Bill Text: MI SB0407 | 2011-2012 | 96th Legislature | Introduced

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Bill Title: Retirement; state employees; creation of individual health reimbursement accounts; amend the health care funding act to accommodate. Amends title & secs. 1, 2, 3, 4, 8, 10, 11 & 14 of 2010 PA 77 (MCL 38.2731 et seq.) & adds secs. 2a, 2b & 10a. TIE BAR WITH: SB 0408'11

Spectrum: Partisan Bill (Republican 1-0)

Status: (Introduced - Dead) 2011-06-07 - Referred To Committee On Appropriations [SB0407 Detail]

Download: Michigan-2011-SB0407-Introduced.html

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SENATE BILL No. 407

 

 

June 7, 2011, Introduced by Senator KAHN and referred to the Committee on Appropriations.

 

 

 

     A bill to amend 2010 PA 77, entitled

 

"Public employee retirement health care funding act,"

 

by amending the title and sections 1, 2, 3, 4, 8, 10, 11, and 14

 

(MCL 38.2731, 38.2732, 38.2733, 38.2734, 38.2738, 38.2740, 38.2741,

 

and 38.2744) and by adding sections 2a, 2b, and 10a.

 

THE PEOPLE OF THE STATE OF MICHIGAN ENACT:

 

TITLE

 

     An act to authorize and create irrevocable trusts and

 

individual accounts within the trusts for the purpose of holding,

 

investing, and distributing assets to be used for certain

 

postemployment health care benefits and reimbursement of medical

 

expenses; to set forth certain rights that public employees have in

 

retirement health care benefits and reimbursement of medical

 

expenses under certain circumstances; to provide for the

 

establishment and amendment of certain irrevocable trust

 

agreements; and to prescribe certain powers and duties of certain

 

retirement systems, state departments, public officials, and public

 

employees.

 

     Sec. 1. (1) This act shall be known and may be cited as the

 

"public employee retirement health care funding act".

 

     (2) For purposes of this act, the words and phrases defined in

 

sections 2 to 2b have the meanings ascribed to them in those

 

sections.

 

     Sec. 2. As used in this act:

 

     (1) (a) "Department" means the department of technology,

 

management, and budget.

 

     (2) (b) "Employer contributions" means the amount transferred

 

by an employer to a funding account or a health reimbursement

 

account.

 

     (3) (c) "Funding account" means an account created pursuant to

 

section 3(6) for the deposit of funds and payment of retirement

 

health care benefits under the applicable retirement act.

 

     (4) (d) "Funding account dependent" means 1 or more of the

 

following:

 

     (a) (i) A dependent as that term is used in section 20d of the

 

state employees employees' retirement act, 1943 PA 240, MCL 38.20d,

 

or a "health benefit dependent" as that term is defined in section

 

54 of the state employees employees' retirement act, 1943 PA 240,

 

MCL 38.54, whichever is applicable.

 

     (b) (ii) A health insurance dependent as that term is defined

 

in section 91 of the public school employees retirement act of

 

1979, 1980 PA 300, MCL 38.1391.

 

     (c) (iii) A retirement allowance beneficiary as that term is

 

defined in section 109 of the judges retirement act of 1992, 1992

 

PA 234, MCL 38.2109, or a health benefit dependent as that term is

 

defined in section 705 of the judges retirement act of 1992, 1992

 

PA 234, MCL 38.2655, whichever is applicable.

 

     (d) (iv) A survivor as that term is defined in section 13a of

 

the Michigan legislative retirement system act, 1957 PA 261, MCL

 

38.1013a, a beneficiary of a deceased retirant as that term is used

 

in section 50b of the Michigan legislative retirement system act,

 

1957 PA 261, MCL 38.1050b, or a health benefit dependent as that

 

term is defined in section 65 of the Michigan legislative

 

retirement system act, 1957 PA 261, MCL 38.1065, whichever is

 

applicable.

 

     (e) (v) A retirement allowance beneficiary as that term is

 

defined in section 4 of the state police retirement act of 1986,

 

1986 PA 182, MCL 38.1604, or a dependent as that term is used in

 

section 42 of the state police retirement act of 1986, 1986 PA 182,

 

MCL 38.1642, whichever is applicable.

