HOUSE BILL No. 5723 May 3, 2000, Introduced by Reps. Geiger, Jansen, Jellema and Vander Roest and referred to the Committee on Appropriations. A bill to amend 1980 PA 300, entitled "The public school employees retirement act of 1979," by amending sections 34, 36, and 41 (MCL 38.1334, 38.1336, and 38.1341), as amended by 1997 PA 143. THE PEOPLE OF THE STATE OF MICHIGAN ENACT: 1 Sec. 34. (1) The reserve for health benefits is the account 2 to which payments of reporting units for health benefits are 3 credited. Benefits payable pursuant to section 91 shall be paid 4 from the reserve for health benefits. THE ASSETS AND ANY EARN- 5 INGS ON THE ASSETS CONTAINED IN THE RESERVE FOR HEALTH BENEFITS 6 AND THE HEALTH ADVANCE FUNDING SUBACCOUNT ARE NOT TO BE TREATED 7 AS PENSION ASSETS FOR ANY PURPOSE. 8 (2) THE HEALTH ADVANCE FUNDING SUBACCOUNT IS THE ACCOUNT TO 9 WHICH AMOUNTS TRANSFERRED PURSUANT TO SECTION 41 ARE CREDITED. 10 EXCEPT AS OTHERWISE PROVIDED IN THIS SECTION, ANY AMOUNTS 03101'99 ** TJS 2 1 RECEIVED IN THE HEALTH ADVANCE FUNDING SUBACCOUNT AND ACCUMULATED 2 EARNINGS ON THOSE AMOUNTS SHALL NOT BE EXPENDED UNTIL THE ACTUAR- 3 IAL ACCRUED LIABILITY FOR HEALTH BENEFITS UNDER SECTION 91 IS AT 4 LEAST 100% FUNDED. THE DEPARTMENT MAY EXPEND FUNDS OR TRANSFER 5 FUNDS TO ANOTHER ACCOUNT TO EXPEND FOR HEALTH BENEFITS UNDER 6 SECTION 91 IF THE ACTUARIAL ACCRUED LIABILITY FOR HEALTH BENEFITS 7 UNDER SECTION 91 IS AT LEAST 100% FUNDED. 8 (3) NOTWITHSTANDING ANY OTHER PROVISION OF THIS SECTION, THE 9 DEPARTMENT MAY TRANSFER AMOUNTS FROM THE HEALTH ADVANCE FUNDING 10 SUBACCOUNT TO THE RESERVE FOR EMPLOYER CONTRIBUTIONS ESTABLISHED 11 IN SECTION 30 IF THE ACTUARIAL VALUATION PREPARED PURSUANT TO 12 SECTION 41 DEMONSTRATES THAT AS OF THE BEGINNING OF A FISCAL 13 YEAR, AND AFTER ALL CREDITS AND TRANSFERS REQUIRED BY THIS ACT 14 FOR THE PREVIOUS FISCAL YEAR HAVE BEEN MADE, THE SUM OF THE ACTU- 15 ARIAL VALUE OF ASSETS AND THE ACTUARIAL PRESENT VALUE OF FUTURE 16 NORMAL COST CONTRIBUTIONS DOES NOT EXCEED THE ACTUARIAL PRESENT 17 VALUE OF BENEFITS. 18 Sec. 36. (1) The reserve for undistributed investment 19 income is the account to which all income from the investment of 20 assets, all gifts and bequests received by the retirement system, 21 and all other money received by the retirement system the dispo- 22 sition of which is not specifically provided for is credited. In 23 each fiscal year, the retirement board shall transfer from the 24 reserve for undistributed investment income all amounts necessary 25 to credit the interest required under this act to the reserve for 26 employee contributions, the reserve for employer contributions, 27 the reserve for member investment plan, the reserve for retired 03101'99 ** 3 1 benefit payments, and the reserve for health benefits, to fund 2 the reserve for administrative expenses, and any supplemental 3 payments required pursuant to section 104a. 4 (2) The PENSION stabilization subaccount is the account to 5 which the amounts transferred pursuant to subsection (3) to the 6 reserve for undistributed investment income are credited. Except 7 as otherwise provided in this subsection, no amounts shall be 8 transferred from the stabilization subaccount to any other 9 reserve. The director of the department may transferfromPART 10 OR ALL OF the PENSION stabilization subaccount to the reserve for 11 employer contributions.part or all of the amount necessary to12reduce or eliminate any unfunded actuarial accrued liability, as13determined under sections 41 and 41a.AFTER THE DEPARTMENT HAS 14 TRANSFERRED THE ENTIRE BALANCE OF THE PENSION STABILIZATION SUB- 15 ACCOUNT TO THE RESERVE FOR EMPLOYER CONTRIBUTIONS CREATED BY 16 SECTION 30, THE PENSION STABILIZATION SUBACCOUNT CREATED BY THIS 17 SUBSECTION SHALL BE CLOSED AND SUBSECTION (3) SHALL NO LONGER 18 APPLY. 19 (3) Beginning on the designated date, if the actuarial valu- 20 ation prepared pursuant to sections 41 and 41a demonstrates that 21 as of the beginning of a fiscal year, and after all credits and 22 transfers required by this act for the previous fiscal year have 23 been made, the sum of the actuarial value of assets and the actu- 24 arial present value of future normal cost contributions exceeds 25 the actuarial present value of benefits, an amount equal to the 26 excess shall be credited to the PENSION stabilization subaccount 03101'99 ** 4 1 pursuant to subsection (2) and shall be debited against the 2 reserve for employer contributions. 