Bill Text: MI HB5302 | 2017-2018 | 99th Legislature | Engrossed
Bill Title: Retirement; investments; reporting requirements of a local unit of government retirement system; revise. Amends secs. 13 & 20h of 1965 PA 314 (MCL 38.1133 & 38.1140h). TIE BAR WITH: HB 5298'17
Spectrum: Partisan Bill (Republican 1-0)
Status: (Engrossed - Dead) 2017-12-12 - Referred To Committee On Government Operations [HB5302 Detail]
Download: Michigan-2017-HB5302-Engrossed.html
HB-5302, As Passed House, December 7, 2017
HOUSE BILL No. 5302
November 30, 2017, Introduced by Reps. Glenn, Albert, Crawford and Lower and referred to the Committee on Michigan Competitiveness.
A bill to amend 1965 PA 314, entitled
"Public employee retirement system investment act,"
by amending sections 13 and 20h (MCL 38.1133 and 38.1140h), as
amended by 2016 PA 530.
THE PEOPLE OF THE STATE OF MICHIGAN ENACT:
Sec. 13. (1) This act supersedes any investment authority
previously granted to a system under any other law of this state.
(2) The assets of a system may be invested, reinvested, held
in nominee form, and managed by an investment fiduciary subject to
the terms, conditions, and limitations provided in this act. An
investment fiduciary of a defined contribution plan may arrange for
1 or more investment options to be directed by the participants of
the defined contribution plan. The limitations on the percentage of
total assets for investments provided in this act do not apply to a
defined contribution plan in which a participant directs the
investment of the assets in his or her individual account, and that
participant is not considered an investment fiduciary under this
act.
(3) An investment fiduciary shall discharge his or her duties
solely in the interest of the participants and the beneficiaries,
and shall do all of the following:
(a) Act with the same care, skill, prudence, and diligence
under the circumstances then prevailing that a prudent person
acting in a similar capacity and familiar with those matters would
use in the conduct of a similar enterprise with similar aims.
(b) Act with due regard for the management, reputation, and
stability of the issuer and the character of the particular
investments being considered.
(c) Make investments for the exclusive purposes of providing
benefits to participants and participants' beneficiaries, and of
defraying reasonable expenses of investing the assets of the
system.
(d) Give appropriate consideration to those facts and
circumstances that the investment fiduciary knows or should know
are relevant to the particular investment or investment course of
action involved, including the role the investment or investment
course of action plays in that portion of the system's investments
for which the investment fiduciary has responsibility; and act
accordingly. For purposes of this subsection, "appropriate
consideration" includes, but is not limited to, a determination by
the investment fiduciary that a particular investment or investment
course of action is reasonably designed, as part of the investments
of the system, to further the purposes of the system, taking into
consideration the risk of loss and the opportunity for gain or
other return associated with the investment or investment course of
action; and consideration of the following factors as they relate
to the investment or investment course of action:
(i) The diversification of the investments of the system.
(ii) The liquidity and current return of the investments of
the system relative to the anticipated cash flow requirements of
the system.
(iii) The projected return of the investments of the system
relative to the funding objectives of the system.
(e) Give appropriate consideration to investments that would
enhance the general welfare of this state and its citizens if those
investments offer the safety and rate of return comparable to other
investments permitted under this act and available to the
investment fiduciary at the time the investment decision is made.
(f) Prepare and maintain written objectives, policies, and
strategies with clearly defined accountability and responsibility
for implementing and executing the system's investments.
(g) Monitor the investment of the system's assets with regard
to the limitations on those investments under this act. Upon
discovery that an investment causes the system to exceed a
limitation prescribed in this act, the investment fiduciary shall
reallocate assets in a prudent manner to comply with the prescribed
limitation.
(h) Prepare and maintain written policies regarding ethics and
professional training and education, including travel, which
policies contain clearly defined accountability and reporting
requirements for the system's investment fiduciaries.
(i) Publish a summary annual report that includes all of the
following:
(i) The name of the system.
(ii) The names of the system's investment fiduciaries.
(iii) The names of the system's service providers.
(iv) The system's assets and liabilities and changes in net
plan assets on a plan-year basis.
