HOUSE BILL No. 5310

September 2, 2009, Introduced by Rep. Meadows and referred to the Committee on Health Policy.

A bill to amend 1992 PA 234, entitled

"The judges retirement act of 1992,"

by amending the title and sections 105, 106, 111, 214, 214a, 217,

305, and 714 (MCL 38.2105, 38.2106, 38.2111, 38.2214, 38.2214a,

38.2217, 38.2305, and 38.2664), the title and sections 214, 217,

305, and 714 as amended by 2002 PA 95, section 105 as amended by

2008 PA 514, section 106 as amended by 1995 PA 193, and section

214a as added by 1999 PA 215, and by adding sections 214b, 309,

310, 311, 312, 313, and 314.

THE PEOPLE OF THE STATE OF MICHIGAN ENACT:

TITLE

An act to establish a judges retirement system; to provide for

the administration and maintenance of the retirement system; to

create a retirement board; to prescribe the powers and duties of

the retirement board; to establish certain reserves for the

retirement system; to establish certain funds; to prescribe the

powers and duties of certain state departments and certain state

and local officials and employees; to provide for certain

disqualifications; to make appropriations; to prescribe penalties

and provide remedies; and to repeal acts and parts of acts.

Sec. 105. (1) 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, that 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 that separately accounts

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.

(g) Beginning January 1, 2008, a Roth individual retirement

account as described in section 408A of the internal revenue code,

26 USC 408A, subject to the rules that apply to rollovers from a

traditional individual retirement account to a Roth individual

retirement account.

(2) 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 either 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.

(3) "Executive secretary" means the executive secretary of the

retirement system as provided in section 205.

(4) Except as otherwise provided in this subsection, "final

compensation" means the annual rate of compensation for the

calendar year of retirement. For a member who retires on January 1,

final compensation means the annual rate of compensation for the

calendar year immediately preceding the date of retirement. Final

compensation does not include an amount that exceeds the maximum

salary set forth for that particular member or vested former member

in the revised judicature act, if applicable. For a member who is a

judge and who performs judicial duties for a limited period or a

specific assignment as authorized by the supreme court pursuant to

section 23 of article VI of the state constitution of 1963, final

compensation means the annual rate of compensation the member was

being paid at the termination of his or her tenure in office as an

elected judge.

(5) "Former elected official" means a member who held a state

elective office before membership in this retirement system, the

former judges retirement system, or the former probate judges

retirement system.

(6) "Former judges retirement system" means the state of

Michigan judges' retirement system created by former 1951 PA 198.

(7) "Former probate judges retirement system" means the state

of Michigan probate judges retirement system created by former 1954

PA 165.

(8) "Funding account" means the funding account created

pursuant to the public employee retirement health care funding act

for the deposit of funds and payment of medical expenses.

(9) "Health reimbursement account" means an employer-sponsored

individual account within the irrevocable trust administered by the

trustees that allows an HRA member and his or her employer to save

money for reimbursement of medical expenses that will be incurred

on behalf of the HRA member or his or her health reimbursement

account dependents after the HRA member becomes a former member or

former qualified participant.

(10) "Health reimbursement account dependent" means an HRA

member's spouse or a surviving spouse and any individual who is

considered the HRA member's dependent under section 152 of the

internal revenue code, 26 USC 152, determined without regard to

section 152(b)(1) or (2) or (d)(1)(b) of the internal revenue code,

26 USC 152.

(11) "HRA effective date" means the date specified by the

retirement board which shall be no later than 1 year following the

effective date of the amendatory act that added this subsection and

no sooner than the date that the department certifies that the

administrative and operational components for the health

reimbursement accounts have been completed.

(12) "HRA member" means a member or qualified participant who

is required to make mandatory contributions to his or her health

reimbursement account. An HRA member shall not include any plan 1

member or any plan 2 member under this act.

Sec. 106. (1) "Interest" means the rate or rates of interest

per annum, compounded annually, as determined by the retirement

board.

(2) "Internal revenue code" means the United States internal

revenue code of 1986.

(3) "Judge" means a duly elected or appointed justice of the

supreme court, judge of the court of appeals, judge of the circuit

court, judge of the district court, judge of the probate court, or

judge of the recorder's court of the city of Detroit.

