronically submit a

 

report in a form prescribed by the department of treasury on an

 

annual basis to the governing body of the local unit of government

 

and the department of treasury no later than 6 months after the end

 

of the local unit of government's fiscal year.

 

     (7) The state treasurer shall post publicly on the department

 

of treasury website all of the following:

 

     (a) The uniform actuarial assumptions under subsection (1).


     (b) A summary report of the local unit of government reports

 

submitted under subsection (6).

 

     (c) The underfunded status of local units of government as

 

determined under subsection (3).

 

     (d) The current waiver status of local units of government

 

provided under section 6.

 

     (e) Any corrective action plan approved under section 10.

 

     (8) A local unit of government shall post publicly on its

 

website, or in a public place if it does not have a website, the

 

information as provided in subsection (7) that is applicable to

 

that local unit of government.

 

     Sec. 6. (1) To qualify for a waiver of the underfunded status

 

determination under section 5, the local unit of government's

 

administrative officer and governing body must approve a plan

 

demonstrating the underfunded status is being addressed and must

 

approve the waiver application. The state treasurer shall issue a

 

waiver of the determination of underfunded status for a local unit

 

of government if the state treasurer determines that the

 

underfunded status is adequately being addressed by that local unit

 

of government.

 

     (2) For any underfunded local unit of government that is not

 

granted a waiver, the department of treasury shall do all of the

 

following:

 

     (a) Undertake an individualized and comprehensive internal

 

review of the local unit of government's retirement system.

 

     (b) Discuss changes or reforms that have been made with the

 

local unit of government's designated officials.


     (c) Review actuarial projections, including trends and

 

projections.

 

     Sec. 7. (1) The municipal stability board is created within

 

the department of treasury. Except as otherwise provided in this

 

act, the board shall exercise its powers, duties, and functions

 

independently of the state treasurer. The budgeting, procurement,

 

and related management functions of the board must be performed

 

under the direction and supervision of the state treasurer. The

 

department of treasury shall provide administrative support to the

 

board.

 

     (2) The board consists of all of the following members:

 

     (a) One resident of this state representing state officials

 

with knowledge, skill, or experience in accounting, actuarial

 

science, retirement systems, retirement health benefits, or

 

government finance appointed by the governor.

 

     (b) One resident of this state representing local officials

 

with knowledge, skill, or experience in accounting, actuarial

 

science, retirement systems, retirement health benefits, or

 

government finance appointed by the governor.

 

     (c) One resident of this state representing employees and

 

retirees with knowledge, skill, or experience in accounting,

 

actuarial science, retirement systems, retirement health benefits,

 

or government finance appointed by the governor.

 

     (3) Of the members initially appointed by the governor under

 

subsection (2), 1 member must be appointed for an initial term of 4

 

years, 1 member must be appointed for an initial term of 3 years,

 

and 1 member must be appointed for an initial term of 2 years.


After the initial terms, members appointed by the governor under

 

subsection (2) must be appointed for terms of 4 years.

 

     (4) A vacancy for an unexpired term must be filled in the same

 

manner as the original appointment for the remainder of the term.

 

After the expiration of a term, a member may continue to serve

 

until a successor is appointed and qualified.

 

     (5) The member of the board appointed under subsection (2)(a)

 

shall serve as the chairperson of the board.

 

     (6) A majority of the members of the board authorized to take

 

an action constitute a quorum of the board for the transaction of

 

business on that action. The board shall meet not less than

 

quarterly and at the times and places within this state designated

 

by the chairperson. An action of the board must be approved by a

 

majority of the members authorized to take that action.

 

     (7) The board shall adopt bylaws for governance of the board,

 

which must, at a minimum, address the procedures for conducting

 

meetings, including voting procedures, and the requirements of its

 

members to attend meetings. Bylaws required by this section are not

 

subject to the administrative procedures act of 1969, 1969 PA 306,

 

MCL 24.201 to 24.328.

 

     (8) The board may contract for professional services, as it

 

requires, and shall determine the qualifications for persons

 

providing those professional services it considers necessary.

 

     (9) Members of the board serve without compensation but may

 

receive reimbursement for travel and expenses incurred in the

 

discharge of official duties. The members of the board and

 

contractors or agents of the board are subject to 1968 PA 317, MCL


15.321 to 15.330, and 1968 PA 318, MCL 15.301 to 15.310.

 

     (10) A member of the board, and any person the board contracts

 

with, shall discharge the duties of his or her position in a

 

nonpartisan manner, with good faith, and with that degree of

 

diligence, care, and skill that an ordinarily prudent person would

 

exercise under similar circumstances in a like position. The board

 

shall adopt an ethics policy governing the conduct of board members

 

and officers and employees of the board.

 

     (11) Board members shall take and subscribe to the

 

constitutional oath of office under section 1 of article XI of the

 

state constitution of 1963. The oath must be filed with the

 

secretary of state.

