Bill Text: MI SB0401 | 2017-2018 | 99th Legislature | Introduced
Bill Title: Retirement; public school employees; default defined contribution only for employees hired after certain date; require, and provide for other general amendments. Amends secs. 5, 41, 41b, 42, 43a, 69, 69c, 69f, 70, 71, 75, 81c, 81d, 108, 127, 131 & 131a of 1980 PA 300 (MCL 38.1305 et seq.) & adds secs. 79b & 92c.
Spectrum: Partisan Bill (Republican 1-0)
Status: (Passed) 2017-09-06 - Assigned Pa 0092'17 With Immediate Effect [SB0401 Detail]
Download: Michigan-2017-SB0401-Introduced.html
SENATE BILL No. 401
May 23, 2017, Introduced by Senator PAVLOV and referred to the Committee on Education.
A bill to amend 1980 PA 300, entitled
"The public school employees retirement act of 1979,"
by amending sections 5, 41, 81d, 127, and 131 (MCL 38.1305,
38.1341, 38.1381d, 38.1427, and 38.1431), sections 5 and 131 as
amended and section 81d as added by 2012 PA 300, section 41 as
amended by 2016 PA 136, and section 127 as added by 2010 PA 75, and
by adding sections 21a and 133.
THE PEOPLE OF THE STATE OF MICHIGAN ENACT:
Sec. 5. (1) "Member" means a public school employee, except
that member does not include any of the following:
(a)
A person An individual enrolled in a neighborhood youth
corps program operated with funds from the federal office of
economic
opportunity or a person an
individual enrolled in a
comparable youth training program designed to prevent high school
dropouts and rehabilitate high school dropouts operated by an
intermediate school district.
(b)
A person An individual enrolled in a transitional public
employment program and employed by a reporting unit.
(c)
A person An individual employed by a reporting unit while
enrolled as a full-time student in that same reporting unit.
(d)
A person An individual who elects to participate in the
optional retirement program under the optional retirement act of
1967, 1967 PA 156, MCL 38.381 to 38.388.
(e) A retirant of this retirement system.
(f)
A person, An individual, not regularly employed by a
reporting unit, who is employed by a reporting unit through a
summer
youth employment program established pursuant to under the
Michigan youth corps act, 1983 PA 69, MCL 409.221 to 409.229.
(g)
A person, An individual, not regularly employed by a
reporting unit, who is employed by a reporting unit to administer a
program described in subdivision (f), (h), (i), (j), or (k).
(h)
After September 30, 1983, a person, an individual, not
regularly employed by a reporting unit, who is employed by a
reporting unit through participation in a program established
pursuant
to under the former job training partnership act, Public
Law
97-300, 96 Stat. Stat 1322 or beginning July 1, 2000, the
workforce
investment act of 1998, Public Law 105-220, 112 Stat.
Stat 936.
(i)
A person, An individual, not regularly employed by a
reporting unit, who is employed by a reporting unit through
participation
in a program established pursuant to under the work
first
PATH program under section 57f of the social welfare act,
1939 PA 280, MCL 400.57f.
(j)
A person, An individual, not regularly employed by a
reporting unit, who is employed by a reporting unit through
participation
in a program established pursuant to under the
Michigan community service corps program, first established under
sections 25 to 35 of 1983 PA 259.
(k)
A person, An individual, not regularly employed by a
reporting unit, who is employed by a reporting unit through
participation
in a program established pursuant to under the older
American community service employment program under the older
American community service employment act, title V of the older
Americans act of 1965, Public Law 89-73, 42 USC 3056 to
3056i.3056p.
(l) A person, An individual, not regularly
employed by a
reporting unit, who is employed by a reporting unit in a temporary,
intermittent, or irregular seasonal or athletic position and who is
under the age of 19 years.
(m)
A person, An individual, not regularly employed by a
reporting unit, who is employed by a reporting unit only in a
temporary position to assist in the conduct of a school election.
(n) A qualified participant who makes a valid election under
section
81d 81d(1) to not become a member of Tier 1.
(o) A qualified participant who is not a member of Tier 1
under section 81d(4).
