Bill Text: MI SB0686 | 2017-2018 | 99th Legislature | Engrossed
Bill Title: Retirement; other; protecting local government retirement and benefits act; create. Creates new act.
Spectrum: Partisan Bill (Republican 1-0)
Status: (Passed) 2017-12-28 - Assigned Pa 202'17 With Immediate Effect [SB0686 Detail]
Download: Michigan-2017-SB0686-Engrossed.html
SB-0686, As Passed Senate, December 7, 2017
SUBSTITUTE FOR
SENATE BILL NO. 686
A bill to create the protecting local government retirement
and benefits act; to provide the powers and duties of certain state
and local agencies and officials; and to create a municipal
stability board.
THE PEOPLE OF THE STATE OF MICHIGAN ENACT:
Sec. 1. This act shall be known and may be cited as the
"protecting local government retirement and benefits act".
Sec. 2. The legislature finds and declares that this act is
intended to reflect the July 2017 Report of Findings and
Recommendations for Action of the Responsible Retirement Reform for
Local Government Task Force.
Sec. 3. As used in this act:
(a) "Annual report" means the most recent audited financial
statement reporting a local unit of government's liability for
retirement pension benefits and retirement health benefits as
determined under applicable government accounting standards of the
Governmental Accounting Standards Board.
(b) "Annual required contribution" means the sum of the normal
cost payment and the annual amortization payment for past service
costs to fund the unfunded actuarial accrued liability.
(c) "Corrective action plan" means a plan that details the
actions to be taken by a local unit of government to address and
resolve the underfunded status of that local unit of government.
(d) "Employee" means an individual holding a position by
election, appointment, or employment in a local unit of government.
(e) "Evaluation system" means the local government retirement
and benefits fiscal impact evaluation system created under section
5 to provide for the identification of, and a corrective action
plan to resolve, the underfunded status of a local unit of
government under this act.
(f) "Former employee" means an individual who was an employee
who terminated employment with the applicable local unit of
government.
(g) "General fund operating revenues" means the sum of all
governmental activity fund revenues of a local unit of government
as determined by the state treasurer based on applicable government
accounting standards of the Governmental Accounting Standards
Board. General fund operating revenues do not include any fund of
the local unit of government that the state treasurer determines
based on applicable government accounting standards of the
Governmental Accounting Standards Board is a proprietary,
fiduciary, enterprise, or other restricted fund that may not be
expended to provide retirement health benefits or retirement
pension benefits.
(h) "Local unit of government" means any of the following:
(i) A city.
(ii) A village.
(iii) A township.
(iv) A county.
(v) A county road commission.
(vi) An authority created under chapter VIA of the aeronautics
code of the state of Michigan, 1945 PA 327, MCL 259.108 to
259.125c.
(vii) A metropolitan government or authority established under
section 27 of article VII of the state constitution of 1963.
(viii) A metropolitan district created under the metropolitan
district act, 1929 PA 312, MCL 119.1 to 119.18.
(ix) An authority created under 1939 PA 147, MCL 119.51 to
119.62.
(x) A municipal electric utility system as that term is
defined in section 4 of the Michigan energy employment act of 1976,
1976 PA 448, MCL 460.804.
(xi) A district, authority, commission, public body, or public
body corporate created by 1 or more of the entities described in
subparagraphs (i) to (x).
(i) "Local unit of government" does not include this state, a
principal department of state government, a state institution of
higher education under section 4, 5, or 6 of article VIII of the
state constitution of 1963, a state agency, a state authority, or a
reporting unit under the public school employees retirement act of
1979, 1980 PA 300, MCL 38.1301 to 38.1437.
(j) "Municipal stability board" or "board" means the municipal
stability board created in section 7.
(k) "Normal cost" means the annual service cost of retirement
health benefits as they are earned during active employment of
employees of the local unit of government in the applicable fiscal
year, using an individual entry-age normal and level percent of pay
actuarial cost method.
(l) "Retirant" means an individual who has retired with a
retirement benefit payable from a retirement system of a local unit
of government.
(m) "Retirement benefit" includes a retirement health benefit
or retirement pension benefit, or both.
(n) "Retirement health benefit" means an annuity, allowance,
payment, or contribution to, for, or on behalf of a former employee
or a dependent of a former employee to pay for any of the following
components:
(i) Expenses related to medical, drugs, dental, hearing, or
vision care.
(ii) Premiums for insurance covering medical, drugs, dental,
hearing, or vision care.
(iii) Expenses or premiums for life, disability, long-term
care, or similar welfare benefits for a former employee.
