Bill Text: MI HB5355 | 2017-2018 | 99th Legislature | Engrossed
Bill Title: Retirement; public school employees; use of a level dollar method for paying off unfunded actuarial accrued liability; implement method beginning on certain date. Amends sec. 41 of 1980 PA 300 (MCL 38.1341).
Spectrum: Partisan Bill (Republican 1-0)
Status: (Passed) 2018-06-12 - Assigned Pa 181'18 With Immediate Effect [HB5355 Detail]
Download: Michigan-2017-HB5355-Engrossed.html
HB-5355, As Passed House, February 27, 2018
SUBSTITUTE FOR
HOUSE BILL NO. 5355
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 2017 PA 92.
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 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 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 unfunded
actuarial
accrued liability is paid off, 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 paid off, the unfunded
actuarial accrued liability contribution sum due and payable must
not be less than the unfunded actuarial accrued liability
contribution sum due and payable 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 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
House Bill No. 5355 as amended February 21, 2018
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 expenditurespayroll plus
purchased services] 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%.
House Bill No. 5355 as amended February 21, 2018
(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) Except as otherwise provided in this subsection, 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 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 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 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
House Bill No. 5355 as amended February 21, 2018
year.
(19) (18)
As used in this section:
(a)
["Current
operating expenditures”"Payroll plus purchased
services"] includes functions 1xx,
2xx,[and] 45x, and [all]
object codes [except 6xxx,1xxx, 31xx, 33xx,
and 41xx,] 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 servicessalaries, professional and
technical services, client/pupil transportation and repairs, and maintenance 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.