 

     (e) "Member" means a person who is a member, former member,

 

deferred member, qualified participant, or former qualified

 

participant as determined under the applicable retirement act.

 

     (f) "Past member" means a former member or former qualified

 

participant who has retired with retirement health care benefits

 

payable by a retirement system.

 

     (g) "Retirement act" means 1 or more of the following:

 

     (i) The state employees' retirement act, 1943 PA 240, MCL 38.1

 

to 38.69.

 

     (ii) The public school employees retirement act of 1979, 1980

 

PA 300, MCL 38.1301 to 38.1408.

 

     (iii) The judges retirement act of 1992, 1992 PA 234, MCL

 

38.2101 to 38.2670.

 

     (iv) The state police retirement act of 1986, 1986 PA 182, MCL

 

38.1601 to 38.1648.

 

     (v) The Michigan legislative retirement system act, 1957 PA

 

261, MCL 38.1001 to 38.1080.

 

     (h) "Retirement health care benefits" means expenses for

 

medical, dental, and vision to be paid for past members or their

 

funding account dependents under the applicable retirement act.

 

     (i) "Retirement system" means a retirement system established

 

under a retirement act.

 

     (j) "State" means this state.

 

     (k) "Trust" means an irrevocable trust created under section

 

3(1) of this act.

 

     (l) "Trustee" means a member of a retirement system board.

 

     (5) "Health reimbursement account" means an employer sponsored

 

individual account established within the irrevocable trust and

 

administered by the trustees into which a member and his or her

 

employer contribute money to be used for the reimbursement of

 

medical expenses.

 

     (6) "Health reimbursement account dependent" means a past

 

member's legal spouse and the past member's unmarried children who

 

are considered dependent under section 152 of the internal revenue

 

code, 26 USC 152, determined without regard to the special

 

exclusion under section 152(b)(1) of the internal revenue code, 26

 

USC 152, or the earnings limit under section 152(d)(1)(B) of the

 

internal revenue code, 26 USC 152.

 

     Sec. 2a. (1) "Mandatory contributions" means mandatory amounts

 

contributed by a participating member, which amounts, to the extent

 

permitted by applicable law, are treated as a salary increase that

 

has been foregone by the participating member or a permanent

 

reduction in a participating member's compensation, with such

 

amounts being contributed by the employer to each participating

 

member's health reimbursement account. Mandatory contributions

 

include other amounts established by the employer that may be

 

treated as picked up by the employer to the fullest extent

 

permitted by the internal revenue code, but do not include any

 

contributions made only by the employer without an impact on the

 

salary of the participating member.

 

     (2) "Medical expense" means an expense incurred at the time a

 

past member or his or her health reimbursement account dependent is

 

furnished the medical care or service. To be considered a medical

 

expense under this act, the expense shall meet all of the following

 

conditions:

 

     (a) Is a medical expense that would otherwise qualify for a

 

deduction under section 213(d) of the internal revenue code, 26 USC

 

213, irrespective of the income threshold set forth in section

 

213(a) of the internal revenue code, 26 USC 213.

 

     (b) Has not been and will not be reimbursed by any other

 

source.

 

     (c) Was incurred by a past member or his or her health

 

reimbursement account dependent after the past member became

 

entitled to receive reimbursements for medical expenses under this

 

act.

 

     (d) Is properly and timely substantiated by the individual

 

claiming the expense in a manner established by the department.

 

     (3) "Member" means a person who is a member, former member,

 

deferred member, qualified participant, or former qualified

 

participant as determined under the applicable retirement act.

 

     (4) "Participating member" means a member who is required to

 

make mandatory contributions by the applicable retirement act to

 

his or her health reimbursement account.

 

     (5) "Past member" means a former member who has retired with

 

retirement health care benefits payable by a retirement system or a

 

former qualified participant who has terminated employment and has

 

an amount within his or her health reimbursement account.

 

     Sec. 2b. (1) "Retirement act" means 1 or more of the

 

following:

 

     (a) The state employees' retirement act, 1943 PA 240, MCL 38.1

 

to 38.69.

 

     (b) The public school employees retirement act of 1979, 1980

 

PA 300, MCL 38.1301 to 38.1437.