3 Sec. 41. (1) The annual level percentage of payroll contri- 4 bution rate to finance benefits being provided and to be provided 5 by the retirement system shall be determined by actuarial valua- 6 tion pursuant to subsection (2) upon the basis of the risk 7 assumptions that the retirement board and the department adopt 8 after consultation with the state treasurer and an actuary. An 9 annual actuarial valuation shall be made of the retirement system 10 in order to determine the actuarial condition of the retirement 11 system and the required contribution to the retirement system. 12 An annual actuarial gain-loss experience study of the retirement 13 system shall be made in order to determine the financial effect 14 of variations of actual retirement system experience from 15 projected experience. 16 (2) The contribution rate for benefits payable in the event 17 of the death of a member before retirement or the disability of a 18 member shall be computed using a terminal funding method of 19 valuation. Except as otherwise provided in this subsection, the 20 contribution rate for other benefits shall be computed using an 21 individual projected benefit entry age normal cost method of 22 valuation. For the 1995-96 state fiscal year and for each subse- 23 quent fiscal year, the contribution rate for health benefits pro- 24 vided under section 91 shall be computed using a cash disburse- 25 ment method. The contribution rate for service likely to be 26 rendered in the current year, the normal cost contribution rate, 27 shall be equal to the aggregate amount of individual projected 03101'99 ** 5 1 benefit entry age normal costs divided by 1% of the aggregate 2 amount of active members' valuation compensation. The contribu- 3 tion rate for unfunded service rendered before the valuation 4 date, the unfunded actuarial accrued liability contribution rate, 5 shall be the aggregate amount of unfunded actuarial accrued 6 liabilities divided by 1% of the actuarial present value over a 7 period not to exceed 50 years of projected valuation compensa- 8 tion, where unfunded actuarial accrued liabilities are equal to 9 the actuarial present value of benefits, reduced by the actuarial 10 present value of future normal cost contributions and the actuar- 11 ial value of assets on the valuation date. 12 (3) Before November 1 of each year, the executive secretary 13 of the retirement board shall certify to the director of the 14 department the aggregate compensation estimated to be paid public 15 school employees for the current state fiscal year. 16 (4) On the basis of the estimate under subsection (3), the 17 annual actuarial valuation, and any adjustment required under 18 subsection (6), the director of the department shall compute the 19 sum due and payable to the retirement system and shall certify 20 this amount to the reporting units. 21 (5) The reporting units shall make payment of the amount 22 certified under subsection (4) to the director of the department 23 in 12 equal monthly installments. 24 (6) Not later than 90 days after termination of each state 25 fiscal year, the executive secretary of the retirement board 26 shall certify to the director of the department and each 27 reporting unit the actual aggregate compensation paid to public 03101'99 ** 6 1 school employees during the preceding state fiscal year. Upon 2 receipt of that certification, the director of the department 3 shall compute any adjustment required to the amount due to a dif- 4 ference between the estimated and the actual aggregate compensa- 5 tion and the estimated and the actual actuarial employer contri- 6 bution rate. The difference, if any, shall be paid as provided 7 in subsection (9). THIS SUBSECTION DOES NOT APPLY IN A FISCAL 8 YEAR IN WHICH A DEPOSIT OCCURS PURSUANT TO SUBSECTION (14). 9 (7) The director of the department may require evidence of 10 correctness and may conduct an audit of the aggregate compensa- 11 tion that the director of the department considers necessary to 12 establish its correctness. 