Bill Text: MI SB0777 | 2017-2018 | 99th Legislature | Introduced

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Bill Title: Retirement; public school employees; unfunded actuarial accrued liability contributions for public school academies that do not have employees in the retirement system; require. Amends secs. 7 & 41 of 1980 PA 300 (MCL 38.1307 & 38.1341).

Spectrum: Partisan Bill (Democrat 1-0)

Status: (Introduced - Dead) 2018-01-25 - Referred To Committee On Education [SB0777 Detail]

Download: Michigan-2017-SB0777-Introduced.html

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SENATE BILL No. 777

 

 

January 25, 2018, Introduced by Senators HERTEL, GREGORY, BIEDA, HOOD, YOUNG, HOPGOOD, CONYERS, KNEZEK, WARREN and JOHNSON 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 7 and 41 (MCL 38.1307 and 38.1341), section 7

 

as amended by 1995 PA 272 and section 41 as amended by 2017 PA 92.

 

THE PEOPLE OF THE STATE OF MICHIGAN ENACT:

 

     Sec. 7. (1) "Refund beneficiary" means 1 or more persons whom

 

the member or former member nominates in writing and files with the

 

retirement system for the purpose of being paid accumulated

 

contributions in the event of the death of the member or former

 

member. If a valid nomination is not on file, the retirement board

 

shall pay the accumulated contributions to the legal representative

 

of the deceased member or deceased former member, if any, or to the

 

estate of the deceased member or deceased former member.

 

     (2) "Regular interest" means interest at 1 or more rates per

 

annum determined by the retirement board and compounded annually.

 

     (3) Except as otherwise provided in this subsection,

 

"reporting unit" means a public school district, intermediate

 

school district, public school academy, tax supported community or

 

junior college, or university, or an agency having employees on its

 

payroll who are members of this the retirement system. The

 

reporting unit shall be is the employer for purposes of this act.

 

On and after January 1, 1996, reporting unit does not include a

 

university, except to the extent that university has employees on

 

its payroll who are members of this the retirement system.

 

Beginning on the effective date of the amendatory act that added

 

this sentence, a public school academy that does not have an

 

employee on its payroll who is a member of the retirement system is

 

considered a reporting unit for the purpose of including the public

 

school academy's payroll of its full-time employees in the

 

remittance of unfunded actuarial accrued liability contributions

 

calculated under section 41.

 

     (4) "Retirant" means a member who retires with a retirement

 

allowance payable from reserves of the retirement system.

 

     (5) "Retirement allowance" means a payment for life or a

 

temporary period provided for in this act to which a retirant,

 

retirement allowance beneficiary, or refund beneficiary is

 

entitled.

 

     (6) "Retirement allowance beneficiary" means a person who is

 

being paid or has entitlement to the payment of a retirement

allowance in the event of the death of a member, deferred member,

 

or retirant.

 

     (7) "Retirement board" means the board provided to administer

 

this the retirement system.

 

     (8) "Retirement system" means the Michigan public school

 

employees' retirement system provided for in this act.

 

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

 

contribution rates to finance benefits being provided and to be

 

provided by the retirement system must be determined by actuarial

 

valuation under subsection (2) on the basis of the risk assumptions

 

that the retirement board and the department adopt after

 

consultation with the state treasurer and an actuary. An annual

 

actuarial valuation must be made of the retirement system to

 

determine the actuarial condition of the retirement system and the

 

required contribution to the retirement system. An annual actuarial

 

gain-loss experience study of the retirement system must be made to

 

determine the financial effect of variations of actual retirement

 

system experience from projected experience.

 

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

 

annual contribution rates for benefits is are subject to all of the

 

following:

 

     (a) Except as otherwise provided in this subdivision, the

 

contribution rate for benefits must be computed using an individual

 

projected benefit entry age normal cost method of valuation. If the

 

contributions described in section 43e are determined by a final

 

order of a court of competent jurisdiction for which all rights of

 

appeal have been exhausted to be unconstitutional and the

contributions are not deposited into the appropriate funding

 

account referenced in section 43e, the contribution rate for health

 

benefits provided under section 91 must be computed using a cash

 

disbursement method.

 

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

 

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

 

contribution rate, for reporting units must be determined as

 

follows:

 

     (i) Calculate the aggregate amount of individual projected

 

benefit entry age normal costs.

 

     (ii) Divide the result of the calculation under subparagraph

 

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

 

compensation.

 

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

 

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

 

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

 

subsequent fiscal year, the normal cost contribution rate must not

 

be less than the normal cost contribution rate in the immediately

 

preceding state fiscal year.