 

     (c) The judges retirement act of 1992, 1992 PA 234, MCL

 

38.2101 to 38.2670.

 

     (d) The state police retirement act of 1986, 1986 PA 182, MCL

 

38.1601 to 38.1648.

 

     (e) The Michigan legislative retirement system act, 1957 PA

 

261, MCL 38.1001 to 38.1080.

 

     (2) "Retirement health care benefits" means expenses for

 

medical, dental, and vision to be paid for past members or their

 

funding account dependents under the applicable retirement act.

 

     (3) "Retirement system" means a retirement system established

 

under a retirement act.

 

     (4) "Trust" means an irrevocable trust created under section

 

3(1).

 

     (5) "Trustee" means a member of a retirement system board.

 

     (6) "Voluntary contributions" means voluntary amounts

 

contributed by a member or participating member into a health

 

reimbursement account. However, to the extent required by

 

applicable law, voluntary amounts shall not be contributed through

 

a salary reduction election under a cafeteria plan pursuant to

 

section 125 of the internal revenue code, 26 USC 125.

 

     Sec. 3. (1) One irrevocable trust is authorized and created by

 

this act for each retirement system. An irrevocable trust

 

established under this subsection shall at all times be established

 

and administered in accordance with section 115 of the internal

 

revenue code, 26 USC 115.

 

     (2) The governing board of each retirement system shall be the

 

grantor and shall administer the irrevocable trust created for that

 

retirement system in order to pay retirement health care benefits

 

to its past members and their funding account dependents and

 

reimburse medical expenses to its past members and their health

 

reimbursement account dependents. The members of the retirement

 

system board shall act as the trustees of the irrevocable trust for

 

that retirement system. The trustees shall adopt a written trust

 

agreement that meets all of the requirements set forth in section

 

9. The trustees of the irrevocable trust may establish and adopt

 

policies and procedures for administering the irrevocable trust.

 

     (3) Each trust shall be managed and operated separately and

 

independent of the other retirement system trusts. The trustees may

 

contract with public and private entities for the provision of

 

bookkeeping, benefit payments, and other plan functions. The

 

department, the department of treasury, and the department of the

 

attorney general shall provide services to the trust as requested

 

by the trustees.

 

     (4) The Except as otherwise provided in this subsection, the

 

assets in the irrevocable trusts shall be invested in accord with

 

the public employee retirement system investment act, 1965 PA 314,

 

MCL 38.1132 to 38.1140m. Except as otherwise provided in this

 

subsection, the state treasurer shall be the investment fiduciary

 

of the irrevocable trusts and shall have exclusive authority and

 

responsibility to employ or contract with personnel and for

 

services that the state treasurer determines necessary for the

 

proper investment of the assets in the irrevocable trusts. The

 

governing board of trustees of the Michigan legislative retirement

 

system created under the Michigan legislative retirement system

 

act, 1957 PA 261, MCL 38.1001 to 38.1080, may elect, or revoke an

 

election, to be the investment fiduciary of the funding account

 

assets within its irrevocable trust and retain the exclusive

 

authority to employ or contract with personnel and for services

 

that are necessary for the proper investment of those assets. This

 

subsection does not apply to assets contributed or credited to a

 

health reimbursement account.

 

     (5) Each trust shall receive state appropriations, employer

 

contributions, employee mandatory contributions, voluntary

 

contributions, investment earnings, refunds and reimbursements, and

 

other permitted deposits, and shall make distributions for the

 

payment of retirement health care benefits and reimbursement of

 

medical expenses authorized by the trustees for the administration

 

of such trust. However, an amount in excess of twice the annual

 

current obligations of the trust shall not be deposited in or

 

received by the trust unless the state treasurer certifies that the

 

proposed deposit will not materially reduce the amount of federal

 

funds received by the this state to support payments made under the

 

social welfare act, 1939 PA 280, MCL 400.1 to 400.119b. The

 

trustees are authorized to establish an administrative and

 

investment fee structure to be charged against the funding account

 

and the health reimbursement accounts within the trust to defray

 

the costs of administering the trust. An irrevocable trust

 

established under this section shall be kept separate from the

 

pension assets of retirement systems.