(4) "Mandatory contributions" means required contributions

made under this act by HRA members. The department shall administer

contributions made to the health reimbursement account so that they

may be characterized in the manner that the department determines

is most favorable under the internal revenue code, 26 USC 1 to

1789. Mandatory contributions may also include any other amounts

established by the employer which may be treated as picked up by

the employer to the fullest extent permitted under the internal

revenue code.

(5) ~~(4)~~ "Medical adviser" means the medical adviser of the

retirement system as provided in section 205.

(6) "Medical expenses" means expenses incurred by an HRA

member or his or her health reimbursement account dependents that

satisfy all of the following conditions:

(a) The expenses are medical care expenses that would

otherwise qualify for a deduction under section 213 of the internal

revenue code, 26 USC 213, without regard to the income threshold in

section 213(a) of the internal revenue code, 26 USC 213(a).

(b) The expenses have not been and will not be reimbursed by

any other source.

becomes a former member or former qualified participant or after

the death of an HRA member.

(d) The individual properly and timely substantiates the

expenses in a manner established by the retirement system.

(7) ~~(5)~~ "Member" means a judge or state official who is

included in the membership of the retirement system as provided in

section 401.

(8) ~~(6)~~ "Membership service" means service performed as a

member under this act or under the former judges retirement system

or former probate judges retirement system.

Sec. 111. (1) "Vested former member" means a member who is

entitled to a deferred vested service retirement allowance under

section 502.

(2) "Voluntary contributions" means voluntary amounts

contributed by an HRA member into a health reimbursement account.

To the extent required by applicable law, voluntary employee

contributions shall not be made through a salary reduction election

under a cafeteria plan pursuant to section 125 of the internal

revenue code, 26 USC 125.

Sec. 214. (1) The reserve for health benefits is created. ~~The~~

Except as provided in this section, the retirement system shall

deposit into the reserve for health benefits the member

contributions for health benefits required by section 305(1)(a),

amounts transferred pursuant to section 217(1), and accumulated

earnings on these amounts and contributions. The retirement system

shall disburse from the reserve for health benefits the premiums

for hospital and medical-surgical and sick care benefits as

required by sections 509 and 719 before making any disbursement

from the funding account.

(2) On and after the date of the amendatory act that added

this subsection, the retirement system shall deposit into the

funding account the member contributions for health benefits

required by section 305(1)(a), amounts transferred pursuant to

section 217(1), and qualified participant contributions required by

section 714(6).

Sec. 214a. (1) Following the date of the determination

described in subsection (11) and following the date of the election

made under subsection (4), the retirement system shall provide

postretirement medical benefits for eligible judges and their

health benefit dependents and postdeath medical benefits for health

benefit dependents who survive a deceased contributor. Medical

benefits shall be provided from a separate account established

under the retirement system pursuant to section 401(h) of the

United States internal revenue code, 26 USC 401.

(2) A separate account, designated as the "medical benefit

account", shall be maintained within the reserve for health

benefits. The assets of the retirement system in excess of the

amounts then credited to the medical benefit account shall not be

used for providing medical benefits under this section. Except as

otherwise provided in this section, the assets of the retirement

system attributable to amounts then credited to the medical benefit

account shall not be used or diverted for any purpose other than

providing medical benefits.

(3) A separate account, designated as the "medical benefit

administrative account", shall be maintained within the reserve for

health benefits. Administrative costs of maintaining the medical

benefit account shall be paid out of the medical benefit

administrative account. Eligible judges making contributions to the

medical benefit account consent as a condition of participation

that transfers may be made from the subaccounts of each contributor

to the medical benefit administrative account equal to no more than

25% of the earnings of funds on account in their respective

subaccounts.