(v) The system's funded ratio based on the ratio of valuation
assets to actuarial accrued liabilities on a plan-year basis.
(vi) Except as otherwise provided in this subparagraph, the
system's investment performance net of fees on a rolling calendar-
year basis for the previous 1-, 3-, 5-, 7-, and 10-year periods.
For a system for which the state treasurer is the investment
fiduciary, the summary annual report must include the system's
investment performance net of fees on a rolling calendar-year and
fiscal-year basis for the previous 1-, 3-, 5-, 7-, and 10-year
periods.
(vii) The system's administrative and investment expenditures
pursuant to standards of the Governmental Accounting Standards
Board, including, but not limited to, a list of all expenditures
made with soft dollars and all expenditures for professional
training and education, including travel expenditures, by or on
behalf of system board members that are paid by the system, if any.
(viii) The system's itemized budget containing all projected
expenditures, including, but not limited to, expenditures for
professional training and education, including travel expenditures,
by or on behalf of system board members that are paid by the
system.
(ix) The following information as provided in the system's
most recent annual actuarial valuation report:
(A) The number of active members.
(B) The number of retirees and beneficiaries.
(C) The average annual retirement allowance.
(D) The total annual retirement allowances being paid.
(E) The valuation payroll.
(F) The employer's computed normal cost of benefits expressed
as a percentage of valuation payroll.
(G) The employer's total contribution rate expressed as a
percentage of valuation payroll.
(H) The weighted average of member contributions, if any.
(I) The actuarial assumed rate of investment return.
(J) The actuarial assumed rate of long-term wage inflation.
(K) The smoothing method utilized to determine the funding
value of assets.
(L) The amortization method and period utilized for funding
the system's unfunded actuarial accrued liabilities, if any.
(M) The system's actuarial cost method.
(N) Whether system membership is open or closed to specific
groups of employees.
(O) The actuarial assumed rate of health care inflation.
(x) In addition to the expenditures reported under
subparagraph (vii), for a large sponsored system a travel report
listing all travel outside this state in the immediately preceding
fiscal year that was funded in whole or in part with public funds.
The report must include the total expenses for all out-of-state
travel funded during the immediately preceding fiscal year and all
of the following information for each travel occurrence:
(A) The name of each person receiving reimbursement for travel
outside this state or whose travel costs were paid by the large
sponsored system and funded in whole or in part with public funds.
(B) The destination.
(C) The dates.
(D) A brief statement of the reason for the travel.
(E) An itemization of the transportation and related costs,
including, but not limited to, the amount for food, lodging, and
vehicle rental and listing the names of hotels, restaurants,
vehicle rental agencies, and vehicle models.
(xi) For a state unit, an executive summary of both of the
following:
(A) The state unit's unfunded actuarial accrued liabilities
for retiree health and pension.
(B) The information described in subparagraph (v).
(j) An investment fiduciary of a large sponsored system shall
submit a summary annual report described in subdivision (i) to the
financial review commission created under the Michigan financial
review commission act, 2014 PA 181, MCL 141.1631 to 141.1643.
(k) For a state unit, submit the executive summary required
under subdivision (i)(xi) to the senate and house of
representatives appropriations committees and the senate and house
fiscal agencies not less than 30 days after publication.
(l) For a system other than a state unit, submit the summary
annual report published under subdivision (i) to the department of
treasury not less than 30 days after publication.
(4) An investment fiduciary who is an investment fiduciary of
any of the following shall comply with the divestment from terror
act, 2008 PA 234, MCL 129.291 to 129.301, in making investments
under this act:
(a) The Tier 1 retirement plan available under the state
employees' retirement act, 1943 PA 240, MCL 38.1 to 38.69.
(b) The Tier 1 retirement plan available under the judges
retirement act of 1992, 1992 PA 234, MCL 38.2101 to 38.2670.
(c) The Michigan state police retirement system created under
the state police retirement act of 1986, 1986 PA 182, MCL 38.1601
to 38.1648.
