Bill Text: MI HB4531 | 2019-2020 | 100th Legislature | Introduced

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Bill Title: Retirement; public school employees; calculation of unfunded actuarial accrued liability contributions; modify. Amends sec. 41 of 1980 PA 300 (MCL 38.1341).

Sponsorship: Partisan Bill (Republican 3)

Status: (Introduced - Dead) 2019-05-01 - Bill Electronically Reproduced 05/01/2019 [HB4531 Detail]

Download: Michigan-2019-HB4531-Introduced.html

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HOUSE BILL No. 4531

 

 

April 30, 2019, Introduced by Reps. Paquette, Albert and Lower and referred to the Committee on Appropriations.

 

     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 2018 PA 512.

 

THE PEOPLE OF THE STATE OF MICHIGAN ENACT:

 

     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 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 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) Subject to subsection (18), 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 state fiscal

year ending September 30, 2021, 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. Beginning with the state fiscal year

 

ending September 30, 2022, and for each subsequent fiscal year

 

until the unfunded actuarial accrued liability is fully paid, off,

 

the unfunded actuarial accrued liability contribution sum amount

 

due and payable must not be less than the unfunded actuarial

 

accrued liability contribution sum amount due and payable in the

 

immediately preceding state fiscal year.

 

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

 

2021, and for each subsequent fiscal year, the retirement system

 

shall use layered amortization.

 

     (g) (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 and sections 41a and 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.

 

     (h) (g) 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 state fiscal 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 amount 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 the end 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 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 is made 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 Except as otherwise provided in this subsection, 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 any 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 Except as otherwise provided in this subsection, 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 any 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 a public school employee

 

for differences occurring in fiscal years beginning on or after

 

October 1, 2021, any difference between the estimated and the

 

actual aggregate compensation and the estimated and the actual

 

actuarial employer contribution rate described in subsection (6)

 

must be paid by appropriation from the state school aid fund

 

established by section 11 of article IX of the state constitution

 

of 1963 in the following fiscal year. 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 is made 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 Except as otherwise provided in this

 

subsection, 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 Except as otherwise

 

provided in this subsection, 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. Beginning with the state

 

fiscal year ending September 30, 2021 and for each subsequent state

 

fiscal year, the actuary used by the retirement board shall assume

 

a rate of return on investments and a discount rate of not more

 

than 6% per annum, as of September 30, 2020, which rates 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.

 

money. The retirement board shall determine the amount of the

 

employer contributions or other eligible funds money 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 money 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 must be completed and risk assumptions 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'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 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) Except as otherwise provided in this subsection, subject

 

to subsection (2)(f), for members who first became members before

 

February 1, 2018, beginning with the state fiscal year ending

 

September 30, 2022 and for each subsequent state fiscal year until

 

the pension and retiree health care payroll growth assumption rate

 

for a reporting unit that is not a university reporting unit is

 

zero, the payroll growth assumption rate for a reporting unit that

 

is not a university reporting unit must be reduced by 50 basis

 

points. Beginning Subject to subsection (2)(f), beginning with the

 

state fiscal year ending September 30, 2025 and for each subsequent

 

state fiscal year until the rate described in this subsection is

 

zero, if the pension and retiree health care unfunded actuarial

 

accrued liability contribution sum amount directly attributable to

 

the 50 basis points reduction under this subsection for the current

 

fiscal year is 7% or more of the pension and retiree health care

 

unfunded actuarial accrued liability contribution sum amount in the

 

immediately preceding state fiscal year, the office of retirement

 

services may reduce the rate described in this subsection by 25

basis points in that current fiscal year instead of the 50 basis

 

point reduction described in this subsection. Beginning Subject to

 

subsection (2)(f), beginning with the fiscal year ending September

 

30, 2022 and for each subsequent state fiscal year until the rate

 

described in this subsection is zero, the office of retirement

 

services and the retirement board may agree to reduce the rate

 

described in this subsection by any number of additional basis

 

points.

 

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

 

2021, and for each subsequent fiscal year, the most recent

 

mortality assumptions provided by the Actuarial Standards Board and

 

adopted as risk assumptions by the actuary under subsection (16)

 

must be used by a reporting unit.

 

     (20) (19) As used in this section: , "university

 

     (a) "Layered amortization" means a fixed and closed period

 

that separately layers the different components to be amortized

 

over a fixed period not to exceed 10 years, as it emerges. The

 

amortization period for layered amortization must use a level

 

dollar amortization method.

 

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

 

a university listed in the definition of public school employee

 

under section 6.