Bill Text: MI HB5570 | 2013-2014 | 97th Legislature | Engrossed
Bill Title: Retirement; pension oversight; oversight of certain pensions of cities with a population of more than 600,000; provide for. Amends secs. 12c, 13, 13e & 20m of 1965 PA 314 (MCL 38.1132c et seq.) & adds sec. 13g.
Spectrum: Partisan Bill (Republican 2-0)
Status: (Passed) 2014-07-16 - Assigned Pa 185'14 With Immediate Effect [HB5570 Detail]
Download: Michigan-2013-HB5570-Engrossed.html
HB-5570, As Passed House, May 22, 2014
SUBSTITUTE FOR
HOUSE BILL NO. 5570
A bill to amend 1965 PA 314, entitled
"Public employee retirement system investment act,"
by amending sections 12c, 13, 13e, and 20m (MCL 38.1132c, 38.1133,
38.1133e, and 38.1140m), sections 12c, 13, and 20m as amended and
section 13e as added by 2012 PA 347, and by adding section 13g.
THE PEOPLE OF THE STATE OF MICHIGAN ENACT:
Sec. 12c. (1) "Investment fiduciary" means a person other than
a participant directing the investment of the assets of his or her
individual account in a defined contribution plan who does any of
the following:
(a) Exercises any discretionary authority or control in the
investment of a system's assets. Investment fiduciary under this
subdivision includes the state treasurer and his or her investment
House Bill No. 5570 (H-3) as amended May 22, 2014
personnel for the systems described in section 13(4).
(b) Renders investment advice for a system for a fee or other
direct or indirect compensation.
(2) "Invest" or "investment" means the utilization of money in
the expectation of future returns in the form of income or capital
gain. Investments initially purchased in accordance with this act
that subsequently do not qualify for purchase for any reason shall
be considered to continue to meet the requirements of this act.
Investment includes a guarantee by an investment fiduciary but does
not include, as a sole investment, a pledge of the system's assets
as collateral to guarantee the repayment of obligations made by a
third party to a borrower.
(3) "Investment grade" means graded in the top 4 major grades
as determined by 2 national rating services.
(4) "Large sponsored system" means a system created and
established by a city that is subject to a plan [for] adjustment and
that meets 1 or more of the following conditions:
(a) The city has a population of more than 600,000.
(b) The system has discharged at least $1,000,000,000.00 of
pension liabilities in bankruptcy.
Sec.
13. (1) The provisions of this This
act shall supersede
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 pursuant to 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 in order 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 upon 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 shall 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.
House Bill No. 5570 (H-3) as amended May 22, 2014
(N) Whether system membership is open or closed to specific
groups of employees.
(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.
[(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.]
(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)
An Subject to section 13g,
an investment fiduciary may use
a portion of the income of the system 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 shall
be made.
(6) Subject to this subsection and subsection (13), an
investment fiduciary may use a portion of the income of the system
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 shall 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 shall 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 shall 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.
Investment For purposes of
this section only, investment
service provider does not include a retirement system.
(8) The system shall be a separate and distinct trust fund and
the assets of the system shall 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 that
person that is substantially related to performing the duties of
the position and is not available within this state.
Sec. 13e. (1) An investment fiduciary shall not make a payment
from the assets of a system to a service provider if the service
provider or a covered associate of the service provider has made a
contribution to an official of a governmental entity during the
immediately preceding 24-calendar-month period, which period does
not
include any calendar month before the effective date of this
section.
March 28, 2013. An investment fiduciary, a service
provider, or a covered associate of a service provider shall not do
anything indirectly that, if done directly, would violate this
subsection. This subsection does not apply under any of the
following circumstances:
(a) The contribution was made by a service provider or covered
associate of the service provider to an official of a governmental
entity for whom the service provider or covered associate of the
service provider was entitled to vote at the time of the
contribution and the contributions by the service provider or
covered associate of the service provider to that official in the
aggregate do not exceed $350.00 per election.
