SB-0343, As Passed Senate, May 17, 2016

HOUSE SUBSTITUTE FOR

SENATE BILL NO. 343

     A bill to amend 1980 PA 300, entitled

"The public school employees retirement act of 1979,"

by amending sections 41 and 41a (MCL 38.1341 and 38.1341a), as

amended by 2012 PA 300.

THE PEOPLE OF THE STATE OF MICHIGAN ENACT:

     Sec. 41. (1) The annual level percentage of payroll

contribution rate rates to finance benefits being provided and to

be provided by the retirement system shall must be determined by

actuarial valuation pursuant to under subsection (2) upon on 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 must 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 must be made in order to determine

the financial effect of variations of actual retirement system

experience from projected experience.

     (2) Except as otherwise provided in this subsection, section

41a, the annual contribution rate rates for benefits shall be

computed is subject to all of the following:

     (a) Except as otherwise provided in this subdivision, the

contribution rate for benefits must 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 before the 2012-2013 state

fiscal year, the contribution rate for health benefits provided

under section 91 shall be computed using a cash disbursement

method. Beginning in the 2012-2013 state fiscal year and for each

subsequent fiscal year, if If the contributions described in

section 43e are determined by a final order of a court of competent

jurisdiction for which all rights of appeal have been exhausted to

be unconstitutional and the contributions are not deposited into

the appropriate funding account referenced in section 43e, the

contribution rate for health benefits provided under section 91

shall must be computed using a cash disbursement method.

     (b) The contribution rate for service likely to be rendered in

the current year, the normal cost contribution rate, shall for

reporting units must be equal to determined as follows:

     (i) Calculate the aggregate amount of individual projected

benefit entry age normal costs. divided

     (ii) Divide the result of the calculation under subparagraph

(i) by 1% of the aggregate amount of active members' valuation

compensation. Except as otherwise provided under this subsection,

the

     (c) The contribution rate for unfunded service rendered before

the valuation date, the unfunded actuarial accrued liability

contribution rate, shall must be determined as follows:

     (i) Calculate the aggregate amount of unfunded actuarial

accrued liabilities divided of reporting units as follows:

     (A) Calculate the actuarial present value of benefits for

members attributable to reporting units.

     (B) Calculate the actuarial present value of future normal

cost contributions of reporting units.

     (C) Calculate the actuarial present value of assets on the

valuation date.

     (D) Add the results of sub-subparagraphs (B) and (C).

     (E) Subtract from the result of the calculation under sub-

subparagraph (A) the result from the calculation under sub-

subparagraph (D).

     (ii) Divide the result of the calculation under subparagraph

(i) 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.

     (d) Beginning with the 2012-2013 state fiscal year ending

September 30, 2013 and for each subsequent fiscal year, the

unfunded actuarial accrued liability contribution rate applied to

payroll shall must not exceed 20.96% for a reporting unit that is

not a university reporting unit. Any additional unfunded actuarial

accrued liability contributions as determined under this section

for each fiscal year are to be paid by appropriation from the

school aid fund established by section 11 of article IX of the

state constitution of 1963. Except as otherwise provided in this

section and section 41a, the unfunded actuarial accrued liability

contribution rate shall must be based upon on and applied to the

combined payrolls of the employees who are members and qualified

participants.

     (e) Beginning with the state fiscal year ending September 30,

2016 and for each subsequent state fiscal year, the unfunded

actuarial accrued liability contribution rate applied to the

combined payroll, as provided in section 41a, must not exceed

25.73% for a university reporting unit. Any additional unfunded

actuarial accrued liability contributions as determined under this

section for each fiscal year for university reporting units are to

be paid by appropriation under article III of the state school aid

act of 1979, 1979 PA 94, MCL 388.1836 to 388.1893.

     (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 pay the amount

certified under subsection (4) to the director of the department in

equal payroll cycle installments for unfunded actuarial accrued

liability contributions and payroll cycle installments for normal

cost contributions.

