Bill Text: MI HB6019 | 2015-2016 | 98th 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 (Democrat 1-0)

Status: (Introduced - Dead) 2016-11-10 - Bill Electronically Reproduced 11/09/2016 [HB6019 Detail]

Download: Michigan-2015-HB6019-Introduced.html

---

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

HOUSE BILL No. 6019

 

 

November 9, 2016, Introduced by Rep. Irwin 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 must be determined by

 

actuarial valuation pursuant to under subsection (2) upon 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 shall must 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 must 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 must 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 must 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 must 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 must 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 must

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 , where and a

 

separate rate based on projected current operating expenditures as

 

calculated for the 2016-2017 state fiscal year and each subsequent

 

state fiscal year, if 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 must not exceed 20.96%. Beginning with the 2016-

 

2017 state fiscal year, the unfunded actuarial accrued liability

 

contribution rate and payment schedule for public local school

 

districts must be applied to calculated current operating

 

expenditures. The unfunded actuarial accrued liability contribution

 

rate calculated and applied to current operating expenditures must

 

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 2016-2017 state fiscal

 

year and for each subsequent fiscal year, the unfunded actuarial

 

accrued liability contribution rate applied to calculated current

 

operating expenditures must not exceed 11.9% and the unfunded

actuarial accrued liability contribution rate applied to payroll

 

must 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

 

must be based upon on 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 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. Upon 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, shall must be paid as provided in subsection

 

(9). This subsection does not apply in a fiscal year in which a

 

deposit occurs pursuant to 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, shall must be paid by that employer in the next succeeding

 

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

shall 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, shall must

 

be paid by that employer in the next succeeding state fiscal year

 

and a minimum of 25% of the remaining difference shall 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 shall must be included for each

 

year that a portion of the remaining difference is carried forward.

 

The interest rate shall 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 pursuant to under subsection (14).

 

     (10) Beginning on the designated date, September 30, 2006, all

 

assets held by the retirement system shall must be reassigned their

 

fair market value, as determined by the state treasurer, as of the

 

designated date, September 30, 2006, and in calculating any

 

unfunded actuarial accrued liabilities, any market gains or losses

 

incurred before the designated date shall September 30, 2006, must

 

not be considered by the retirement system's actuaries.

 

     (11) Except as otherwise provided in this subsection,

 

beginning on the designated date, 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 the designated date,

 

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 on and after July 1, 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 the designated date, September 30, 2006, the

 

value of assets used shall 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 the designated date September

 

30, 2006 and such the methodology may only be changed with the

 

approval of the retirement board and the director of the

 

department.

 

     (13) Beginning on the designated date, 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 upon 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 pursuant to 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 pursuant to or rate applied to current operating expenditures,

 

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 shall 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 shall 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) Beginning with the 2016-2017 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.