(d) The Michigan public school employees' retirement system
created under the public school employees retirement act of 1979,
1980 PA 300, MCL 38.1301 to 38.1437.
(5) Subject to section 13g, an investment fiduciary may use a
portion of the system's income to defray the costs of investing,
managing, and protecting the assets of the system; may retain
investment and all other goods and services necessary for the
conduct of the affairs of the system, including investment
advisors, consultants, custodians, accountants, auditors,
attorneys, actuaries, investment personnel, administrators, and
physicians; and may enter into contracts for and pay reasonable
compensation for those services. Subject to an annual appropriation
by the legislature, a deduction from the income of a state-
administered system resulting from the payment of those costs must
be made.
(6) Subject to this subsection and subsection (13), an
investment fiduciary may use a portion of the system's income to
defray the costs of professional training and education, including
travel costs, of system board members, which professional training
and education, including travel, are directly related to the
administration, management, and operation of the system. The
governing board vested with the general administration, management,
and operation of the system or other decision-making body that is
responsible for implementation and supervision of the system shall
adopt an annual budget for professional training and education,
including travel, authorized under this subsection. The budget
adopted under this subsection must reflect the number of board
members, the size of the system, and the educational objectives of
the system. The system's total aggregate cost for professional
training and education, including travel costs, authorized under
this subsection for a fiscal year must not exceed $150,000.00 or an
amount that is equal to the total number of system board members
multiplied by $12,000.00, whichever is less. The system's total
cost for professional training and education, including travel
costs, authorized under this subsection for an individual system
board member in a fiscal year must not exceed $30,000.00. Beginning
January 1, 2013, the department of treasury shall adjust the dollar
amounts in this subsection by an amount determined by the state
treasurer at the end of the immediately preceding calendar year to
reflect the cumulative annual percentage change in the consumer
price index. As used in this subsection, "consumer price index"
means the most comprehensive index of consumer prices available for
this state from the Bureau of Labor Statistics of the United States
Department of Labor.
(7) Before any investment services are provided, an investment
service provider shall provide the investment fiduciary of the
system with a complete written disclosure of all fees or other
compensation associated with its relationship with the system.
After investment services are provided to the investment fiduciary
of the system, an investment service provider shall provide on an
annual basis written disclosure of all fees including, but not
limited to, commissions, 12b-1 and related fees, compensation paid
or to be paid to third parties, and any other compensation paid by
the system to the investment fiduciary of the system. As used in
this subsection, "investment service provider" means any
individual, third-party agent or consultant, or other entity that
receives direct or indirect compensation for consulting, investment
management, brokerage, or custody services related to the system's
assets. For purposes of this section only, investment service
provider does not include a retirement system.
(8) The system must be a separate and distinct trust fund and
the assets of the system must be for the exclusive benefit of the
participants and their beneficiaries and of defraying reasonable
expenses of investing the assets of the system. With respect to a
system, an investment fiduciary shall not cause the system to
engage in a transaction if he or she knows or should know that the
transaction is any of the following, either directly or indirectly:
(a) A sale or exchange or a leasing of any property from the
system to a party in interest for less than the fair market value,
or from a party in interest to the system for more than the fair
market value.
(b) A lending of money or other extension of credit from the
system to a party in interest without the receipt of adequate
security and a reasonable rate of interest, or from a party in
interest to the system with the provision of excessive security or
at an unreasonably high rate of interest.
(c) A transfer to, or use by or for the benefit of, the
political subdivision sponsoring the system of any assets of the
system for less than adequate consideration.
(d) The furnishing of goods, services, or facilities from the
system to a party in interest for less than adequate consideration,
or from a party in interest to the system for more than adequate
consideration.
(9) With respect to a system subject to this act, an
investment fiduciary shall not do any of the following:
(a) Deal with the assets of the system in his or her own
interest or for his or her own account.
(b) In his or her individual or any other capacity act in any
transaction involving the system on behalf of a party whose
interests are adverse to the interests of the system or the
interest of its participants or participants' beneficiaries.
(c) Receive any consideration for his or her own personal
account from any party dealing with the system in connection with a
transaction involving the assets of the system.
(10) This section does not prohibit an investment fiduciary
from doing any of the following:
(a) Receiving any benefit to which he or she may be entitled
as a participant or participant's beneficiary of the system.