     (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 On receipt of that

certification, the director of the department may 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 must be paid as provided in subsection

(9). This subsection does not apply in a fiscal year in which a

deposit occurs pursuant to under 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, 42 USC 401 to

434.

     (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 must be paid by that employer in the next succeeding

state fiscal year and a minimum of 25% of the remaining difference

shall must 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 must

be paid by that employer in the next succeeding state fiscal year

and a minimum of 25% of the remaining difference shall must 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 must be included for each

year that a portion of the remaining difference is carried forward.

The interest rate shall must 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 under subsection (14).

     (10) Beginning on the designated date, September 30, 2006, all

assets held by the retirement system shall must be reassigned their

fair market value, as determined by the state treasurer, as of the

designated date, September 30, 2006, and in calculating any

unfunded actuarial accrued liabilities, any market gains or losses

incurred before the designated date shall September 30, 2006 may

not be considered by the retirement system's actuaries.

     (11) Except as otherwise provided in this subsection,

beginning on the designated date, September 30, 2006, 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,

September 30, 2006, 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, June 30, 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, September 30, 2006, the

value of assets used shall must 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 September

30, 2006, and such the methodology may only be changed with the

approval of the retirement board and the director of the

department.

     (13) Beginning on the designated date, September 30, 2006, 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 on 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 under 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 under 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, 2002 PA 100, MCL 38.1686, the benefits that are required to be

paid from that fund shall must 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 must 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.

     (16) As used in this section, "current operating expenditures"

for a public local school district includes functions 1xx, 2xx,

45x, and all object codes except 6xxx, as defined in the Michigan

Public School Accounting Manual Bulletin 1022, and is equal to the

total of instructional and support services expenditures, including

the total general fund charges incurred in the general, special

education, and vocational education funds for the benefit of the

current fiscal year, whether paid or unpaid, and all expenditures

of the instructional programs plus applicable supporting service

costs reduced by capital outlay, debt service, community services,

and outgoing transfers and other transactions. Current operating

expenditures for a public local school district also include

operating funds for any public school or other public educational

entity first authorized or established by the public local school

district on or after the effective date of the amendatory act that

added this subsection."university reporting unit" means a reporting

unit that is a university listed in the definition of public school

employee under section 6.

     Sec. 41a. (1) For fiscal years that begin on or after March

28, 27, 1996, the retirement system shall determine a separate

contribution rate for a university reporting unit. that is a

university listed in the definition of public school employee under

section 6. The Subject to this subsection, the retirement system

shall determine the separate contribution rate in the manner

prescribed in section 41, except that the unfunded actuarial

accrued liability shall must be amortized over 40 years beginning

October 1, 1996 and ending on September 30, 2036, with the payment

schedule for universities being based on and applied to the

combined payrolls of the universities' employees who are members

and who were hired before January 1, 1996 and the universities'

employees who would have been members on or after January 1, 1996,

December 31, 1995, but for the enactment of 1995 PA 272. Beginning

with the state fiscal year ending September 30, 2016 and for each

subsequent fiscal year, the combined payrolls used for the payment

schedule for the university reporting units must include each

university reporting unit's combined payroll, as projected by the

actuary based on the actuarial valuation for each following fiscal

year, except that the combined payroll for each university

reporting unit must not be less than the combined payroll projected

for each subsequent fiscal year for each university reporting unit

by the actuary based on the September 30, 2012 actuarial valuation.

The amount of the unfunded accrued liability on which the separate

contribution rate is determined shall must be that amount which a

university reporting unit that is a university listed in the

definition of public school employee under section 6 is legally

responsible for and is calculated by actuarial analysis. Any

reduction in the unfunded liability of the system pursuant to under

governmental action affecting the entire system will be allocated

to all reporting units including universities as determined by the

system's actuary. For the 2006-2007 state fiscal year ending

September 30, 2007, the contribution for unfunded actuarial accrued

liability shall must be equal to 4.5% of the unfunded actuarial

accrued liability.

     (2) As used in this section, "university reporting unit" means

a reporting unit that is a university listed in the definition of

public school employee under section 6.