(o) "Retirement pension benefit" means an allowance, right,
accrued right, or other pension benefit payable under a defined
benefit pension plan to a participant in the plan or a beneficiary
of the participant.
(p) "Retirement system" means a retirement system, trust,
plan, or reserve fund that a local unit of government establishes,
maintains, or participates in and that, by its express terms or as
a result of surrounding circumstances, provides retirement pension
benefits or retirement health benefits, or both. Retirement system
does not include a state unit as that term is defined in section 2
of the public employee retirement benefit protection act, 2002 PA
100, MCL 38.1682.
(q) "Underfunded local unit of government" means a local unit
of government that is in underfunded status.
(r) "Underfunded status" means that the state treasurer has
determined that the local unit of government is underfunded under
the review provided in section 5 and the local unit of government
does not have a waiver under section 6.
Sec. 4. (1) Beginning July 1, 2018, if a local unit of
government offers or provides an employee of the local unit of
government, or a former employee first employed by the local unit
of government before the effective date of this act, with a
retirement health benefit, all of the following apply to the local
unit of government:
(a) The local unit of government must pay at least both of the
following:
(i) Normal costs for employees first hired after June 30,
2018.
(ii) Retiree premiums that are due for retirants in the
retirement system.
(b) The local unit of government shall electronically submit a
summary retiree health care report in a form prescribed by the
department of treasury on an annual basis to the governing body of
the local unit of government and the department of treasury no
later than 6 months after the end of the local unit of government's
fiscal year. The department of treasury shall post on its website
an executive summary of each summary retiree health care report
submitted to the department of treasury under this subdivision. The
executive summary must include the applicable system's unfunded
actuarial accrued liability. The department of treasury shall
submit each executive summary required under this subdivision to
the senate and the house of representatives appropriations
committees and the senate and house fiscal agencies not less than
30 days after posting.
(c) At least every 5 years, the local unit of government shall
have an actuarial experience study conducted by the plan actuary
for each retirement system of the local unit of government.
(d) At least every 8 years, the local unit of government shall
do at least 1 of the following:
(i) Have a peer actuarial audit conducted by an actuary that
is not the plan actuary.
(ii) Replace the plan actuary.
(e) A local unit of government that is eligible to use a
specified alternative measurement method under Governmental
Accounting Standards Board standards is exempt from the
requirements under subdivisions (c) and (d).
(2) As used in this section, "summary retiree health care
report" means a report that includes all of the following for each
retirement system of the local unit of government that provides
retirement health benefits:
(a) The name of the retirement system.
(b) The names of the retirement system's investment
fiduciaries.
(c) The names of the retirement system's service providers.
(d) The retirement system's assets and liabilities and changes
in net plan assets on a plan-year basis.
(e) The retirement system's funded ratio based on the ratio of
valuation assets to actuarial accrued liabilities on a plan-year
basis.
(f) The assumed rate of return of the retirement system.
(g) The actual rate of return of the retirement system for the
previous 1-year period, the previous 5-year period, and the
previous 10-year period.
(h) The discount rate used by the retirement system.
(i) The retirement system's amortization method for unfunded
liability, indicating whether it is open or closed.
(j) The retirement system's amortization method, indicating
whether it is level percent or level dollar, and the assumed
payroll growth rate.
(k) The retirement system's remaining amortization time
period.
(l) The annual required contribution for the retirement
system, indicating the normal cost and the amortization payment
toward the unfunded actuarial accrued liability.
(m) The retirement system's health care inflation assumption.
(n) The number of active employees and retirants in the
retirement system.
(o) The amount of premiums paid on behalf of retirants in the
retirement system.
Sec. 5. (1) The state treasurer shall annually establish
uniform actuarial assumptions of retirement systems that include,
but are not limited to, investment returns, salary increase rates,
mortality tables, discount rates, and health care inflation.
(2) The state treasurer shall create an evaluation system and
provide for review and oversight under this act of an underfunded
local unit of government beginning on the effective date of the
determination by the state treasurer that the local unit of
government is in underfunded status.
(3) Each year beginning after December 31, 2017, the state
treasurer shall determine the underfunded status of each local unit
of government.
(4) The state treasurer shall determine that a local unit of
government is in underfunded status if any of the following apply:
(a) The actuarial accrued liability of a retirement health
system of the local unit of government is less than 40% funded,
according to the most recent annual report, and, if the local unit
of government is a city, village, township, or county, the annual
required contribution for all of the retirement health systems of
the local unit of government is greater than 12% of the local unit
of government's annual general fund operating revenues, based on
the most recent fiscal year.
