HOUSE BILL No. 5724 May 3, 2000, Introduced by Reps. Jansen, Geiger, Jellema and Vander Roest and referred to the Committee on Appropriations. A bill to amend 1943 PA 240, entitled "State employees' retirement act," by amending sections 11, 20d, 38, and 52 (MCL 38.11, 38.20d, 38.38, and 38.52), section 11 as amended and section 52 as added by 1996 PA 487, section 20d as amended by 1996 PA 532, and section 38 as amended by 1996 PA 279. THE PEOPLE OF THE STATE OF MICHIGAN ENACT: 1 Sec. 11. (1) There is created the employees' savings fund, 2 employer's accumulation fund, annuity reserve fund, pension 3 reserve fund, income fund, expense fund, and health insurance 4 reserve fund. 5 (2) The employees' savings fund is the fund in which shall 6 be accumulated at regular interest the contributions to the 7 retirement system deducted from the compensation of members. The 8 retirement board shall provide for the maintenance of an 03100'99 * TJS 2 1 individual account for each member that shows the amount of the 2 member's contributions together with interest on those 3 contributions. The accumulated contributions of a member 4 returned to the member upon his or her withdrawal from service, 5 or paid to the member's estate or designated beneficiary in the 6 event of the member's death, as provided in this act, shall be 7 paid from the employees' savings fund. Any accumulated contribu- 8 tions not claimed by a member or the member's legal representa- 9 tive as provided in this act within 5 years after the member's 10 separation from state service shall be transferred from the 11 employees' savings fund to the income fund. The accumulated con- 12 tributions of a member, upon the member's retirement, shall be 13 transferred from the employees' savings fund to the pension 14 reserve fund. 15 (3) The employer's accumulation fund is the fund in which 16 shall be accumulated the reserves derived from money provided by 17 this state for the payment of all retirement allowances to be 18 payable to retirants and beneficiaries as provided in this act. 19 The amounts paid by this state shall be credited to the 20 employer's accumulation fund. Upon the retirement of a member, 21 or upon the member's death, if a beneficiary is entitled to a 22 retirement allowance payable from funds of the retirement system, 23 the difference between the reserve for the retirement allowance 24 to be paid on account of the member's retirement or death and the 25 member's accumulated contributions standing to his or her credit 26 in the employees' savings fund at the time of his or her 27 retirement or death shall be transferred from the employer's 03100'99 * 3 1 accumulation fund to the pension reserve fund. If, in any year, 2 the pension reserve fund is insufficient to cover the reserves 3 for retirement allowances and other benefits being paid from the 4 fund, the amount or amounts of the insufficiency or insufficien- 5 cies shall be transferred from the employer's accumulation fund 6 to the pension reserve fund. 7 (4) The annuity reserve fund is the fund from which shall be 8 paid all annuities, or benefits in lieu of annuities, because of 9 which reserves have been transferred from the employees' savings 10 fund to the annuity reserve fund. Upon the adoption of this act, 11 the balance in the annuity reserve fund shall be transferred to 12 the pension reserve fund, and the annuities heretofore payable 13 from the annuity reserve fund shall thereafter become payable 14 from the pension reserve fund. 15 (5) The pension reserve fund is the fund from which shall be 16 paid all retirement allowances and benefits in lieu of pensions, 17 as provided in this act. For a disability retirant returned to 18 active service with this state, his or her pension reserve, com- 19 puted as of the date of return, shall be transferred from the 20 pension reserve fund to the employees' savings fund and the 21 employer's accumulation fund in the proportion that this reserve, 22 as of the date of his or her retirement, was transferred to the 23 pension reserve fund from the employees' savings fund and from 24 the employer's accumulation fund. The amounts transferred to the 25 employees' savings fund under this section shall be credited to 26 the member's individual account in the fund. 03100'99 * 4 1 (6) An income fund is created for the purpose of crediting 2 regular interest on the amounts in the various other funds of the 3 retirement system with the exception of the expense fund, and to 4 provide a contingent fund out of which special requirements of 5 any of the other funds may be covered. Transfers for special 6 requirements shall be made only when the amount in the income 7 fund exceeds the ordinary requirements of the fund as evidenced 8 by a resolution of the retirement board recorded in its minutes. 