HOUSE BILL No. 5471

 

 

January 30, 2018, Introduced by Reps. Green, Ellison, Greig, Sowerby, Pagan, Sneller, Yancey, Geiss, Lasinski, Brinks, LaGrand, Love, Garrett, Cambensy, Hertel, Hoadley, Moss, Chang, Liberati, Chirkun, Camilleri, Wittenberg, Durhal, Cochran, Rabhi, Faris, Jones, Dianda, Neeley, Clemente and Hammoud and referred to the Committee on Financial Liability Reform.

 

     A bill to amend 1980 PA 300, entitled

 

"The public school employees retirement act of 1979,"

 

by amending sections 41, 41b, and 81c (MCL 38.1341, 38.1341b, and

 

38.1381c), as amended by 2017 PA 92.

 

THE PEOPLE OF THE STATE OF MICHIGAN ENACT:

 

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

 

contribution rates to finance benefits being provided and to be

 

provided by the retirement system must be determined by actuarial

 

valuation under subsection (2) 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 must be made of the retirement system 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 must be made to

 

determine the financial effect of variations of actual retirement

 

system experience from projected experience.

 

     (2) Except as otherwise provided in sections 41a and 41b, the

 

annual contribution rates for benefits is are 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. 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 must be computed using a cash

 

disbursement method.

 

     (b) Subject to subdivision (c), the contribution rate for

 

service likely to be rendered in the current year, the normal cost

 

contribution rate, for reporting units must be determined as

 

follows:

 

     (i) Calculate the aggregate amount of individual projected

 

benefit entry age normal costs.

 

     (ii) Divide the result of the calculation under subparagraph

 

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

 

compensation.

 

     (c) Except for the employee portion of the normal cost


contribution rates for members under section 41b(2), beginning with

 

the state fiscal year ending September 30, 2018 and for each

 

subsequent fiscal year, the normal cost contribution rate must not

 

be less than the normal cost contribution rate in the immediately

 

preceding state fiscal year.

 

     (d) Subject to the subdivision (e), the contribution rate for

 

unfunded service rendered before the valuation date, the unfunded

 

actuarial accrued liability contribution rate, must be determined

 

as follows:

 

     (i) Calculate the aggregate amount of unfunded actuarial

 

accrued liabilities 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.

 

     (e) Except for the employee portion of the unfunded actuarial

 

accrued liability contribution rates for members under section

 

41b(2), beginning Beginning with the state fiscal year ending


September 30, 2018 and for each subsequent fiscal year until the

 

unfunded actuarial accrued liability is paid off, the unfunded

 

actuarial accrued liability contribution rate must not be less than

 

the unfunded actuarial accrued liability contribution rate in the

 

immediately preceding state fiscal year.

 

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

 

2013 and for each subsequent fiscal year, the unfunded actuarial

 

accrued liability contribution rate applied to payroll 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 state school aid fund

 

established by section 11 of article IX of the state constitution

 

of 1963. Except as otherwise provided in this section, section 41a,

 

and section 41b, the unfunded actuarial accrued liability

 

contribution rate must be based on and applied to the combined

 

payrolls of the employees who are members or qualified

 

participants, or both.

 

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

 

2019 , and for each subsequent fiscal year, for a reporting unit

 

that is not a university reporting unit, tax supported community or

 

junior college, public school academy, or district library as that

 

term is defined in section 69g, the unfunded actuarial accrued

 

liability contribution rate determined under subdivision (d) must

 

be applied to the reporting unit's payroll, as adjusted under

 

subdivision (h).

 

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


2019, the payroll for which the unfunded actuarial accrued

 

liability contribution rate is applied for a reporting unit

 

described in subdivision (g) must be adjusted by the growth rate of

 

the reporting unit's current operating expenditures in the previous

 

fiscal year based on methods as determined by the retirement system

 

and in consultation with the system's actuary. The adjusted payroll

 

under this subdivision must become the basis on which the

 

contribution rate provided under subdivision (d) for each

 

subsequent state fiscal year is determined for a reporting unit

 

described in subdivision (g).