 

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

 

unfunded service rendered before the valuation date, the unfunded

 

actuarial accrued liability contribution rate, must be determined

 

as follows:

 

     (i) Calculate the aggregate amount of unfunded actuarial

 

accrued liabilities of reporting units as follows:

 

     (A) Calculate the actuarial present value of benefits for

 

members attributable to reporting units.

     (B) Calculate the actuarial present value of future normal

 

cost contributions of reporting units.

 

     (C) Calculate the actuarial present value of assets on the

 

valuation date.

 

     (D) Add the results of sub-subparagraphs (B) and (C).

 

     (E) Subtract from the result of the calculation under sub-

 

subparagraph (A) the result from the calculation under sub-

 

subparagraph (D).

 

     (ii) Divide the result of the calculation under subparagraph

 

(i) by 1% of the actuarial present value over a period not to

 

exceed 50 years of projected valuation compensation.

 

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

 

accrued liability contribution rates for members under section

 

41b(2), beginning with the state fiscal year ending September 30,

 

2018 and for each subsequent fiscal year until the unfunded

 

actuarial accrued liability is paid off, the unfunded actuarial

 

accrued liability contribution rate must not be less than the

 

unfunded actuarial accrued liability contribution rate in the

 

immediately preceding state fiscal year.

 

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

 

2013 and for each subsequent fiscal year, the unfunded actuarial

 

accrued liability contribution rate applied to payroll must not

 

exceed 20.96% for a reporting unit that is not a university

 

reporting unit. Any additional unfunded actuarial accrued liability

 

contributions as determined under this section for each fiscal year

 

are to be paid by appropriation from the state school aid fund

 

established by section 11 of article IX of the state constitution

of 1963. Except as otherwise provided in this section, section 7,

 

section 41a, and section 41b, the unfunded actuarial accrued

 

liability contribution rate must be based on and applied to the

 

combined payrolls of the employees who are members or qualified

 

participants, or both.

 

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

 

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

 

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

 

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

 

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

 

liability contribution rate determined under subdivision (d) must

 

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

 

subdivision (h).

 

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

 

2019, the payroll for which the unfunded actuarial accrued

 

liability contribution rate is applied for a reporting unit

 

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

 

the reporting unit's current operating expenditures in the previous

 

fiscal year based on methods as determined by the retirement system

 

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

 

under this subdivision must become the basis on which the

 

contribution rate provided under subdivision (d) for each

 

subsequent state fiscal year is determined for a reporting unit

 

described in subdivision (g).

 

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

 

2016 and for each subsequent state fiscal year, the unfunded

 

actuarial accrued liability contribution rate applied to the

combined payroll, as provided in section 41a, must not exceed

 

25.73% for a university reporting unit. Any additional unfunded

 

actuarial accrued liability contributions as determined under this

 

section for each fiscal year for university reporting units are to

 

be paid by appropriation under article III of the state school aid

 

act of 1979, 1979 PA 94, MCL 388.1836 to 388.1891.

 

     (3) Before November 1 of each year, the executive secretary of

 

the retirement board shall certify to the director of the

 

department the aggregate compensation estimated to be paid public

 

school employees for the current state fiscal year.

 

     (4) On the basis of the estimate under subsection (3), the

 

annual actuarial valuation, and any adjustment required under

 

subsection (6), the director of the department shall compute the

 

sum due and payable to the retirement system and shall certify this

 

amount to the reporting units.

 

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

 

shall pay the amount certified under subsection (4) to the director

 

of the department in equal payroll cycle installments for unfunded

 

actuarial accrued liability contributions and payroll cycle

 

installments for normal cost contributions.

 

     (6) Not later than 90 days after termination of each state

 

fiscal year, the executive secretary of the retirement board shall

 

certify to the director of the department and each reporting unit

 

the actual aggregate compensation paid to public school employees

 

during the preceding state fiscal year. On receipt of that

 

certification, the director of the department may compute any

 

adjustment required to the amount due to because of 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 Social Security contributions and reports as

 

required by the federal old-age, survivors, disability, and

 

hospital insurance provisions of title II of the social security

 

act, 42 USC 401 to 434.

 

     (9) For an employer of an employee of a local public school

 

district or an intermediate school district, for differences

 

occurring in fiscal years beginning on or after October 1, 1993, a

 

minimum of 20% of the difference between the estimated and the

 

actual aggregate compensation and the estimated and the actual

 

actuarial employer contribution rate described in subsection (6),

 

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

 

fiscal year and a minimum of 25% of the remaining difference must

 

be paid by that employer in each of the following 4 state fiscal

 

years, or until 100% of the remaining difference is submitted,

 

whichever first occurs. For an employer of other public school

 

employees, for differences occurring in fiscal years beginning on

 

or after October 1, 1991, a minimum of 20% of the difference

between the estimated and the actual aggregate compensation and the

 

estimated and the actual actuarial employer contribution rate

 

described in subsection (6), if any, must be paid by that employer

 

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

 

the remaining difference must be paid by that employer in each of

 

the following 4 state fiscal years, or until 100% of the remaining

 

difference is submitted, whichever first occurs. In addition,

 

interest must be included for each year that a portion of the

 

remaining difference is carried forward. The interest rate must

 

equal the actuarially assumed rate of investment return for the

 

state fiscal year in which payment is made. This subsection does

 

not apply in a fiscal year in which a deposit occurs under

 

subsection (14).