9 The retirement board shall annually allow regular interest for 10 the preceding year to each of the funds enumerated in subsections 11 (2), (3), (4), (5), and (8), and the amount allowed under this 12 subsection shall be due and payable to each of these funds and 13 shall be annually credited to the funds by the retirement board 14 and paid from the income fund. However, interest on contribu- 15 tions from members within a calendar year shall begin on the 16 first day of the next calendar year, and shall be credited at the 17 end of the calendar year. All income, interest, and dividends 18 derived from the deposits and investments authorized by this act 19 shall be paid into the income fund. The retirement board is 20 authorized to accept gifts and bequests. Any funds that come 21 into the possession of the retirement system as a gift or 22 bequest, or any funds that may be transferred from the employees' 23 savings fund by reason of lack of claimant, or because of a sur- 24 plus in any fund created by this act, or any other money the dis- 25 position of which is not otherwise provided for in this act shall 26 be credited to the income fund. 03100'99 * 5 1 (7) The expense fund is the fund from which shall be paid 2 the expenses of the administration of this act, exclusive of 3 amounts payable as retirement allowances and other benefits pro- 4 vided for in this act. The legislature shall appropriate the 5 funds necessary to defray and cover the expenses of administering 6 this act. 7 (8) The health insurance reserve fund is the fund into which 8 appropriations made by the legislature, subscriber co-payments, 9 and payments by the retirement system under section 68 for 10 health, dental, and vision insurance premiums are paid. Health, 11 dental, and vision insurance premiums payable pursuant to 12 sections 20d and 68 shall be paid from the health insurance 13 reserve fund. THE ASSETS AND ANY EARNINGS ON THE ASSETS CON- 14 TAINED IN THE HEALTH INSURANCE RESERVE FUND AND THE HEALTH 15 ADVANCE FUNDING SUBACCOUNT DESCRIBED IN SUBSECTION (9) ARE NOT TO 16 BE TREATED AS PENSION ASSETS FOR ANY PURPOSE. 17 (9) THE HEALTH ADVANCE FUNDING SUBACCOUNT IS THE ACCOUNT TO 18 WHICH AMOUNTS TRANSFERRED PURSUANT TO SECTIONS 20D, 38(6), AND 52 19 ARE CREDITED. ANY AMOUNTS RECEIVED IN THE HEALTH ADVANCE FUNDING 20 SUBACCOUNT AND ACCUMULATED EARNINGS ON THOSE AMOUNTS SHALL NOT BE 21 EXPENDED UNTIL THE ACTUARIAL ACCRUED LIABILITY FOR HEALTH BENE- 22 FITS UNDER SECTION 20D IS AT LEAST 100% FUNDED. THE DEPARTMENT 23 MAY EXPEND FUNDS OR TRANSFER FUNDS TO ANOTHER ACCOUNT TO EXPEND 24 FOR HEALTH BENEFITS UNDER SECTION 20D IF THE ACTUARIAL ACCRUED 25 LIABILITY FOR HEALTH BENEFITS UNDER SECTION 20D IS AT LEAST 100% 26 FUNDED. NOTWITHSTANDING ANY OTHER PROVISION OF THIS SECTION, THE 27 DEPARTMENT MAY TRANSFER AMOUNTS FROM THE HEALTH ADVANCE FUNDING 03100'99 * 6 1 SUBACCOUNT TO THE EMPLOYER'S ACCUMULATION FUND CREATED UNDER THIS 2 SECTION IF THE ACTUARIAL VALUATION PREPARED PURSUANT TO 3 SECTION 38 DEMONSTRATES THAT AS OF THE BEGINNING OF A FISCAL 4 YEAR, AND AFTER ALL CREDITS AND TRANSFERS REQUIRED BY THIS ACT 5 FOR THE PREVIOUS FISCAL YEAR HAVE BEEN MADE, THE SUM OF THE ACTU- 6 ARIAL VALUE OF ASSETS AND THE ACTUARIAL PRESENT VALUE OF FUTURE 7 NORMAL COST CONTRIBUTIONS DOES NOT EXCEED THE ACTUARIAL PRESENT 8 VALUE OF BENEFITS. 9 (10)(9)The description of the various funds in this sec- 10 tion shall be interpreted to refer to the accounting records of 11 the retirement system and not to the segregation of assets cred- 12 ited to the various funds of the retirement system. 13 Sec. 20d. (1) On and after July 1, 1974, hospitalization 14 and medical coverage insurance premium payable by any retirant or 15 his or her beneficiary and his or her dependents under any group 16 health plan authorized by the Michigan civil service commission 17 and the department of management and budget shall be paid by the 18 retirement board from the health insurance reserve fund created 19 in section 11. The amount payable shall be in the same propor- 20 tion of premium payable by the state of Michigan for the classi- 21 fied employees occupying positions in the state civil service. 