(b) Receiving any reimbursement of expenses properly and
actually incurred in the performance of his or her duties for the
system.
(c) Serving as an investment fiduciary in addition to being an
officer, employee, agent, or other representative of the political
subdivision sponsoring the system.
(d) Receiving agreed upon compensation for services from the
system.
(11) Except for an employee of a system, this state, or the
political subdivision sponsoring a system, when acting in the
capacity as an investment fiduciary, an investment fiduciary who is
qualified under section 12c(1)(b) shall meet 1 of the following
requirements:
(a) Be a registered investment adviser under the investment
advisers act of 1940, 15 USC 80b-1 to 80b-21, or the uniform
securities act (2002), 2008 PA 551, MCL 451.2101 to 451.2703.
(b) Be a bank as defined under the investment advisers act of
1940, 15 USC 80b-1 to 80b-21.
(c) Be an insurance company qualified under section 16(3).
(12) An investment fiduciary shall not invest in a debt
instrument issued by a foreign country that has been designated by
the United States Department of State as a state sponsor of terror.
(13) A large sponsored system shall not pay the expenses for a
person to travel outside this state from funds under its control
unless 1 or more of the following conditions apply to the travel:
(a) It is required by legal mandate or court order or for law
enforcement purposes.
(b) It is necessary to protect the health or safety of
citizens of, or visitors to, this state or to assist other states
in similar circumstances.
(c) It is necessary to produce budgetary savings or to
increase revenues, including protecting existing federal funds or
securing additional federal funds.
(d) It is necessary to secure specialized training for the
person that is substantially related to performing the duties of
the position and is not available within this state.
(14) Subject to section 13g, an investment fiduciary of a
large sponsored system that invests or has invested in a hazardous
waste deep disposal well facility regulated under part 111 or 121
of the natural resources and environmental protection act, 1994 PA
451, MCL 324.11101 to 324.11153 and 324.12101 to 324.12117, is
subject to all of the following:
(a) The investment fiduciary shall not make an additional
investment in the hazardous waste deep disposal well facility
unless the investment is solely to prepare the property on which
the hazardous waste deep disposal well facility is located for sale
for purposes other than operation as a hazardous waste deep
disposal well facility or similar hazardous facility.
(b) The investment fiduciary shall sell, redeem, divest, or
withdraw all investments in the hazardous waste deep disposal well
facility within 180 days after any of the following circumstances
occur:
(i) The operator of the hazardous waste deep disposal well
facility files for bankruptcy.
(ii) The sale, transfer, purchase, or acquisition of a
controlling interest in the operator of the hazardous waste deep
disposal well facility.
(iii) An Environmental Protection Agency action for a
violation at the hazardous waste deep disposal well facility.
(iv) An Environmental Protection Agency revocation of the
operator's license.
(v) An Environmental Protection Agency or department of
environmental quality order to terminate operations at the
hazardous waste deep disposal well facility.
(15) For a state unit, a representative of the office of
retirement services in the department of technology, management,
and budget shall appear before the senate and house of
representatives appropriations committees on request of the
committee chair to testify about the system's summary annual report
required under subsection (3).
(16) The department of treasury shall post on its website an
executive summary of each summary annual report submitted to the
department of treasury under subsection (3)(l). The executive
summary must include the applicable system's unfunded actuarial
accrued
liability for retiree health and pension. The department of
treasury shall submit each executive summary required under this
subsection to the senate and the house of representatives
appropriations committees and the senate and house fiscal agencies
not less than 30 days after posting.
(17) As used in this section, "state unit" means a system
established under the state employees' retirement act, 1943 PA 240,
MCL 38.1 to 38.69, the public school employees retirement act of
1979, 1980 PA 300, MCL 38.1301 to 38.1437, the judges retirement
act of 1992, 1992 PA 234, MCL 38.2101 to 38.2670, and the state
police retirement act of 1986, 1986 PA 182, MCL 38.1601 to 38.1648.
Sec. 20h. (1) In addition to the provisions of this act, a
system is subject to the applicable accounting, auditing, and
reporting requirements contained in the following acts and parts of
acts:
(a) 1919 PA 71, MCL 21.41 to 21.55.
