Bill Text: MI SB0914 | 2013-2014 | 97th Legislature | Introduced

---

Bill Title: Retirement; public school employees; unfunded actuarial accrued liability contribution rate for certain universities; modify. Amends secs. 41 & 41a of 1980 PA 300 (MCL 38.1341 & 38.1341a).

Spectrum: Partisan Bill (Republican 1-0)

Status: (Introduced - Dead) 2014-04-29 - Referred To Committee On Appropriations [SB0914 Detail]

Download: Michigan-2013-SB0914-Introduced.html

---

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SENATE BILL No. 914

 

 

April 29, 2014, Introduced by Senator SCHUITMAKER and referred to the Committee on Appropriations.

 

 

 

     A bill to amend 1980 PA 300, entitled

 

"The public school employees retirement act of 1979,"

 

by amending sections 41 and 41a (MCL 38.1341 and 38.1341a), as

 

amended by 2012 PA 300.

 

THE PEOPLE OF THE STATE OF MICHIGAN ENACT:

 

     Sec. 41. (1) The annual level percentage of payroll

 

contribution rate to finance benefits being provided and to be

 

provided by the retirement system shall be determined by actuarial

 

valuation pursuant to under subsection (2) upon 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 shall be made of the retirement system

 

in order 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 shall be made in order to determine the financial effect of

 

variations of actual retirement system experience from projected

 

experience.

 

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

 

contribution rate for benefits shall be computed is subject to all

 

of the following:

 

     (a) Except as otherwise provided in this subdivision, the

 

contribution rate for benefits shall be computed using an

 

individual projected benefit entry age normal cost method of

 

valuation. Except as otherwise provided in this section, for the

 

1995-96 state fiscal year and for each subsequent fiscal year

 

before the 2012-2013 state fiscal year, the contribution rate for

 

health benefits provided under section 91 shall be computed using a

 

cash disbursement method. Beginning in the 2012-2013 state fiscal

 

year and for each subsequent fiscal year, if 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 shall be computed using a cash disbursement

 

method.

 

     (b) The contribution rate for service likely to be rendered in

 

the current year, the normal cost contribution rate , shall be

 

equal to determined as follows:

 

     (i) Calculate the aggregate amount of individual projected

 

benefit entry age normal costs. divided

 

     (ii) Divide the result of the calculation under subparagraph (i)

 

by 1% of the aggregate amount of active members' valuation

 

compensation. Except as otherwise provided under this subsection,

 

the contribution rate for unfunded service rendered before the

 

valuation date,

 

     (c) Beginning in the 2014-2015 state fiscal year and for each

 

subsequent state fiscal year, for reporting units that are not

 

university reporting units, the unfunded actuarial accrued

 

liability contribution rate , shall be determined as follows:

 

     (i) Calculate the aggregate amount of unfunded actuarial

 

accrued liabilities divided of reporting units that are not

 

university reporting units as follows:

 

     (A) Calculate the actuarial present value of benefits for

 

members attributable to reporting units that are not university

 

reporting units.

 

     (B) Calculate the actuarial present value of future normal

 

cost contributions of reporting units that are not university

 

reporting units.

 

     (C) Calculate the actuarial present value of assets

 

attributable to reporting units that are not university reporting

 

units on the valuation date.

 

     (D) Add the results of sub-subparagraphs (B) and (C).

 

     (E) Subtract from the result of calculation under sub-

 

subparagraph (A) the result from the calculation under sub-

 

subparagraph (D).

 

     (ii) 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 , where unfunded

 

actuarial accrued liabilities are equal to the actuarial present

 

value of benefits, reduced by the actuarial present value of future

 

normal cost contributions and the actuarial value of assets on the

 

valuation date.of reporting units that are not university reporting

 

units.

 

     (d) Beginning in the 2014-2015 state fiscal year and for each

 

subsequent state fiscal year, for a university reporting unit, the

 

contribution rate for unfunded actuarial accrued liability for

 

health benefits under section 91 shall be determined as follows:

 

     (i) Calculate the aggregate amount of unfunded actuarial

 

accrued liabilities for university reporting units as follows:

 

     (A) Calculate the actuarial present value of benefits for

 

members attributable to university reporting units.

 

     (B) Calculate the actuarial present value of future normal

 

cost contributions of university reporting units.

 

     (C) Calculate the actuarial present value of assets

 

attributable to university reporting units on the valuation date.

 

     (D) Add the results of sub-subparagraphs (B) and (C).

 

     (E) Subtract from the result of calculation under sub-

 

subparagraph (A) the result from the calculation under sub-

 

subparagraph (D).

 

     (ii) Divide the result of the calculation under subparagraph (i)

 

by 1% of the actuarial present value determined over a period of

 

years of projected valuation compensation attributable to

 

university reporting units not to extend beyond September 30, 2036.

 

     (e) Beginning with the 2012-2013 state fiscal year and for

 

each subsequent fiscal year, the unfunded actuarial accrued

 

liability contribution rate applied to payroll shall 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, and beginning with

 

the 2014-2015 state fiscal year under section 41a, for each fiscal

 

year are to be paid by appropriation from the school aid fund

 

established by section 11 of article IX of the state constitution

 

of 1963. Except as otherwise provided in this section and section

 

41a, the unfunded actuarial accrued liability contribution rate

 

shall be based upon and applied to the combined payrolls of the

 

employees who are members and qualified participants.

