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.