(b) The uniform budgeting and accounting act, 1968 PA 2, MCL
141.421 to 141.440a.
(c) Section 91 of the executive organization act of 1965, 1965
PA 380, MCL 16.191.
(2) A system shall retain its financial records for a minimum
period of 6 years from the date of the creation of the record
unless state or federal law requires a longer retention period. As
used in this subsection, "financial records" includes, but is not
limited to, records pertaining to expenditures for professional
training and education, including travel expenditures, by or on
behalf of system board members that are paid by the system.
(3) Except as otherwise provided in this subsection,
information regarding the calculation of actual or estimated
retirement benefits for members of the system is exempt from
disclosure by the system or the political subdivision sponsoring
the system pursuant to section 13(1)(d) of the freedom of
information act, 1976 PA 442, MCL 15.243. Upon a majority vote of
the governing body of the political subdivision sponsoring the
system, the system shall provide the designated representative of
the political subdivision with a reasonable opportunity to inspect,
copy, or receive copies of all information regarding the
calculation of actual or estimated retirement benefits for members
of the system. The system may require that information provided by
the system under this subsection be provided only on a promise of
confidentiality by the political subdivision sponsoring the system.
A system may make reasonable rules to ensure the confidentiality of
records exempt from disclosure under applicable state and federal
law. The system may charge a fee under this subsection in
accordance with section 4 of the freedom of information act, 1976
PA 442, MCL 15.234. All fees and expenses incurred by the political
subdivision sponsoring the system that are related to this
subsection
shall must be borne by the political subdivision and
shall
must not be deducted from or offset against the political
subdivision's required pension contributions to the system.
(4) Except as otherwise provided in this subsection, a system
shall have an annual actuarial valuation with assets valued on a
market-related basis. The actuarial present value of total
projected benefits must include all pension benefits to be provided
by the system to members or beneficiaries under the terms of the
system and any additional statutory or contractual agreements to
provide pension benefits through the system that are in force at
the actuarial valuation date, including, but not limited to,
service credits purchased by members, deferred retirement option
plans, early retirement programs, and postretirement adjustment
programs. A system that has assets of less than $20,000,000.00 is
only required to have an actuarial valuation as required under this
subsection done every other year.
(5) A system shall provide a supplemental actuarial analysis
before adoption of pension benefit changes. System assets must not
be used for any actuarial expenses related to the supplemental
actuarial analysis under this subsection. The supplemental
actuarial analysis must be provided by the system's actuary and
must include an analysis of the long-term costs associated with any
proposed pension benefit change. The supplemental actuarial
analysis must be provided to the board of the particular system and
to the decision-making body that will approve the proposed pension
benefit change at least 7 days before the proposed pension benefit
change is adopted. For purposes of this subsection, "proposed
pension
benefit change" means a proposal to change increase the
amount of pension benefits received by persons entitled to pension
benefits under the system. Proposed pension benefit change does not
include a proposed change to a health care plan or health benefits.
(6) The system shall make the summary annual report created
under section 13 available to the plan participants and
beneficiaries and the citizens of the political subdivision
sponsoring the system. If the system has a website, the system
shall publish the summary annual report on the website. If the
system does not have a website, the political subdivision
sponsoring the system shall publish the summary annual report on a
website that the political subdivision has created or may create.
(7)
For a system other than a state unit, if the system's
actuarial
accrued liability for retiree health or pension is not at
least
60% funded according to the most recent summary annual report
created
under section 13, the system shall post an informational
report
on the system's website outlining the steps, if any, the
system
may be taking to decrease the system's unfunded actuarial
accrued
liability. If the system does not have a website, the
political
subdivision sponsoring the system shall make the steps
the
system may be taking under this subsection available to the
plan
participants and beneficiaries and the citizens of the
political
subdivision. The system shall submit to the department of
treasury,
in a reasonable time frame and in a manner determined by
the
department of treasury, the steps the system may be taking
under
this subsection. As used in this subsection, "state unit"
means
that term as defined in section 13.
Enacting section 1. This amendatory act does not take effect
unless Senate Bill No.____ or House Bill No. 5298 (request no.
00251'17 *) of the 99th Legislature is enacted into law.