 

     (6) A funding account shall be established by the trustees for

 

the funding and prefunding of payments of retirement health care

 

benefit obligations under the applicable retirement act, and the

 

trustees may create accounts that the trustees determine are

 

necessary for the administration of the trust. For each retirement

 

system, past members shall have contractual rights only in the

 

aggregate to the payment of retirement health care benefits

 

provided by the applicable retirement act to the extent assets

 

exist in the funding account for that retirement system. This act

 

shall not be construed to define or otherwise assure, deny,

 

diminish, increase, or grant any right or privilege to retirement

 

health care benefits or other postemployment benefits to any person

 

or to assure, deny, diminish, increase, or grant retirement health

 

care benefits or other postemployment benefits, rights, and

 

privileges previously or already granted to members or past members

 

and their dependents by the applicable retirement act.

 

     (7) The governing board of a retirement system may from time

 

to time authorize the deposit into the funding account of any

 

eligible funds on deposit in an account within its retirement

 

system for the purpose of payment of eligible retirement health

 

care benefits. Distributions from the funding account may be made

 

to satisfy the requirements of the retirement system for all

 

retirement health care benefits provided by the retirement system.

 

     (8) The trustees shall cause the annual financial statements

 

of the trust to be prepared in accordance with generally accepted

 

accounting principles and an audit to be conducted of those

 

financial statements by a qualified independent certified

 

accounting firm for each fiscal year in accordance with generally

 

accepted auditing standards.

 

     (9) Health reimbursement accounts shall be established and

 

maintained within each irrevocable trust to receive and hold the

 

amounts contributed under section 10. All health reimbursement

 

accounts shall be established in a manner that complies with all

 

applicable statutory provisions, regulatory provisions, and

 

internal revenue service rulings governing health reimbursement

 

arrangements, including, but not limited to, section 105(b) of the

 

internal revenue code, 26 USC 105, internal revenue notice 2002-45,

 

and internal revenue rulings 2005-24 and 2006-36.

 

     (10) A separate prefunding account may be established by the

 

trustees for the prefunding of amounts to be contributed or

 

credited by this state to health reimbursement accounts under the

 

applicable retirement act. A past member has no rights to the funds

 

in the separate prefunding account established under this

 

subsection before amounts are contributed or credited to the past

 

member's health reimbursement account under the applicable

 

retirement act.

 

     Sec. 4. (1) Except as otherwise provided in this section and

 

sections 8 and 17, assets contributed to the irrevocable trust are

 

irrevocable and may not be refused, refunded, or returned to the

 

employer or employee making such the contribution.

 

     (2) To the extent permitted under state and federal law,

 

voluntary contributions to a health reimbursement account and any

 

investment income on those amounts may be distributed to a deceased

 

member's or past member's beneficiaries or estate if those amounts

 

exist in the deceased member's or past member's health

 

reimbursement account and all eligible medical expenses have been

 

reimbursed for the deceased member or past member and for all of

 

his or her health reimbursement account dependents.

 

     Sec. 8. (1) Any assets remaining in the funding account after

 

all payments for eligible retirement health care benefits have been

 

paid and all other liabilities of the trust have been satisfied

 

shall be distributed to this state or other employers within the

 

applicable retirement system so long as the employers are

 

organizations the income of which is excluded under section 115(1)

 

of the internal revenue code, 26 USC 115.

 

     (2) Upon dissolution of the irrevocable trust, any assets

 

remaining after the payment of debts and the satisfaction of

 

liabilities are to be distributed to 1 or more states, political

 

subdivisions of states, the District of Columbia, or other

 

organizations the income of which is excluded under section 115(1)

 

of the internal revenue code, 26 USC 115.

 

     (3) Except as otherwise provided in section 4(2), any assets

 

remaining in a health reimbursement account after all

 

reimbursements for medical expenses for the past member and any

 

health reimbursement account dependents of the past member have

 

been paid shall be distributed to the funding account within the

 

irrevocable trust.

 

     Sec. 10. (1) This state, an employer of a member within a

 

retirement system, a member, or any other person may contribute

 

amounts to a funding account within an applicable trust for the

 

prefunding of retirement health care benefits.

 

     (2) If a funding account contribution is made to the

 

applicable trust, the contribution shall promptly be credited to

 

the funding account within the applicable trust.