(b) The contribution was made by a service provider or covered
associate of the service provider to an official of a governmental
entity for whom the service provider or covered associate of the
service provider was not entitled to vote at the time of the
contribution and the contributions by the service provider or
covered associate of the service provider to that official in the
aggregate do not exceed $150.00 per election.
(c) The contribution was made to an official of a governmental
entity by an individual more than 6 months before he or she became
a covered associate of the service provider.
(d) The contribution was made to an official of a governmental
entity by a covered associate of the service provider and all of
the following requirements are met:
(i) The service provider discovers the contribution that
violates this subsection on or before the expiration of 4 months
after the contribution was made.
(ii) The contribution that violates this subsection was for
$350.00 or less.
(iii) The covered associate of the service provider obtains the
return of the contribution that violates this subsection on or
before the expiration of 60 calendar days after the date of the
discovery of the contribution under subparagraph (i).
(2) As used in this section:
(a) "Contribution" means a payment made under any of the
following circumstances:
(i) For the purpose of influencing an election for federal,
state, or local office.
(ii) For a debt incurred in connection with an election for
federal, state, or local office.
(iii) For transition or inaugural expenses of a successful
candidate for federal, state, or local office.
(iv) To a legal defense fund established by or on behalf of an
official of a governmental entity.
(b) "Covered associate of the service provider" means any of
the following:
(i) A general partner, managing member, agent, or officer of
the service provider or any other individual with a similar status
or function for the service provider.
(ii) An employee of the service provider who solicits a
governmental entity on behalf of the service provider and any
individual employed by the service provider who directly or
indirectly supervises that employee.
(iii) A political action committee controlled by the service
provider or by any individual described in subparagraph (i) or (ii).
As used in this subparagraph, "political action committee" means a
political committee or an independent committee as those terms are
defined in the Michigan campaign finance act, 1976 PA 388, MCL
169.201 to 169.282.
(c) "Governmental entity" means this state or a political
subdivision of this state. Governmental entity includes a system
and an agency, authority, or instrumentality of this state or of a
political subdivision of this state.
(d) "Official of a governmental entity" means an individual
who, at the time of the contribution, was an incumbent, candidate,
or successful candidate for an elective office in a governmental
entity if the office meets any of the following requirements:
(i) Is directly or indirectly responsible for or can influence
the outcome of the hiring of a service provider by a system
sponsored by the governmental entity.
(ii) Has the authority to appoint an individual who is directly
or indirectly responsible for or can influence the outcome of the
hiring of a service provider by a system sponsored by the
governmental entity.
(e) "Payment" means a gift, subscription, loan, advance, or
deposit of money or anything of value.
(f) "Regulated investment adviser" means an investment adviser
or covered associate of an investment adviser that is regulated
under the investment advisers act of 1940, 15 USC 80b-1 to 80b-21.
(g) "Service provider" means a person retained to provide
services to a system and includes investment advisers, consultants,
custodians, accountants, auditors, attorneys, actuaries,
administrators, and physicians. Service provider includes an
investment service provider as defined in section 13(7). Service
provider does not include a regulated investment adviser.
(3) For purposes of subsection (2)(d), an official of a
governmental entity does not include an individual involved solely
in the selection of a member of an investment committee described
in section 13g.
Sec. 13g. (1) Subject to a plan for adjustment, each large
sponsored system shall establish an investment committee.
(2) The investment committee shall recommend to the governing
board of the large sponsored system investment management
decisions, including, but not limited to, all of the following:
(a) The development of investment goals and objectives,
investment assumptions, and performance measurement standards
consistent with the needs of the large sponsored system.
(b) The selection, monitoring, evaluation, and removal of
custodians, investment managers, or any investment service
providers.
(c) Asset allocation.
(d) Subject to a plan for adjustment, all calculations,
actuarial assumptions, or assessments used by an actuary,
including, but not limited to, those underlying the restoration of
pension benefits, funding levels, and amortization of the
restoration of pension benefits, and those underlying the
determination of annual funding levels and amortization of annual
funding levels, and recommended contributions to the large
sponsored system in accordance with applicable law.
(e) Performing or ordering asset liability valuation studies
for the qualified system not less frequently than every 2 years.
