Bill Text: MI HB4190 | 2013-2014 | 97th Legislature | Introduced
Bill Title: Retirement; public school employees; employer contributions; calculate unfunded actuarial accrued liability contribution rate based on current operating expenditures. Amends sec. 41 of 1980 PA 300 (MCL 38.1341).
Spectrum: Partisan Bill (Republican 1-0)
Status: (Introduced - Dead) 2013-02-06 - Printed Bill Filed 02/06/2013 [HB4190 Detail]
Download: Michigan-2013-HB4190-Introduced.html
HOUSE BILL No. 4190
February 5, 2013, Introduced by Rep. Farrington 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 2012 PA 300.
THE PEOPLE OF THE STATE OF MICHIGAN ENACT:
Sec. 41. (1) The annual level percentage of payroll
contribution rate or rate applied to current operating
expenditures, as applicable, to finance benefits being provided and
to be provided by the retirement system shall be determined by
actuarial valuation pursuant to subsection (2) upon 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 shall be made of the retirement
system in order 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 shall be made in order to determine the financial
effect of variations of actual retirement system experience from
projected experience.
(2) Except as otherwise provided in this subsection, the
contribution rate for benefits shall be computed using an
individual projected benefit entry age normal cost method of
valuation. Except as otherwise provided in this section, for the
1995-96 state fiscal year and for each subsequent fiscal year
before the 2012-2013 state fiscal year, the contribution rate for
health benefits provided under section 91 shall be computed using a
cash disbursement method. Beginning in the 2012-2013 state fiscal
year and for each subsequent fiscal year, 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 shall be computed using a cash disbursement
method. The contribution rate for service likely to be rendered in
the current year, the normal cost contribution rate, shall be equal
to the aggregate amount of individual projected benefit entry age
normal costs divided by 1% of the aggregate amount of active
members' valuation compensation. Except as otherwise provided under
this subsection, the contribution rate for unfunded service
rendered before the valuation date, the unfunded actuarial accrued
liability contribution rate, shall be the aggregate amount of
unfunded actuarial accrued liabilities divided by 1% of the
actuarial present value over a period not to exceed 50 years of
projected
valuation compensation , and
a separate rate based on
projected current operating expenditures as calculated for the
2013-2014 state fiscal year and each subsequent state fiscal year,
where unfunded actuarial accrued liabilities are equal to the
actuarial present value of benefits, reduced by the actuarial
present value of future normal cost contributions and the actuarial
value
of assets on the valuation date. Beginning Except as
otherwise provided under this subsection, beginning with the 2012-
2013 state fiscal year and for each subsequent fiscal year, the
unfunded actuarial accrued liability contribution rate applied to
payroll shall not exceed 20.96%. Beginning with the 2013-2014 state
fiscal year, the unfunded actuarial accrued liability contribution
rate and payment schedule for public local school districts shall
be applied to calculated current operating expenditures. The
unfunded actuarial accrued liability contribution rate calculated
and applied to current operating expenditures shall be calculated
after the unfunded actuarial accrued liability contribution rate
based on projected valuation compensation is calculated and applied
to payroll of reporting units other than public local school
districts, based on prior base year data and methods as determined
by the retirement system and in consultation with the system
actuary. Beginning with the 2013-2014 state fiscal year and for
each subsequent fiscal year, the unfunded actuarial accrued
liability contribution rate applied to calculated current operating
expenditures shall not exceed 11.9% and the unfunded actuarial
accrued liability contribution rate applied to payroll shall not
exceed 20.96%. 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 section 41a, the unfunded
actuarial accrued liability contribution rate shall be based upon
and applied to the combined payrolls of the employees who are
members and qualified participants.
(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 current operating expenditures for the current school
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 make payment of 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. Upon 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, shall be paid as provided in subsection (9).
This subsection does not apply in a fiscal year in which a deposit
occurs pursuant to 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, shall be paid by that employer in the next succeeding state
fiscal year and a minimum of 25% of the remaining difference shall
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, shall be paid by that employer
in the next succeeding state fiscal year and a minimum of 25% of
the remaining difference shall 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 shall be included for each year that a portion of the
remaining difference is carried forward. The interest rate shall
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 pursuant to
subsection (14).
(10) Beginning on the designated date, all assets held by the
retirement system shall be reassigned their fair market value, as
determined by the state treasurer, as of the designated date, and
in calculating any unfunded actuarial accrued liabilities, any
market gains or losses incurred before the designated date shall
not be considered by the retirement system's actuaries.
(11) Except as otherwise provided in this subsection,
beginning on the designated date, the actuary used by the
retirement board shall assume a rate of return on investments of
8.00% per annum, as of the designated date, 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 on and after July 1, 2010, which rate may only
be changed with the approval of the retirement board and the
director of the department.
(12) Beginning on the designated date, the value of assets
used shall be based on a method that spreads over a 5-year period
the difference between actual and expected return occurring in each
year after the designated date and such methodology may only be
changed with the approval of the retirement board and the director
of the department.
(13) Beginning on the designated date, 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 upon 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 pursuant to 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 current operating expenditures, as
applicable, pursuant to 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 shall 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 shall 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) Beginning with the 2013-2014 state fiscal year, the
actuary used by the retirement board shall use a current operating
expenditure increase assumption that projects annual current
operating expenditure increases of 3.5%.
(17) (16)
As used in this section,
"current operating
expenditures" for a public local school district includes functions
1xx, 2xx, 45x, and all object codes except 6xxx, 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, 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 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 subsection.September
4, 2012.