(b) The actuarial accrued liability of a retirement pension
system of the local unit of government is less than 60% funded,
according to the most recent annual report, and, if the local unit
of government is a city, village, township, or county, the annual
required contribution for all of the retirement pension systems of
the local unit of government is greater than 10% of the local unit
of government's annual general fund operating revenues, based on
the most recent fiscal year.
(c) The local unit of government has not reported the annual
cost of the liability of the retirement health system or retirement
pension system using the uniform actuarial assumptions under
subsection (1).
(d) The local unit of government fails to make the payments as
described under section 4(1).
(5) For purposes of the report under subsection (6), a local
unit of government shall annually calculate the funded ratios of
each retirement system of the local unit of government using the
uniform actuarial assumptions established under subsection (1).
(6) A local unit of government shall electronically submit a
report in a form prescribed by the department of treasury on an
annual basis to the governing body of the local unit of government
and the department of treasury no later than 6 months after the end
of the local unit of government's fiscal year.
(7) The state treasurer shall post publicly on the department
of treasury website all of the following:
(a) The uniform actuarial assumptions under subsection (1).
(b) A summary report of the local unit of government reports
submitted under subsection (6).
(c) The underfunded status of local units of government as
determined under subsection (3).
(d) The current waiver status of local units of government
provided under section 6.
(e) Any corrective action plan approved under section 10.
(8) A local unit of government shall post publicly on its
website, or in a public place if it does not have a website, the
information as provided in subsection (7) that is applicable to
that local unit of government.
Sec. 6. (1) To qualify for a waiver of the underfunded status
determination under section 5, the local unit of government's
administrative officer and governing body must approve a plan
demonstrating the underfunded status is being addressed and must
approve the waiver application. The state treasurer shall issue a
waiver of the determination of underfunded status for a local unit
of government if the state treasurer determines that the
underfunded status is adequately being addressed by that local unit
of government.
(2) For any underfunded local unit of government that is not
granted a waiver, the department of treasury shall do all of the
following:
(a) Undertake an individualized and comprehensive internal
review of the local unit of government's retirement system.
(b) Discuss changes or reforms that have been made with the
local unit of government's designated officials.
(c) Review actuarial projections, including trends and
projections.
Sec. 7. (1) The municipal stability board is created within
the department of treasury. Except as otherwise provided in this
act, the board shall exercise its powers, duties, and functions
independently of the state treasurer. The budgeting, procurement,
and related management functions of the board must be performed
under the direction and supervision of the state treasurer. The
department of treasury shall provide administrative support to the
board.
(2) The board consists of all of the following members:
(a) One resident of this state representing state officials
with knowledge, skill, or experience in accounting, actuarial
science, retirement systems, retirement health benefits, or
government finance appointed by the governor.
(b) One resident of this state representing local officials
with knowledge, skill, or experience in accounting, actuarial
science, retirement systems, retirement health benefits, or
government finance appointed by the governor.
(c) One resident of this state representing employees and
retirees with knowledge, skill, or experience in accounting,
actuarial science, retirement systems, retirement health benefits,
or government finance appointed by the governor.
(3) Of the members initially appointed by the governor under
subsection (2), 1 member must be appointed for an initial term of 4
years, 1 member must be appointed for an initial term of 3 years,
and 1 member must be appointed for an initial term of 2 years.
After the initial terms, members appointed by the governor under
subsection (2) must be appointed for terms of 4 years.
(4) A vacancy for an unexpired term must be filled in the same
manner as the original appointment for the remainder of the term.
After the expiration of a term, a member may continue to serve
until a successor is appointed and qualified.
(5) The member of the board appointed under subsection (2)(a)
shall serve as the chairperson of the board.
(6) A majority of the members of the board authorized to take
an action constitute a quorum of the board for the transaction of
business on that action. The board shall meet not less than
quarterly and at the times and places within this state designated
by the chairperson. An action of the board must be approved by a
majority of the members authorized to take that action.
(7) The board shall adopt bylaws for governance of the board,
which must, at a minimum, address the procedures for conducting
meetings, including voting procedures, and the requirements of its
members to attend meetings. Bylaws required by this section are not
subject to the administrative procedures act of 1969, 1969 PA 306,
MCL 24.201 to 24.328.
(8) The board may contract for professional services, as it
requires, and shall determine the qualifications for persons
providing those professional services it considers necessary.
(9) Members of the board serve without compensation but may
receive reimbursement for travel and expenses incurred in the
discharge of official duties. The members of the board and
contractors or agents of the board are subject to 1968 PA 317, MCL
15.321 to 15.330, and 1968 PA 318, MCL 15.301 to 15.310.
