Bill Text: MI HB5768 | 2015-2016 | 98th Legislature | Introduced

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Bill Title: Retirement; public school employees; application of the unfunded actuarial accrued liability contribution rate for certain reporting units to payroll plus purchased services; provide for. Amends sec. 41 of 1980 PA 300 (MCL 38.1341).

Spectrum: Partisan Bill (Democrat 1-0)

Status: (Introduced - Dead) 2016-08-03 - Bill Electronically Reproduced 07/13/2016 [HB5768 Detail]

Download: Michigan-2015-HB5768-Introduced.html

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HOUSE BILL No. 5768

July 13, 2016, Introduced by Rep. Pagan 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 section 41 (MCL 38.1341), as amended by 2016 PA 136.

 

THE PEOPLE OF THE STATE OF MICHIGAN ENACT:

 

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

 

contribution rates or rate applied to payroll plus purchased

 

services, as applicable, 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 section 41a, the annual

 

contribution rates for benefits 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. 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) 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) 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 Except as provided in subparagraph (iii), 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.

 

     (iii) Beginning with the state fiscal year ending September

 

30, 2017 and each subsequent fiscal year, 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 payroll

 

plus purchased services.

 

     (d) Beginning Except as otherwise provided in this

 

subdivision, 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

 

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 must be based on and applied to the combined

 

payrolls of the employees who are members and qualified

 

participants. Beginning with the state fiscal year ending September

 

30, 2017, the unfunded actuarial accrued liability contribution

 

rate and payment schedule for a reporting unit that is not a

 

university reporting unit, tax supported community or junior

 

college, or district library as defined in section 69g must be

 

applied to the combined payrolls of the employees who are members

 

and qualified participants plus purchased services. The rate

 

applied to payroll plus purchased services must not exceed 16.52%.

 

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.

 

     (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 and the

 

estimated purchased services.

 

     (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 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 and the actual payroll plus

 

purchased services. 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). The computation of any adjustment for the

difference between payroll plus purchased services and actual

 

unfunded actuarial accrued liability contribution rate and the

 

payment of the difference must be done in the same manner as

 

provided in this subsection and 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,

 

September 30, 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 the employer in the

 

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

 

remaining difference must be paid by that the 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 the employer of other public school employees in the next

 

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

 

difference must be paid by that the employer of other public school

 

employees 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 must 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 8.00% 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

 

7.00% per annum for investments associated with members who first

 

became members after 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 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,

 

September 30, 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 or rate applied to payroll plus purchased services, as

 

applicable, 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 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) As used in this section:, "university

 

     (a) "Achievement authority" means that term as defined in

 

section 3 of the state school aid act of 1979, 1979 PA 94,

 

388.1603.

 

     (b) "Purchased services" for a public local school district,

 

intermediate school district, public school academy, achievement

 

authority, or an entity fulfilling the functions of the state

 

school reform/redesign school district under section 1280c of the

 

revised school code, 1976 PA 451, MCL 380.1280c, includes functions

 

1xx, 2xx, 45x, and object codes 31xx, 33xx, 38xx, 41xx, and 82xx 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, vocational education,

 

athletic, and school lunch 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. Purchased services 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 subdivision.

 

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

 

a university listed in the definition of public school employee

 

under section 6.