22 The hospitalization and medical insurance premium payable shall 23 be paid from appropriations made for this purpose to the health 24 insurance reserve fund sufficient to cover the premium payment 25 needed to be made. 26 (2) Effective January 1, 1988, 90% of the premium payable by 27 a retirant or the retirant's beneficiary and his or her 03100'99 * 7 1 dependents for dental coverage or vision coverage, or both, under 2 any group plan authorized by the Michigan civil service commis- 3 sion and the department of management and budget shall be paid by 4 the retirement board from the health insurance reserve fund cre- 5 ated in section 11. 6 (3) THE DEPARTMENT OF MANAGEMENT AND BUDGET SHALL CALCULATE 7 FOR EACH FISCAL YEAR ANY COST SAVINGS THAT HAVE ACCRUED TO THIS 8 STATE AS A RESULT OF THE IMPLEMENTATION OF THE 1996 AMENDATORY 9 ACT THAT ADDED SECTION 68 OVER THE COSTS THAT WOULD HAVE BEEN 10 INCURRED BY THIS STATE TO FUND PREMIUMS PAYABLE PURSUANT TO 11 SECTION 68 HAD THE 1996 AMENDATORY ACT THAT ADDED SECTION 68 NOT 12 BEEN IMPLEMENTED. THE TOTAL AMOUNT OF THE COST SAVINGS, IF ANY, 13 SHALL BE ALLOCATED TO THE HEALTH ADVANCE FUNDING SUBACCOUNT CRE- 14 ATED UNDER SECTION 11(9). 15 (4)(3)On and after March 31, 1997, the retirement system 16 shall also pay health insurance premiums described in this sec- 17 tion in the manner prescribed in section 68. 18 (5)(4)For purposes of this section, "retirant" includes 19 a person who retires under section 306 or 410 of the Michigan 20 military act,Act No. 150 of the Public Acts of 1967, being21sections 32.706 and 32.810 of the Michigan Compiled Laws1967 22 PA 150, MCL 32.706 AND 32.810. 23 Sec. 38. (1) The annual level percent of payroll contribu- 24 tion rate to finance the benefits provided under this act shall 25 be determined by actuarial valuation pursuant to subsections (2) 26 and (3), upon the basis of the risk assumptions adopted by the 27 retirement board with approval of the department of management 03100'99 * 8 1 and budget, and in consultation with the investment counsel and 2 the actuary. An annual actuarial valuation shall be made of the 3 retirement system in order to determine the actuarial condition 4 of the retirement system and the required contribution to the 5 retirement system. The actuary shall report to the legislature 6 by April 15 of each year on the actuarial condition of the 7 retirement system as of the end of the previous fiscal year and 8 on the projections of state contributions for the next fiscal 9 year. The actuary shall certify in the report that the tech- 10 niques and methodologies used are generally accepted within the 11 actuarial profession and that the assumptions and cost estimates 12 used fall within the range of reasonable and prudent assumptions 13 and cost estimates. An annual actuarial gain-loss experience 14 study of the retirement system shall be made in order to deter- 15 mine the financial effect of variations of actual retirement 16 system experience from projected experience. 17 (2) The contribution rate for monthly benefits payable in 18 the event of the death of a member before retirement or the dis- 19 ability of a member shall be computed using a terminal funding 20 method of actuarial valuation. 21 (3) Except as otherwise provided in this subsection, the 22 contribution rate for benefits other than those provided for in 23 subsection (2) shall be computed using an individual projected 24 benefit entry age normal cost method of valuation. For the 25 1995-96 state fiscal year and for each subsequent fiscal year, 26 the contribution rate for benefits provided under section 20d 27 shall be computed using a cash disbursement method. The 03100'99 * 9 1 contribution rate for service that may be rendered in the current 2 year, the normal cost contribution rate, shall be equal to the 3 aggregate amount of individual entry age normal costs divided by 4 1% of the aggregate amount of active members' valuation 5 compensation. The unfunded actuarial accrued liability shall be 6 equal to the actuarial present value of benefits reduced by the 7 actuarial present value of future normal cost contributions and 8 the actuarial value of assets on the valuation date. The 9 unfunded actuarial accrued liability shall be amortized in 10 accordance with generally accepted governmental accounting stan- 11 dards over a period equal to or less than 40 years. 