(10) A member of the board, and any person the board contracts
with, shall discharge the duties of his or her position in a
nonpartisan manner, with good faith, and with that degree of
diligence, care, and skill that an ordinarily prudent person would
exercise under similar circumstances in a like position. The board
shall adopt an ethics policy governing the conduct of board members
and officers and employees of the board.
(11) Board members shall take and subscribe to the
constitutional oath of office under section 1 of article XI of the
state constitution of 1963. The oath must be filed with the
secretary of state.
(12) As used in this section, "professional services" means
services that require a high degree of intellectual skill, an
advanced degree, or professional licensing or certification. Those
providing the professional services must be distinguished based on
their specialized knowledge, experience, and expertise.
Professional services include, but are not limited to, accounting,
actuarial, appraisal, auditing, investment advisor, and legal
services.
Sec. 8. The board shall review and annually update a list of
best practices and strategies that will assist an underfunded local
unit of government in developing a corrective action plan.
Sec. 9. An underfunded local unit of government shall develop
and submit for approval a corrective action plan based on what the
local unit of government determines as the best components of a
corrective action plan for that local unit of government.
Sec. 10. (1) The board shall review and vote on the approval
of a corrective action plan submitted by a local unit of
government. A local unit of government that is in underfunded
status shall submit a corrective action plan to the board within
180 days after the determination of underfunded status. The board
may extend the 180-day deadline by up to an additional 45 days if
the local unit of government submits a reasonable draft of a
corrective action plan and requests an extension. The governing
body of the local unit of government shall approve the corrective
action plan before submission to the board. The board shall approve
or reject a corrective action plan within 45 days after it is
submitted.
(2) A corrective action plan may include the corrective
options for correcting underfunded status as set forth in
subsection (7) and any additional solutions to assist with reducing
annual expenses or improving funding levels related to its
underfunded status to maintain and preserve retirement pension
benefits and retirement health benefits. A local unit of government
may also include in its corrective action plan a review of the
local unit of government's budget and finances to determine any
alternative methods available to assist in the ability to fund or
finance the retirement pension benefits or retirement health
benefits of the local unit of government.
(3) The board may review the inclusion of the corrective
options and additional solutions as described in subsection (8) as
part of its approval criteria to determine whether a corrective
action plan is designed to permanently remove the local unit of
government from underfunded status.
(4) If the board votes to disapprove a corrective action plan
that has been submitted, the board shall within 15 days provide a
notification and report to the local unit of government detailing
the reasons for the disapproval of the corrective action plan. Each
fiscal year, the local unit of government has 60 days from the date
of the first notification to address the reasons for disapproval
and resubmit a corrective action plan for approval.
(5) The local unit of government has up to 180 days after the
approval of a corrective action plan to begin to implement the
corrective action plan to achieve the necessary cost reductions and
funding improvements to permanently correct its underfunded status
in all future years.
(6) The board shall monitor each underfunded local unit of
government's compliance with this act and any corrective action
plan. The board shall adopt a schedule, not less than every 2
years, to certify that the underfunded local unit of government is
in substantial compliance with this act. If the board determines
that an underfunded local unit of government is not in substantial
compliance under this subsection, the board shall within 15 days
provide notification and report to the local unit of government
detailing the reasons for the determination of noncompliance with
the corrective action plan. Each fiscal year, the local unit of
government has 60 days from the date of the first notification to
address the determination of noncompliance.
(7) A corrective action plan under this section may include
the development and implementation of corrective options for the
local unit of government to address and permanently resolve its
underfunded status. The corrective options as described in this
section may include any of the following:
(a) For retirement pension benefits, any of the following:
(i) Closing the current defined benefit plan.
(ii) Implementing a multiplier limit.
(iii) Reducing or eliminating new accrued benefits.
(iv) Implementing final average compensation standards.
(b) For retirement health benefits, any of the following:
(i) Requiring cost sharing of premiums and sufficient copays.
(ii) Capping employer costs.
(8) Except as otherwise provided in this act, while any
corrective action plan is in effect for an underfunded local unit
of government, that local unit of government is not required to
submit any additional corrective action plan for approval.
Sec. 12. (1) The board is a state board and its members are
state officers for the purposes of section 6419 of the revised
judicature act of 1961, 1961 PA 236, MCL 600.6419.
(2) The validity of the board is conclusively presumed unless
questioned in an original action filed in the court of claims
within 60 days after the effective date of this act. The court of
claims has original jurisdiction to hear an action under this
subsection. The court shall hear the action in an expedited manner.
The department of treasury is a necessary party in an action under
this subsection.
(3) The court of claims has exclusive jurisdiction over any
action challenging the validity of this act or an action or
inaction under this act. The department of treasury is a necessary
party in an action under this subsection.