 

     (i) 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 388.1891.

 

     (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) Except as provided in section 41b, the reporting units

 

shall 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. 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, must be paid as provided in subsection (9).

 

This subsection does not apply in a fiscal year in which a deposit

 

occurs 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, must be paid by that employer in the next succeeding state

 

fiscal year and a minimum of 25% of the remaining difference 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, must be paid by that employer

 

in the next succeeding state fiscal year and a minimum of 25% of

 

the remaining difference 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 must be included for each year that a portion of the

 

remaining difference is carried forward. The interest rate 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 under

 

subsection (14).

 

     (10) Beginning on September 30, 2006, all assets held by the


retirement system must be reassigned their fair market value, as

 

determined by the state treasurer, as of September 30, 2006, and in

 

calculating any unfunded actuarial accrued liabilities, any market

 

gains or losses incurred before September 30, 2006 may not be

 

considered by the retirement system's actuaries.

 

     (11) Except as otherwise provided in this subsection,

 

beginning on September 30, 2006, the actuary used by the retirement

 

board shall assume a rate of return on investments of 8% per annum,

 

as of 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%

 

per annum for investments associated with members who first became

 

members after June 30, 2010, and before February 1, 2018, which

 

rate may only be changed with the approval of the retirement board

 

and the director of the department. Beginning on February 1, 2018,

 

the actuary used by the retirement board shall assume a rate of

 

return on investments of 6% per annum for investments associated

 

with members who first became a member on or after February 1,

 

2018, which rate may only be changed with the approval of the

 

retirement board and the director of the department.

 

     (12) Beginning on September 30, 2006, the value of assets used

 

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 September 30, 2006, and the methodology may only be

 

changed with the approval of the retirement board and the director

 

of the department.


     (13) Beginning on 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 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 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 under subsections

 

(1) and (2) may be deposited into the health advance funding

 

subaccount created by under 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 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 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) The retirement board and the department shall conduct and

 

review an experience investigation study and adopt risk assumptions

 

on which actuarial valuations are to be based after consultation

 

with the actuary and the state treasurer. The experience

 

investigation study shall must be completed and risk assumptions

 

shall must be periodically reviewed at least once every 5 years.

 

     (17) Every April 1 following the periodic review of risk

 

assumptions under subsection (16), the office of retirement

 

services on behalf of the department and the state treasurer shall

 

collaborate to submit a report to the senate majority leader, the

 

speaker of the house of representatives, the senate and house of

 

representatives appropriations committees, and the senate and house

 

fiscal agencies. A report required under this subsection must be

 

published on the office of retirement services' services's website

 

and include at least all of the following:

 

     (a) Forecasted rate of return on investments at all of the

 

following probability levels:

 

     (i) 5%.

 

     (ii) 25%.

 

     (iii) 50%

 

     (iv) 75%.

 

     (v) 95%.

 

     (b) The actual rate of return on investments for 10-, 15-, and

 

20-year time intervals.

 

     (c) Mortality assumptions.


     (d) Retirement age assumptions.

 

     (e) Payroll growth assumptions.

 

     (f) Any other assumptions that have a material impact on the

 

financial status of the retirement system.

 

     (18) As used in this section:

 

     (a) "Current operating expenditures" includes functions 1xx,

 

2xx, 45x, and all object codes except 6xxx, as defined in the most

 

recent "Michigan Public School Accounting Manual Bulletin 1022" as

 

of the effective date of the amendatory act that added this

 

subdivision, July 13, 2017, 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 also include operating funds for any public school or

 

other public educational entity first authorized or established by

 

a reporting unit described in subsection (2)(g) on or after the

 

effective date of the amendatory act that added this

 

subdivision.July 13, 2017.