(2) "Membership service" means service performed after June
30, 1945.
(3) "Noncontributory plan" means the plan which began between
July 1, 1974 and July 1, 1977, in which the reporting unit elected
to discontinue withholding contributions from employees'
compensation.
(4) "Noncontributory service" means credited service rendered
under the noncontributory plan.
(5)
"Nonteacher" means a person an individual employed by a
reporting
unit who is not a teacher as defined in section 8(4).8.
Sec. 21a. As provided under section 24 of article IX of the
state constitution of 1963, accrued financial benefits of the
pension plan and retirement system created under this act are a
contractual obligation of this state that shall not be diminished
or impaired.
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 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 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) Beginning with the state fiscal year ending September 30,
2019 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) (c)
The 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 Subject to subdivisions (h) and (i), 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) Beginning with the state fiscal year ending September 30,
2019 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) (d)
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 and section 41a, the unfunded actuarial accrued liability
contribution rate must be determined using a level percentage of
payroll amortization method and must be based on and applied to the
combined
payrolls of the employees who are members and or qualified
participants, or both.
(g) (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 388.1893.388.1891.
(h) Subject to subdivision (i), for a reporting unit that is
not a university reporting unit, the unfunded actuarial accrued
liability must be amortized over 21 years beginning October 1, 2017
and ending on September 30, 2038.
(i) For a reporting unit that is not a university reporting
unit, any increase in the unfunded actuarial accrued liability as a
result of a change to a rate of return described in subsection (11)
after the effective date of the amendatory act that added section
133 must be amortized over a period of not more than 40 years
ending no later than September 30, 2057.
(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 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 8.00% 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
7.00%
7% 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, 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 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) By April 1, 2020 and every 4 years after that date, 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 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) 75%.
(iv) 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.
(17) (16)
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.
Sec. 81d. (1) The retirement system shall permit each
qualified participant who first becomes a qualified participant and
first works for a reporting unit on or after September 4, 2012 but
before October 1, 2017 to make an election to not become a member
of Tier 1 and become only a qualified participant in Tier 2.
(2)
The retirement system shall
determine a method of
accepting
elections under this subsection (1) and reporting units
shall secure those elections during the period beginning on the
date of the individual's employment and ending upon the expiration
of 75 days from the individual's first payroll date. An election
under
this subsection (1) is irrevocable.
(3)
An individual who does not make an
election under this
subsection for any reason on or before the close of the election
period is considered to have made an election to become a member of
Tier 1 and is subject to all of the following as of the date of his
or her employment:
(a) He or she is eligible to accrue any service credit or
qualify for any retirement allowance under Tier 1 under the terms
as provided in section 81c.
(b) He or she is also a qualified participant under Tier 2.
(2) (4)
An individual who makes the
election under subsection
(1) on or before the close of the election period is considered to
have made an election to not become a member of Tier 1 and is
subject to all of the following as of the date of his or her
employment:
(a) He or she is not eligible to accrue any service credit or
qualify for any retirement allowance under Tier 1 under the terms
as provided in section 81c.
(b) He or she is only a qualified participant under Tier 2.
(3) (5)
The retirement system shall collect
from the an
individual described in subsection (1) all amounts required under
sections 43a and 131(2) and shall collect all required employer
contributions required under Tier 1 from his or her date of
employment. If an individual makes a valid election under
subsection (1) to not become a member of Tier 1, the retirement
system shall determine and implement a method to reconcile employer
and employee contributions to be deposited to Tier 2, and any such
employee contributions will be considered to be elective
contributions under section 131.
(4) An individual who first becomes a qualified participant
and first works for a reporting unit after September 30, 2017 is
not a member of Tier 1 and is only a qualified participant in Tier
2. An individual described in this subsection is subject to all of
the following as of the date of his or her employment:
(a) He or she is not eligible to accrue any service credit or
qualify for any retirement allowance under Tier 1 under the terms
as provided in section 81c.
(b) He or she is only a qualified participant under Tier 2.