(4) Upon becoming a member of Tier 1 or a qualified

participant in Tier 2, and at such other times as the department

shall permit, an eligible judge may elect to become a contributor

and make contributions to the medical benefit account in an amount

not to exceed the maximum contribution then permitted under

subsection (5). Each eligible judge who is a member of Tier 1 or a

qualified participant in Tier 2 may elect to make contributions to

the medical benefit account during an election period of not less

than 90 days as determined by the retirement system. Within the

medical benefit account, the department shall maintain a subaccount

for each contributor that reflects all contributions made by or for

that contributor, adjusted for investment experience and payment of

medical benefits. The employer of the contributor shall pick up the

contributor's contributions in whole or in part and may require

that its contributions be derived from a reduction in the

contributor's cash salary. If the contributor's contributions are

picked up by the employer on a salary-reduction basis, the

contributor's election shall be irrevocable to the extent required

by section 401(h) of the United States internal revenue code, 26

USC 401. Contributions picked up under this subsection on a salary-

reduction basis are not included as gross taxable income of the

contributor. The value of medical benefits provided from a

contributor's subaccount shall not be included in the income of the

retired contributor or the contributor's health benefit dependents.

(5) The benefits to be provided from the medical benefit

account, together with life insurance, if any, provided under the

retirement system, are intended to be subordinate to retirement

benefits under the retirement system. Accordingly, contributions in

calendar years after 1999 credited to a contributor's subaccount,

together with contributions, if any, that may be made to provide

life insurance for the contributor under the retirement system,

shall not exceed an aggregate amount equal to 1/3 of the

contributions, including employee contributions, made for those

years to provide a retirement allowance for the contributor under

Tier 1 or Tier 2 of the retirement system. For purposes of applying

a limitation established by this subsection, the retirement system

may rely on an actuarial certification prepared by the actuary,

demonstrating compliance, and reasonable actuarial assumptions

selected by the actuary shall apply for purposes of determining the

aggregate contributions for retirement allowances to be determined

under this subsection. The retirement system shall determine the

method, timing, and limits applicable to all contributors. In no

case shall a determination made by the retirement system exceed the

maximum provided by this subsection.

(6) All payments or reimbursements of medical benefits shall

be charged against the balance of the retired contributor's

subaccount. Payments or reimbursements shall not be made after the

subaccount has been exhausted. Medical benefits to be provided from

the medical benefit account shall consist of any of the following

as applicable:

(a) Payment of premiums for the retired contributor and the

contributor's health benefit dependents under the state health

plan, the state dental plan, and the state vision plan if the

contributor and dependents are enrolled in any of those plans.

(b) Payment or reimbursement of premiums or other charges for

coverage of the retired contributor and the contributor's health

benefit dependents under any group health plan within the meaning

of section 5000(b)(1) of the United States internal revenue code,

26 USC 5000.

obtain health insurance coverage within the meaning of section

9832(b)(1) of the United States internal revenue code, 26 USC 9832,

for the retired contributor and the contributor's health benefit

dependents.

(d) Payment or reimbursement of expenses paid or incurred for

the medical care, as defined in section 213(d)(1) of the United

States internal revenue code, 26 USC 213, of the retired

contributor and the contributor's health benefit dependents.

Payment or reimbursement of premiums, charges, and expenses

shall be made only upon presentation of proper documentary evidence

of amounts, dates of coverage or service, recipient of coverage or

service, and such other information as the department shall

require.

(7) While a contributor or retired contributor remains alive,

the department shall comply with the contributor's written

directions in regard to the type of medical benefits to be provided

under this subsection and the allocation of the medical benefits

among the retired contributor and the contributor's health benefit

dependents if the directions comply with this subsection and the

requirements of the department in regard to the form and content of

the written directions. The department shall also afford each

contributor the opportunity to give written directions in regard to

the allocation of medical benefits to and among some or all of the

contributor's surviving health benefit dependents following the

contributor's death as designated on a beneficiary form developed

by the retirement system. Upon death of the contributor and while

funds remain in the contributor's subaccount, the department shall

observe the written directions in allocating medical benefits among

the contributor's surviving health benefit dependents, while giving

the dependents or their legal representatives a reasonable

opportunity to select the type of medical benefits to be provided.

In the absence of valid written directions from the contributor in

regard to the allocation of medical benefits following the

contributor's death, the department shall allocate funds remaining

in the contributor's subaccount to provide medical benefits to the

contributor's surviving health benefit dependents, until all funds

have been expended.

(8) If there is a balance remaining in the subaccount of a

contributor or retired contributor following the deaths of the

contributor and all of the contributor's health benefit dependents,

then that balance shall be forfeited and distributed to the medical

benefit administrative account.