 

     (b) "University reporting unit" means a reporting unit that is

 

a university listed in the definition of public school employee

 

under section 6.

 

     Sec. 41b. (1) Beginning July 1, 2010, the retirement system

 

may determine a separate employer contribution rate for members who


first became members on or after July 1, 2010 and before February

 

1, 2018. Except as provided in this section, the retirement system

 

shall determine the separate employer contribution rate in the

 

manner prescribed in section 41.

 

     (2) Beginning February 1, 2018, the retirement system shall

 

determine a separate contribution rate for members who first became

 

members on or after February 1, 2018. Except as provided in this

 

section, the retirement system shall determine the separate

 

contribution rate in the manner prescribed in section 41, except

 

that any increase or decrease in the unfunded actuarial accrued

 

liabilities associated with members who first became members on or

 

after February 1, 2018 must be amortized on a 10-year level-dollar

 

schedule with a new contribution rate calculated for each year.

 

     (3) All normal cost and any unfunded actuarial accrued

 

liability contributions as determined under subsection (2) must be

 

paid on a cost-sharing basis of 50% by the employer and 50% by the

 

employee. Except as provided in this section, contributions shall

 

must be made in the manner prescribed in section 42. An employee

 

contribution for unfunded actuarial accrued liability must not be

 

assessed to an employee based on any portion of an unfunded

 

liability caused by the failure of an employer to make a required

 

contribution. Following the determination of the cost-sharing basis

 

under this subsection, section 41(2)(c) and (e) applies.

 

     (4) The contributions of a member for unfunded actuarial

 

accrued liability must be treated as picked-up contributions under

 

the internal revenue code, deducted by the employer, and remitted

 

as employer contributions to the general fund of the retirement


system and must only be used to finance unfunded actuarial accrued

 

liabilities of the retirement system.

 

     (4) (5) To the extent and upon on 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. 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, on the member's written

 

application to the retirement system, is 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 under section 68 as a public school employee.

 

and has reached regular retirement age.

 

     (2) The eligibility requirements of subsection (1) must not be

 

modified as provided in section 43b.

 

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

 

to an individual who retires under 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 on retirement.

 

     (5) Beginning October 1, 2019 and for each fiscal year in

 

which an experience investigation study is completed under section

 

41(16), if the most recent experience investigation study of

 

mortality of the retirement system using a 65-year-old based on a

 

50-50 male-female blend shows an increase of 1 or more years from

 

the previous experience investigation study of mortality, the

 

retirement board, in consultation with the actuary and the

 

department, shall increase the regular retirement age by at least 1

 

year up to the total increase in whole-year increments unless the

 

most recent actuarial funded ratio for the benefits funded under

 

section 41b(3) is greater than 100% after accounting for an

 

increase in mortality as reflected in the experience investigation

 

study. Any adjustment to the regular retirement age by the

 

retirement board must take place within 12 months after the

 

retirement board's adoption of the most recent experience

 

investigation study on an effective date as determined by the

 

retirement board. Any required increase to the regular retirement

 

age under this subsection must take into account the cumulative

 

increase in mortality relative to the experience investigation

 

study covering the period 2012 through 2017, less any actual

 

increase already taken into account in a previous increase to the

 

regular retirement age. An adjustment to the regular retirement age

 

under this subsection does not apply to a member who, on the

 

effective date of the increase, is within 5 years of the then

 

current regular retirement age. The retirement board may

 

additionally exclude members who, on the effective date of the


increase, are within between 5 and 8 years of the then current

 

regular retirement age.

 

     (6) As used in this section, "regular retirement age" means

 

the following:

 

     (a) For a member who first becomes a member on or after July

 

1, 2010 and before February 1, 2018, 60 years of age and is not

 

subject to increase as provided under subsection (5).

 

     (b) Subject to subsection (5), for a member who first becomes

 

a member on or after February 1, 2018, 60 years of age.