 

     (f) For a university reporting unit, the contribution rate for

 

unfunded actuarial accrued liability for health benefits under

 

section 91 shall be based upon and applied to the combined payrolls

 

of the university's employees who are members and who were hired

 

before January 1, 1996, and the university employees who would have

 

been members on or after January 1, 1996 but for the enactment of

 

1995 PA 272.

 

     (g) Beginning with the 2014-2015 state fiscal year, for a

 

university reporting unit, the combined contribution rates for

 

pension unfunded actuarial accrued liability determined under

 

section 41a and unfunded actuarial accrued liability for health

 

benefits payable under section 91 determined under this subsection

 

shall not exceed 20.96% of the combined payrolls of the

 

university's employees who are members and who were hired before

 

January 1, 1996, and the university employees who would have been

 

members on or after January 1, 1996 but for the enactment of 1995

 

PA 272.

 

     (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) The reporting units shall make payment of 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. Upon receipt of that

 

certification, the director of the department may compute any

 

adjustment required to the amount due to a difference between the

 

estimated and the actual aggregate compensation and the estimated

 

and the actual actuarial employer contribution rate. The

 

difference, if any, shall be paid as provided in subsection (9).

 

This subsection does not apply in a fiscal year in which a deposit

 

occurs pursuant to subsection (14).

 

     (7) The director of the department may require evidence of

 

correctness and may conduct an audit of the aggregate compensation

 

that the director of the department considers necessary to

 

establish its correctness.

 

     (8) A reporting unit shall forward employee and employer

 

social security contributions and reports as required by the

 

federal old-age, survivors, disability, and hospital insurance

 

provisions of title II of the social security act, 42 USC 401 to

 

434.

 

     (9) For 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, shall be paid by that employer in the next succeeding state

 

fiscal year and a minimum of 25% of the remaining difference shall

 

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, shall be paid by that employer

 

in the next succeeding state fiscal year and a minimum of 25% of

 

the remaining difference shall 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 shall be included for each year that a portion of the

 

remaining difference is carried forward. The interest rate shall

 

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 pursuant to

 

subsection (14).

 

     (10) Beginning on the designated date, all assets held by the

 

retirement system shall be reassigned their fair market value, as

 

determined by the state treasurer, as of the designated date, and

 

in calculating any unfunded actuarial accrued liabilities, any

 

market gains or losses incurred before the designated date shall

 

not be considered by the retirement system's actuaries.

 

     (11) Except as otherwise provided in this subsection,

 

beginning on the designated date, the actuary used by the

 

retirement board shall assume a rate of return on investments of

 

8.00% per annum, as of the designated date, 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 7.00% per annum for investments associated with members who

 

first became members on and after July 1, 2010, which rate may only

 

be changed with the approval of the retirement board and the

 

director of the department.

 

     (12) Beginning on the designated date, the value of assets

 

used shall be based on a method that spreads over a 5-year period

 

the difference between actual and expected return occurring in each

 

year after the designated date and such methodology may only be

 

changed with the approval of the retirement board and the director

 

of the department.

 

     (13) Beginning on the designated date, 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 upon 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 pursuant to 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 pursuant to 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 shall 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 shall 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) As used in this section: , "current operating

 

expenditures" for a public local school district includes functions

 

1xx, 2xx, 45x, and all object codes except 6xxx, as defined in the

 

Michigan Public School Accounting Manual Bulletin 1022, and is

 

equal to the total of instructional and support 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 for a public local school district

 

also include operating funds for any public school or other public

 

educational entity first authorized or established by the public

 

local school district on or after the effective date of the

 

amendatory act that added this subsection.

 

     (a) "Normal cost contribution rate" means the contribution

 

rate for service rendered in the current year.

 

     (b) "Unfunded actuarial accrued liability contribution rate"

 

means the contribution rate applied to reduce liabilities arising

 

from services rendered before the valuation date that exceed the

 

level of actuarially determined value of assets and projected

 

income.

 

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

 

a university listed in the definition of public school employee

 

under section 6.

 

     Sec. 41a. (1) For fiscal years that begin on or after March

 

28, 1996, the retirement system shall determine a separate

 

contribution rate for pension unfunded actuarial accrued liability

 

attributable to a university reporting unit. that is a university

 

listed in the definition of public school employee under section 6.

 

The retirement system shall determine the separate pension unfunded

 

actuarial accrued liability contribution rate in the manner

 

prescribed in section 41, except that the pension unfunded

 

actuarial accrued liability shall be amortized over 40 years

 

beginning October 1, 1996 and ending on September 30, 2036, with

 

the payment schedule for universities being based on and applied to

 

the combined payrolls of the universities' employees who are

 

members and who were hired before January 1, 1996 and the

 

universities' employees who would have been members on or after

 

January 1, 1996, but for the enactment of 1995 PA 272. The amount

 

of the pension unfunded accrued liability on which the separate

 

contribution rate is determined shall be that amount which a

 

university reporting unit that is a university listed in the

 

definition of public school employee under section 6 is legally

 

responsible for and is calculated by actuarial analysis. Any

 

reduction in the unfunded liability of the system pursuant to under

 

governmental action affecting the entire system will be allocated

 

to all reporting units including universities as determined by the

 

system's actuary. For the 2006-2007 state fiscal year, the

 

contribution for unfunded actuarial accrued liability shall be

 

equal to 4.5% of the unfunded actuarial accrued liability.

 

     (2) As used in this section, "university reporting unit" means

 

a reporting unit that is a university listed in the definition of

 

public school employee under section 6.