(9) As used in this section:

(a) "Contributor" means an eligible judge who has elected to

make contributions to the medical benefit account created under

this section.

(b) "Eligible judge" means a judge of the circuit court, the

district court, or the probate court.

who terminates employment upon which his or her membership is based

for any reason.

(d) "Retired contributor" means a contributor who becomes a

former qualified participant and attains the benefit commencement

age, or who becomes a former member who either attains age 60 or

meets the membership requirements for a retirement allowance under

section 501(1).

(10) Contributions shall not be picked up by this state

pursuant to this section until the department receives notification

from the United States internal revenue service that such

contributions will not be included as gross income of the

contributor.

(11) This section does not apply until the department receives

notification from the United States internal revenue service that

the establishment of the medical benefit account under this section

does not cause the retirement system to be disqualified for tax

purposes.

(12) A judge eligible to establish and maintain a medical

benefit account under this section may instead establish and

maintain a health reimbursement account.

Sec. 214b. (1) Health reimbursement accounts shall be

established and maintained within the irrevocable trust established

pursuant to the public employee retirement health care funding act.

The health reimbursement accounts shall receive and hold the funds

collected under section 309. All health reimbursement accounts

shall be established in a manner that complies with all relevant

statutory provisions, regulatory provisions, and internal revenue

service rulings governing health reimbursement arrangements.

Deposits to health reimbursement accounts shall include employer

contributions and other permitted contributions, the deposit of

which is authorized by this act.

(2) The retirement board is authorized to establish an

administrative and investment fee structure to be charged against

the health reimbursement accounts to defray the costs of

administering the health reimbursement accounts.

(3) To the extent such activity will not result in immediate

taxation of the contributions to the health reimbursement accounts

of the HRA member under state and federal law, vested contributions

to a health reimbursement account and any investment income may be

distributed to a deceased HRA member's beneficiaries or estate if a

balance of funds exists in the deceased HRA member's health

reimbursement account and all medical expenses have been paid for

the deceased HRA member and all of his or her health reimbursement

account dependents.

(4) Except as otherwise provided in this section, any assets

remaining in any individual health reimbursement account after all

payments for costs of eligible medical expenses for the individual

HRA member and his or her health reimbursement account dependents

have been paid shall be distributed to the funding account.

Sec. 217. (1) A court fee fund is created in the state

treasury. The state treasurer shall deposit into the court fee fund

all money received from the executive secretary pursuant to section

304(4). The state treasurer shall, if funds remain in the court fee

fund after the transfer described in subsection (3), transmit a

portion of the money in the court fee fund, not exceeding

$2,200,000.00 in any fiscal year, to the court equity fund created

by section 151b of the revised judicature act of 1961, 1961 PA 236,

MCL 600.151b. If the court fee fund exceeds $2,200,000.00 in any

fiscal year and $2,200,000.00 is transmitted to the court equity

fund, an amount may be appropriated from the court fee fund for

operational expenses of trial courts. Operational expenses may

include the payment of salaries of trial court judges other than

judges of the district court. Any money remaining in the court fee

fund at the end of the fiscal year shall remain in the court fee

fund and shall not revert to the general fund. Amounts in the court

fee fund may be used for the appropriation authorized under section

315.

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

retirement board establishes an arrangement and fund described in

section 6 of the public employee retirement benefit ~~preservation~~

protection act, 2002 PA 100, MCL 38.1686, the benefits that are

required to be paid from that fund shall, to the extent permitted

by applicable law, be paid from a portion of the money in the court

fee fund and any earnings on those amounts 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.

(3) The state treasurer shall, if funds remain in the court

fee fund after the transfer described in subsection (2), transmit a

portion of the money in the court fee fund and any earnings on

those amounts to the ~~reserve for health benefits created by section~~

~~214~~ funding account to pay expected health care costs for the

subsequent fiscal year that are not covered as a result of employee

contributions under sections 305(1) and 714(6), and to pay, in an

amount not to exceed $100,000.00 in each fiscal year, any health

care costs not paid from the reserve for health benefits since

fiscal year 1996-1997.