 

     (3) Trustees shall credit the applicable funding account with

 

the appropriate investment earnings on those assets.

 

     (4) A member shall contribute an amount to the funding account

 

as required by the applicable retirement act.

 

     (5) A participating member shall contribute an amount to his

 

or her health reimbursement account as required by the applicable

 

retirement act.

 

     (6) The employer of a member or participating member shall

 

contribute or credit to the member's or participating member's

 

health reimbursement account an amount as required by the

 

applicable retirement act.

 

     (7) A member or participating member may make voluntary

 

contributions to his or her health reimbursement account in a whole

 

percentage ranging from 1% to 5% of the member's or participating

 

member's compensation, subject to any limit provided under state or

 

federal law. This subsection does not apply to members of a

 

retirement system until the retirement system has determined that

 

voluntary contributions are permitted by law and a procedure has

 

been implemented for the contributions.

 

     (8) The employer of a member or participating member may

 

contribute or credit an amount to the member's or participating

 

member's health reimbursement account as set forth in the

 

applicable retirement act. This subsection does not apply to

 

members of a retirement system until the applicable retirement

 

system has determined that voluntary contributions are permitted by

 

law and a procedure has been implemented for the contributions.

 

     (9) When a participating member makes a mandatory contribution

 

as a result of a provision of the applicable retirement act, the

 

mandatory contribution, along with any other contributions under

 

this section or a provision of the applicable retirement act, shall

 

promptly be credited to that participating member's health

 

reimbursement account.

 

     Sec. 10a. (1) A member or participating member is 100% vested

 

in mandatory contributions and voluntary contributions made to his

 

or her health reimbursement account, subject to permissible use of

 

the contributions under this act.

 

     (2) A member or participating member is vested in employer

 

contributions made to his or her health reimbursement account,

 

subject to permissible use of the contributions under this act,

 

according to the following schedule:

 

     (a) Fifty percent vested after earning 2 years of service as

 

determined by the applicable retirement act.

 

     (b) Seventy-five percent vested after earning 3 years of

 

service as determined by the applicable retirement act.

 

     (c) One hundred percent vested after earning 4 years or more

 

of service as determined by the applicable retirement act.

 

     (3) A past member and his or her health reimbursement account

 

dependents have the right to reimbursement of medical expenses

 

under this act to the extent such funds exist in the past member's

 

health reimbursement account.

 

     Sec. 11. (1) The trustees shall establish a separately written

 

plan document which shall govern that governs the terms and

 

conditions of payments of retirement health care benefits and

 

reimbursements of medical expenses consistent with the funding and

 

payment under the applicable retirement act.

 

     (2) If the governing board of a retirement system has made a

 

deposit described in section 3(7), the trust shall use the funds in

 

the funding account to satisfy the requirements of the retirement

 

system for all retirement health care benefits provided by the

 

retirement system consistent with this act and the plan document

 

established under this section.

 

     (3) Any funds in the funding account may be counted toward and

 

used in the calculation of the annual required contribution as used

 

by the governmental accounting standards board and for purposes of

 

the annual financial statements prepared pursuant to section 3(8).

 

     (4) Reimbursement of medical expenses from a health

 

reimbursement account shall be in a manner that complies with all

 

applicable statutory provisions, regulatory provisions, and

 

internal revenue service rulings governing health reimbursement

 

arrangements, including, but not limited to, section 105(b) of the

 

internal revenue code, 26 USC 105, internal revenue notice 2002-45

 

and internal revenue rulings 2005-24 and 2006-36.

 

     (5) Following termination of employment, the trust for the

 

applicable retirement system shall reimburse medical expenses, as

 

appropriate, from the past member's health reimbursement account at

 

least quarterly, until the past member's health reimbursement

 

account is exhausted.

 

     Sec. 14. All assets and income of the trusts shall be exempt

 

from taxation by the this state or any political subdivision of

 

this state. Distributions Except as otherwise provided in section

 

4(2), distributions from the trusts will shall not be treated as

 

taxable income to the past members, their health reimbursement

 

account dependents, or their funding account dependents by this

 

state or any political subdivision of this state.

 

     Enacting section 1. This amendatory act does not take effect

 

unless Senate Bill No. 408                                    

 

          of the 96th Legislature is enacted into law.