 

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

 

retirement system must be reassigned their fair market value, as

 

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

 

calculating any unfunded actuarial accrued liabilities, any market

 

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

 

considered by the retirement system's actuaries.

 

     (11) Except as otherwise provided in this subsection,

 

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

 

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

 

as of September 30, 2006, which rate may only be changed with the

 

approval of the retirement board and the director of the

 

department. Beginning on July 1, 2010, the actuary used by the

 

retirement board shall assume a rate of return on investments of 7%

 

per annum for investments associated with members who first became

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

 

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

 

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

 

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

 

return on investments of 6% per annum for investments associated

 

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

 

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

 

retirement board and the director of the department.

 

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

 

must be based on a method that spreads over a 5-year period the

 

difference between actual and expected return occurring in each

 

year after September 30, 2006, and the methodology may only be

 

changed with the approval of the retirement board and the director

 

of the department.

 

     (13) Beginning on September 30, 2006, the actuary used by the

 

retirement board shall use a salary increase assumption that

 

projects annual salary increases of 4%. In addition to the 4%, the

 

retirement board shall use an additional percentage based on an

 

age-related scale to reflect merit, longevity, and promotional

 

salary increase. The actuary shall use this assumption until a

 

change in the assumption is approved in writing by the retirement

 

board and the director of the department.

 

     (14) For fiscal years that begin on or after October 1, 2001,

 

if the actuarial valuation prepared under this section demonstrates

 

that as of the beginning of a fiscal year, and after all credits

 

and transfers required by this act for the previous fiscal year

 

have been made, the sum of the actuarial value of assets and the

actuarial present value of future normal cost contributions exceeds

 

the actuarial present value of benefits, the amount based on the

 

annual level percent of payroll contribution rate under subsections

 

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

 

subaccount created by section 34.

 

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

 

retirement board establishes an arrangement and fund as described

 

in section 6 of the public employee retirement benefit protection

 

act, 2002 PA 100, MCL 38.1686, the benefits that are required to be

 

paid from that fund must be paid from a portion of the employer

 

contributions described in this section or other eligible funds.

 

The retirement board shall determine the amount of the employer

 

contributions or other eligible funds that must be allocated to

 

that fund and deposit that amount in that fund before it deposits

 

any remaining employer contributions or other eligible funds in the

 

pension fund.

 

     (16) The retirement board and the department shall conduct and

 

review an experience investigation study and adopt risk assumptions

 

on which actuarial valuations are to be based after consultation

 

with the actuary and the state treasurer. The experience

 

investigation study shall must be completed and risk assumptions

 

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

 

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

 

assumptions under subsection (16), the office of retirement

 

services on behalf of the department and the state treasurer shall

 

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

 

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

representatives appropriations committees, and the senate and house

 

fiscal agencies. A report required under this subsection must be

 

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

 

and include at least all of the following:

 

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

 

following probability levels:

 

     (i) 5%.

 

     (ii) 25%.

 

     (iii) 50%

 

     (iv) 75%.

 

     (v) 95%.

 

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

 

20-year time intervals.

 

     (c) Mortality assumptions.

 

     (d) Retirement age assumptions.

 

     (e) Payroll growth assumptions.

 

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

 

financial status of the retirement system.

 

     (18) As used in this section:

 

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

 

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

 

recent "Michigan Public School Accounting Manual Bulletin 1022" as

 

of the effective date of the amendatory act that added this

 

subdivision, July 13, 2017, and is equal to the total of

 

instructional and support services expenditures, including the

 

total general fund charges incurred in the general, special

 

education, and vocational education funds for the benefit of the

current fiscal year, whether paid or unpaid, and all expenditures

 

of the instructional programs plus applicable supporting service

 

costs reduced by capital outlay, debt service, community services,

 

and outgoing transfers and other transactions. Current operating

 

expenditures also include operating funds for any public school or

 

other public educational entity first authorized or established by

 

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

 

effective date of the amendatory act that added this subdivision.

 

July 13, 2017.

 

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

 

a university listed in the definition of public school employee

 

under section 6.