(f) Review and approval, before final issuance of all annual
audits and actuarial and financial reports before finalization.
(g) Interpretation of the large sponsored system's governing
documents, applicable laws, plans of adjustment approved by United
States bankruptcy courts, and other financial determinations
affecting the large sponsored system's funding or benefit levels.
(h) Based on annual actuarial valuation reports and any other
projections or reports, as applicable from an actuary or other
professional advisors, the determination of the extent of
restoration of pension benefits all in conformance with a plan for
adjustment.
(3) The investment committee shall do all of the following:
(a) Select, set compensation for and terms of employment of,
and evaluate the qualified system's chief financial officer.
(b) Notwithstanding section 20h(6), approve a qualified
House Bill No. 5570 (H-3) as amended May 22, 2014
system's summary annual report created under section 13 before the
summary annual report is made public.
(4) The investment committee shall submit its recommendation
under subsection (2) to the board. The board shall have not more
than 45 days from the date of the submission, or 10 business days
if the committee determines in good faith that emergency action is
required, to approve or disapprove the recommendation. If the board
does not act within 45 days or 10 days, as applicable, the
recommendation is considered approved by the board and the chief
financial officer shall implement the recommendation.
(5) If the board disapproves the investment committee's
recommendation within 45 days or 10 days, as applicable, the
decision shall be implemented under the plan for adjustment.
(6) As used in this section:
(a) "Board" means the governing board of a large sponsored
system.
(b) "Chief financial officer" means the chief financial
officer of a qualified system.
(c) "Investment committee" or "committee" means an investment
committee established under subsection (1).
(d) "Plan for adjustment" means a plan for the adjustment of
debts entered and approved by a federal bankruptcy court for a city
that has established a [LARGE SPONSORED SYSTEM].
Sec. 20m. (1) The governing board vested with the general
administration, management, and operation of a system or other
decision-making body that is responsible for implementation and
supervision of any system shall confirm in the annual actuarial
valuation required under section 20h and the summary annual report
required under section 13 that each system under this act provides
for the payment of the required employer contribution as provided
in this section and shall confirm in the summary annual report that
the system has received the required employer contribution for the
year covered in the summary annual report. The required employer
contribution is the actuarially determined contribution amount. An
annual required employer contribution in a system under this act
shall consist of a current service cost payment and a payment of at
least the annual accrued amortized interest on any unfunded
actuarial liability and the payment of the annual accrued amortized
portion of the unfunded principal liability. For fiscal years that
begin before January 1, 2006, the required employer contribution
shall not be determined using an amortization period greater than
40 years. Except as otherwise provided in this section, for fiscal
years that begin after December 31, 2005, the required employer
contribution shall not be determined using an amortization period
greater than 30 years. For the Tier 1 retirement plan under the
state employees' retirement system, created under the state
employees' retirement act, 1943 PA 240, MCL 38.1 to 38.69; the
Michigan public school employees' retirement created under the
public school employees retirement act of 1979, 1980 PA 300, MCL
38.1301 to 38.1437; and the Michigan state police retirement system
created under the state police retirement act of 1986, 1986 PA 182,
MCL 38.1601 to 38.1648, only, for the fiscal year beginning October
1, 2006, the contribution for the unfunded actuarial accrued
liability shall be equal to the product of the assumed real rate of
investment return times the unfunded actuarial accrued liability.
In a plan year, any current service cost payment may be offset by a
credit for amortization of accrued assets, if any, in excess of
actuarial accrued liability. A required employer contribution for a
system administered under this act shall allocate the actuarial
present value of future plan benefits between the current service
costs to be paid in the future and the actuarial accrued liability.
The governing board vested with the general administration,
management, and operation of a system or other decision-making body
that is responsible for implementation and supervision of a system
shall act upon the recommendation of an actuary and the board and
the actuary shall take into account the standards of practice of
the actuarial standards board of the American academy of actuaries
in making the determination of the required employer contribution.
(2) Subsection (1) applies to a large sponsored system except
as otherwise provided in a plan for adjustment. As used in this
subsection, "plan for adjustment" means that term as defined in
section 13g.