 

     (12) As used in this section, "professional services" means

 

services that require a high degree of intellectual skill, an

 

advanced degree, or professional licensing or certification. Those

 

providing the professional services must be distinguished based on

 

their specialized knowledge, experience, and expertise.

 

Professional services include, but are not limited to, accounting,

 

actuarial, appraisal, auditing, investment advisor, and legal

 

services.

 

     Sec. 8. The board shall review and annually update a list of

 

best practices and strategies that will assist an underfunded local

 

unit of government in developing a corrective action plan.

 

     Sec. 9. An underfunded local unit of government shall develop

 

and submit for approval a corrective action plan based on what the

 

local unit of government determines as the best components of a

 

corrective action plan for that local unit of government.


     Sec. 10. (1) The board shall review and vote on the approval

 

of a corrective action plan submitted by a local unit of

 

government. A local unit of government that is in underfunded

 

status shall submit a corrective action plan to the board within

 

180 days after the determination of underfunded status. The board

 

may extend the 180-day deadline by up to an additional 45 days if

 

the local unit of government submits a reasonable draft of a

 

corrective action plan and requests an extension. The governing

 

body of the local unit of government shall approve the corrective

 

action plan before submission to the board. The board shall approve

 

or reject a corrective action plan within 45 days after it is

 

submitted.

 

     (2) A corrective action plan may include the corrective

 

options for correcting underfunded status as set forth in

 

subsection (7) and any additional solutions to assist with reducing

 

annual expenses or improving funding levels related to its

 

underfunded status to maintain and preserve retirement pension

 

benefits and retirement health benefits. A local unit of government

 

may also include in its corrective action plan a review of the

 

local unit of government's budget and finances to determine any

 

alternative methods available to assist in the ability to fund or

 

finance the retirement pension benefits or retirement health

 

benefits of the local unit of government.

 

     (3) The board may review the inclusion of the corrective

 

options and additional solutions as described in subsection (8) as

 

part of its approval criteria to determine whether a corrective

 

action plan is designed to permanently remove the local unit of


government from underfunded status.

 

     (4) If the board votes to disapprove a corrective action plan

 

that has been submitted, the board shall within 15 days provide a

 

notification and report to the local unit of government detailing

 

the reasons for the disapproval of the corrective action plan. Each

 

fiscal year, the local unit of government has 60 days from the date

 

of the first notification to address the reasons for disapproval

 

and resubmit a corrective action plan for approval.

 

     (5) The local unit of government has up to 180 days after the

 

approval of a corrective action plan to begin to implement the

 

corrective action plan to achieve the necessary cost reductions and

 

funding improvements to permanently correct its underfunded status

 

in all future years.

 

     (6) The board shall monitor each underfunded local unit of

 

government's compliance with this act and any corrective action

 

plan. The board shall adopt a schedule, not less than every 2

 

years, to certify that the underfunded local unit of government is

 

in substantial compliance with this act. If the board determines

 

that an underfunded local unit of government is not in substantial

 

compliance under this subsection, the board shall within 15 days

 

provide notification and report to the local unit of government

 

detailing the reasons for the determination of noncompliance with

 

the corrective action plan. Each fiscal year, the local unit of

 

government has 60 days from the date of the first notification to

 

address the determination of noncompliance.

 

     (7) A corrective action plan under this section may include

 

the development and implementation of corrective options for the


local unit of government to address and permanently resolve its

 

underfunded status. The corrective options as described in this

 

section may include any of the following:

 

     (a) For retirement pension benefits, any of the following:

 

     (i) Closing the current defined benefit plan.

 

     (ii) Implementing a multiplier limit.

 

     (iii) Reducing or eliminating new accrued benefits.

 

     (iv) Implementing final average compensation standards.

 

     (b) For retirement health benefits, any of the following:

 

     (i) Requiring cost sharing of premiums and sufficient copays.

 

     (ii) Capping employer costs.

 

     (8) Except as otherwise provided in this act, while any

 

corrective action plan is in effect for an underfunded local unit

 

of government, that local unit of government is not required to

 

submit any additional corrective action plan for approval.

 

     Sec. 12. (1) The board is a state board and its members are

 

state officers for the purposes of section 6419 of the revised

 

judicature act of 1961, 1961 PA 236, MCL 600.6419.

 

     (2) The validity of the board is conclusively presumed unless

 

questioned in an original action filed in the court of claims

 

within 60 days after the effective date of this act. The court of

 

claims has original jurisdiction to hear an action under this

 

subsection. The court shall hear the action in an expedited manner.

 

The department of treasury is a necessary party in an action under

 

this subsection.

 

     (3) The court of claims has exclusive jurisdiction over any

 

action challenging the validity of this act or an action or


inaction under this act. The department of treasury is a necessary

 

party in an action under this subsection.