12 (4) The legislature annually shall appropriate to the 13 retirement system the amount determined pursuant to subsections 14 (2) and (3). The state treasurer shall transfer monthly to the 15 retirement system an amount equal to the product of the contribu- 16 tion rates determined in subsections (2) and (3) times the aggre- 17 gate amount of active member compensation paid during that 18 month. Not later than 60 days after the termination of each 19 state fiscal year, the executive secretary of the retirement 20 board shall certify to the director of the department of manage- 21 ment and budget the actual aggregate compensations paid to active 22 members during the preceding state fiscal year. Upon receipt of 23 that certification, the director of the department of management 24 and budget shall compute the difference, if any, between actual 25 state contributions received during the preceding state fiscal 26 year and the product of the contribution rates determined in 27 subsections (2) and (3) times the aggregate compensations paid to 03100'99 * 10 1 active members during the preceding state fiscal year. Except as 2 otherwise provided in subsection (5), the difference, if any, 3 shall be submitted in the executive budget to the legislature for 4 appropriation in the next succeeding state fiscal year. THIS 5 SUBSECTION DOES NOT APPLY FOR THOSE FISCAL YEARS IN WHICH A 6 DEPOSIT OCCURS PURSUANT TO SUBSECTION (6). 7 (5) For differences occurring in fiscal years beginning on 8 or after October 1, 1991, a minimum of 20% of the difference 9 between the estimated and the actual aggregate compensation and 10 the estimated and the actual contribution rate described in 11 subsection (4), if any, may be submitted in the executive budget 12 to the legislature for appropriation in the next succeeding state 13 fiscal year and a minimum of 25% of the remaining difference 14 shall be submitted in the executive budget to the legislature for 15 appropriation in each of the following 4 state fiscal years, or 16 until 100% of the remaining difference is submitted, whichever 17 first occurs. In addition, interest shall be included for each 18 year that a portion of the remaining difference is carried 19 forward. The interest rate shall equal the actuarially assumed 20 rate of investment return for the state fiscal year in which pay- 21 ment is made. THIS SUBSECTION DOES NOT APPLY FOR THOSE FISCAL 22 YEARS IN WHICH A DEPOSIT OCCURS PURSUANT TO SUBSECTION (6). 23 (6) IF THE ACTUARIAL VALUATION PREPARED PURSUANT TO THIS 24 SECTION FOR EACH FISCAL YEAR DEMONSTRATES THAT AS OF THE BEGIN- 25 NING OF A FISCAL YEAR, AND AFTER ALL CREDITS AND TRANSFERS 26 REQUIRED BY THIS ACT FOR THE PREVIOUS FISCAL YEAR HAVE BEEN MADE, 27 THE SUM OF THE ACTUARIAL VALUE OF ASSETS AND THE ACTUARIAL 03100'99 * 11 1 PRESENT VALUE OF FUTURE NORMAL COST CONTRIBUTIONS EXCEEDS THE 2 ACTUARIAL PRESENT VALUE OF BENEFITS, THE ANNUAL LEVEL PERCENT OF 3 PAYROLL CONTRIBUTION RATE AS DETERMINED PURSUANT TO 4 SUBSECTIONS (1), (2), AND (3) MAY BE DEPOSITED INTO THE HEALTH 5 ADVANCE FUNDING SUBACCOUNT CREATED UNDER SECTION 11(9). 6 Sec. 52. After consulting the retirement system's actuary, 7 the department of management and budget shall calculate for each 8 fiscal year any cost savings that have accrued to this state as a 9 result of the implementation of the amendatory act that added 10 this section over the costs that would have been incurred by this 11 state to fund this retirement system had the amendatory act that 12 added this section not been implemented.The total amount of13such cost savings shall be submitted in the executive budget to14the legislature for appropriation in the next succeeding state15fiscal year to the health insurance reserve fund created by sec-16tion 11(8). Any amount appropriated pursuant to this section and17accumulated earnings on those amounts shall not be expended until18the actuarial accrued liability for health benefits under section1920d is 100% funded.FOR EACH FISCAL YEAR IN WHICH A DEPOSIT 20 UNDER SECTION 38(6) DOES NOT OCCUR, THE DEPARTMENT MAY DEPOSIT 21 ALL OR PART OF THE COST SAVINGS CALCULATED PURSUANT TO THIS SEC- 22 TION INTO THE HEALTH ADVANCE FUNDING SUBACCOUNT CREATED UNDER 23 SECTION 11(9) BY REDUCING THE NORMAL COST AND UNFUNDED ACTUARIAL 24 ACCRUED LIABILITY CONTRIBUTION RATES AS CALCULATED PURSUANT TO 25 SECTION 38, AND INCREASING THE CONTRIBUTION RATE FOR BENEFITS 26 PROVIDED UNDER SECTION 20D BY THE SAME AMOUNT. HOWEVER, THE 03100'99 * 12 1 NORMAL COST AND UNFUNDED ACCRUED ACTUARIAL LIABILITY RATES SHALL 2 NOT BE REDUCED TO AN AMOUNT LESS THAN ZERO. 03100'99 * Final page. TJS