Sec. 127. (1) Each qualified participant, former qualified
participant, and refund beneficiary shall direct the investment of
the individual's accumulated employer and employee contributions
and earnings to 1 or more investment choices within available
categories of investment provided by the department. The
limitations on the percentage of total assets for investments
provided in the public employee retirement system investment act,
1965
PA 314, MCL 38.1132 to 38.1140m, 38.1141, do not apply to
Tier
2.
(2) In addition to the categories of investment provided by
the department under subsection (1), the retirement system shall
offer a qualified participant a menu of lifetime annuity options,
either fixed or variable or a combination of both. Annuity options
offered under this subsection may include both nominal and
inflation protected options.
Sec. 131. (1) This section is subject to the vesting
requirements of section 132.
(2) Unless a qualified participant who is also a member of
Tier 1 affirmatively elects not to contribute or elects to
contribute a lesser amount, the qualified participant who is also a
member of Tier 1 shall contribute 2% of his or her compensation to
his or her Tier 2 account. The qualified participant's employer
shall make a contribution to the qualified participant's Tier 2
account in an amount equal to 50% of the first 2% of compensation
contributed by the qualified participant under this subsection.
(3) A qualified participant may make contributions in addition
to contributions made under subsection (2) to his or her Tier 2
account as permitted by the department and the internal revenue
code.
(4) Upon the written determination of the director of the
office of retirement services, an employee of an employer that is
not a qualified participant may elect to make contributions to a
Tier 2 account as permitted by the department and the internal
revenue
code. An employee as described in this subsection shall be
is treated as a qualified participant under this article for the
limited purposes of his or her Tier 2 account.
(5)
Upon Subject to subsection
(7), on the written
determination of the director of the office of retirement services,
an employer may annually elect to make additional matching
contributions, including those in addition to matching
contributions made under subsections (2) and (6), to an employee's
Tier 2 account as permitted by the plan document and the internal
revenue
code. Matching Subsect to
subsection (7), matching
contributions
under this subsection shall must
be made in amounts
equal to 50% of the contributions made by the employee not to
exceed the first 4% of contributions made in whole percentages
only, for any employee in addition to amounts that are already
matched under this section, if any.
(6)
Except Subject to
subsection (7), except as otherwise
provided in section 81d, unless a qualified participant who is only
a Tier 2 qualified participant due to an election made under
section 81d(1) affirmatively elects not to contribute or elects to
contribute a lesser amount, the qualified participant shall
contribute 6% of his or her compensation to his or her Tier 2
account.
The Subject to subsection
(7), the qualified participant's
employer shall make a contribution to the qualified participant's
Tier 2 account in an amount equal to 50% of the first 6% of
compensation contributed by the qualified participant under this
subsection.
(7) Beginning the first day of the pay period that begins
after September 30, 2017, for a qualified participant who is only a
Tier 2 qualified participant due to an election under section
81d(1), all of the following apply:
(a) This section does not apply to the qualified participant.
(b) The qualified participant is subject to section 133.
Sec. 133. (1) This section is subject to the vesting
requirements of section 132.
(2) For a qualified participant who is only a Tier 2 qualified
participant under section 81d(4), or beginning the first day of the
pay period that begins after September 30, 2017 for a qualified
participant who is only a Tier 2 qualified participant due to an
election under section 81d(1), all of the following apply:
(a) The qualified participant's employer shall contribute to
the qualified participant's account in Tier 2 an amount equal to 4%
of the qualified participant's compensation.
(b) The qualified participant may periodically elect to
contribute up to 3% of his or her compensation to his or her Tier 2
account. The qualified participant's employer shall make an
additional contribution to the qualified participant's Tier 2
account in an amount equal to the contribution made by the
qualified participant under this subdivision. Any contributions
made by an employer under this subdivision shall be paid by
appropriation from the state school aid fund established by section
11 of article IX of the state constitution of 1963.
(c) The qualified participant may make contributions in
addition to contributions made under subdivision (b) to his or her
Tier 2 account as permitted by the state treasurer and the internal
revenue code. The qualified participant's employer shall not match
contributions made by the qualified participant under this
subdivision.