13 (8) A reporting unit shall forward employee and employer 14 social security contributions and reports as required by the fed- 15 eral old-age, survivors, disability, and hospital insurance pro- 16 visions of title II of the social security act, chapter 531, 49 17 Stat. 620, 42 U.S.C. 401 to 405, 406 to 418, 420 to 423, 424a to 18 426-1, and 427 to 433. 19 (9) For an employer of an employee of a local public school 20 district or an intermediate school district, for differences 21 occurring in fiscal years beginning on or after October 1, 1993, 22 a minimum of 20% of the difference between the estimated and the 23 actual aggregate compensation and the estimated and the actual 24 actuarial employer contribution rate described in subsection 25 (6), if any, shall be paid by that employer in the next succeed- 26 ing state fiscal year and a minimum of 25% of the remaining 27 difference shall be paid by that employer in each of the 03101'99 ** 7 1 following 4 state fiscal years, or until 100% of the remaining 2 difference is submitted, whichever first occurs. For an employer 3 of other public school employees, for differences occurring in 4 fiscal years beginning on or after October 1, 1991, a minimum of 5 20% of the difference between the estimated and the actual aggre- 6 gate compensation and the estimated and the actual actuarial 7 employer contribution rate described in subsection (6), if any, 8 shall be paid by that employer in the next succeeding state 9 fiscal year and a minimum of 25% of the remaining difference 10 shall be paid by that employer in each of the following 4 state 11 fiscal years, or until 100% of the remaining difference is sub- 12 mitted, whichever first occurs. In addition, interest shall be 13 included for each year that a portion of the remaining difference 14 is carried forward. The interest rate shall equal the actuari- 15 ally assumed rate of investment return for the state fiscal year 16 in which payment is made. THIS SUBSECTION DOES NOT APPLY IN A 17 FISCAL YEAR IN WHICH A DEPOSIT OCCURS PURSUANT TO 18 SUBSECTION (14). 19 (10) Beginning on the designated date, all assets held by 20 the retirement system shall be reassigned their fair market 21 value, as determined by the state treasurer, as of the designated 22 date, and in calculating any unfunded actuarial accrued liabili- 23 ties, any market gains or losses incurred before the designated 24 date shall not be considered by the retirement system's 25 actuaries. 26 (11) Beginning on the designated date, the actuary used by 27 the retirement board shall assume a rate of return on investments 03101'99 ** 8 1 of 8.00% per annum, as of the designated date, which rate may 2 only be changed with the approval of the retirement board and the 3 director of the department. 4 (12) Beginning on the designated date, the value of assets 5 used shall be based on a method that spreads over a 5-year period 6 the difference between actual and expected return occurring in 7 each year after the designated date and such methodology may only 8 be changed with the approval of the retirement board and the 9 director of the department. 10 (13) Beginning on the designated date, the actuary used by 11 the retirement board shall use a salary increase assumption that 12 projects annual salary increases of 4%. In addition to the 4%, 13 the retirement board shall use an additional percentage based 14 upon an age-related scale to reflect merit, longevity, and promo- 15 tional salary increase. The actuary shall use this assumption 16 until a change in the assumption is approved in writing by the 17 retirement board and the director of the department. 18 (14) IF THE ACTUARIAL VALUATION PREPARED PURSUANT TO THIS 19 SECTION DEMONSTRATES THAT AS OF THE BEGINNING OF A FISCAL YEAR, 20 AND AFTER ALL CREDITS AND TRANSFERS REQUIRED BY THIS ACT FOR THE 21 PREVIOUS FISCAL YEAR HAVE BEEN MADE, THE SUM OF THE ACTUARIAL 22 VALUE OF ASSETS AND THE ACTUARIAL PRESENT VALUE OF FUTURE NORMAL 23 COST CONTRIBUTIONS EXCEEDS THE ACTUARIAL PRESENT VALUE OF BENE- 24 FITS, THE AMOUNT BASED ON THE ANNUAL LEVEL PERCENT OF PAYROLL 25 CONTRIBUTION RATE PURSUANT TO SUBSECTIONS (1) AND (2) MAY BE 26 DEPOSITED INTO THE HEALTH ADVANCE FUNDING SUBACCOUNT CREATED BY 27 SECTION 34. 03101'99 **