(4) This section applies unless the department receives

notification from the United States internal revenue service that

this section will cause the retirement system to be disqualified

for tax purposes under the internal revenue code.

Sec. 305. (1) Each member, upon taking office and so long as

he or she remains in office, shall make contributions to the

retirement system according to the applicable plan member

classification as follows:

(a) A plan 1 member or a plan 2 member shall contribute 5% of

the member's compensation. From this contribution, the retirement

system shall deposit an amount equal to 2.0% of the member's

compensation into the ~~reserve for health benefits for hospital and~~

~~medical-surgical and sick care benefits as provided in section 509~~

funding account.

(b) A plan 3a member, a plan 3b member, or a plan 5 member

shall contribute 3.5% of the member's compensation.

plan 7 member shall contribute 7% of the member's compensation.

However, a plan 6 member shall not contribute more than $980.00

annually.

(2) The retirement board shall determine the manner in which

member contributions are paid. Except as otherwise provided in this

section, the retirement system shall credit member contributions

when received to the reserve for member contributions.

(3) Upon written notice from the executive secretary to the

state court administrator, the state treasurer shall withhold

payment of the amount due from the salary standardization payment

payable to a county or district control unit for member

contributions that are not received by the retirement system within

60 days after the due date.

Sec. 309. (1) If an HRA member has an amount of salary reduced

for contribution to the health reimbursement account, the deduction

together with any other contributions under this section shall

promptly be credited to that HRA member's health reimbursement

account. To the extent permitted by applicable law, any mandatory

contribution shall be treated as a salary increase that has been

forgone by the employee and as stated in the revised judicature act

of 1961, 1961 PA 236, MCL 600.101 to 600.9947.

(2) Beginning on the HRA effective date, a member or qualified

participant shall make a mandatory contribution equal to 2% of the

member's or qualified participant's compensation to his or her

health reimbursement account. This subsection does not apply to a

member or qualified participant who is first hired prior to the

effective date of the amendatory act that added this section and

who is covered by a local health benefit plan for retirees.

(3) An HRA member may also make voluntary contributions to the

health reimbursement account in a whole percentage ranging from 1%

to 5% of the compensation paid to the HRA member, subject to any

limit provided under state or federal law.

(4) The employer of an HRA member may contribute an additional

amount to the HRA member's health reimbursement account as

determined by the employer.

(5) This section shall not apply to plan 1 members or plan 2

members.

Sec. 310. (1) A member or qualified participant is 100% vested

in mandatory and voluntary contributions made to his or her health

reimbursement account.

(2) A member or qualified participant is vested in employer

contributions made to his or her health reimbursement account

according to the following schedule:

(a) Fifty percent vested after earning 2 years of service

under this act.

(b) Seventy-five percent vested after earning 3 years of

service under this act.

of service under this act.

(3) An HRA member shall have contractual rights to

reimbursement of medical expenses under this act to the extent

funds exist in his or her health reimbursement account.

Sec. 311. (1) The retirement board shall establish a

separately written plan document which shall govern the terms and

conditions of the reimbursement of medical expenses from the health

reimbursement accounts in a manner that complies with all

applicable statutory provisions, regulatory provisions, and

internal revenue service rulings governing health reimbursement

arrangements.

(2) Following termination of employment, reimbursements of

medical expenses shall be made to an HRA member or the health

reimbursement account dependents from the HRA member's health

reimbursement account, as appropriate, at least quarterly, until

the HRA member's health reimbursement account is exhausted.

(3) Notwithstanding anything to the contrary, claims that are

incurred before the HRA member became entitled to receive

reimbursements under this act are not eligible medical expenses.

Sec. 312. Except for medical expenses to be paid from amounts

within a health reimbursement account, nothing in this act shall be

construed to define or otherwise grant any right or privilege to

health care benefits or other postemployment benefits to any person

other than those health care benefits or other postemployment

benefits, rights, or privileges previously or already granted to

members and qualified participants and their dependents by this

act. This act is not intended to assure or deny to any existing or

future employee, HRA member, any of their health reimbursement

account dependents, or any other person any right of entitlement to

any health care benefit or other postemployment benefit or limit or

otherwise restrict the ability of this state or any employer to

modify or eliminate any existing or future health care benefit or