November 27, 2018, Introduced by Rep. Albert and referred to the Committee on Financial Liability Reform.
A bill to amend 2017 PA 202, entitled
"Protecting local government retirement and benefits act,"
by amending section 3 (MCL 38.2803) and by adding sections 11 and
11a.
THE PEOPLE OF THE STATE OF MICHIGAN ENACT:
Sec. 3. As used in this act:
(a) "Annual report" means the most recent audited financial
statement reporting a local unit of government's liability for
retirement pension benefits and retirement health benefits as
determined under applicable government accounting standards of the
Governmental Accounting Standards Board.
(b) "Annual required contribution" means the sum of the normal
cost payment and the annual amortization payment for past service
costs to fund the unfunded actuarial accrued liability.
(c) "Corrective action plan" means a plan that details the
actions to be taken by a local unit of government to address and
resolve the underfunded status of the local unit of government.
(d) "Employee" means an individual holding a position by
election, appointment, or employment in a local unit of government.
(e) "Evaluation system" means the local government retirement
and benefits fiscal impact evaluation system created under section
5 to provide for the identification of, and a corrective action
plan to resolve, the underfunded status of a local unit of
government under this act.
(f) "Former employee" means an individual who was an employee
who terminated employment with the applicable local unit of
government.
(g) "General fund operating revenues" means the sum of all
governmental activity fund revenues of a local unit of government
as determined by the state treasurer based on applicable government
accounting standards of the Governmental Accounting Standards
Board. General fund operating revenues do not include any fund of
the local unit of government that the state treasurer determines
based on applicable government accounting standards of the
Governmental Accounting Standards Board is a proprietary,
fiduciary, enterprise, or other restricted fund that may not be
expended to provide retirement health benefits or retirement
pension benefits.
(h) "Health care stipend" means a fixed amount paid to a
former employee on an ongoing basis to be applied toward a health
care premium.
(i) (h)
"Local unit of
government" means any of the following:
(i) A city.
(ii) A village.
(iii) A township.
(iv) A county.
(v) A county road commission.
(vi) An authority created under chapter VIA of the aeronautics
code of the state of Michigan, 1945 PA 327, MCL 259.108 to
259.125c.
(vii) A metropolitan government or authority established under
section 27 of article VII of the state constitution of 1963.
(viii) A metropolitan district created under the metropolitan
district act, 1929 PA 312, MCL 119.1 to 119.18.
(ix) An authority created under 1939 PA 147, MCL 119.51 to
119.62.
(x) A municipal electric utility system as that term is
defined in section 4 of the Michigan energy employment act of 1976,
1976 PA 448, MCL 460.804.
(xi) A district, authority, commission, public body, or public
body corporate created by 1 or more of the entities described in
subparagraphs (i) to (x).
(j) (i)
"Local unit of
government" does not include this
state, a principal department of state government, a state
institution of higher education under section 4, 5, or 6 of article
VIII of the state constitution of 1963, a state agency, a state
authority, or a reporting unit under the public school employees
retirement act of 1979, 1980 PA 300, MCL 38.1301 to 38.1437.
(k) (j)
"Municipal stability
board" or "board" means the
municipal stability board created in section 7.
(l) (k)
"Normal cost" means the
annual service cost of
retirement health benefits as they are earned during active
employment of employees of the local unit of government in the
applicable fiscal year, using an individual entry-age normal and
level percent of pay actuarial cost method.
(m) (l) "Retirant"
means an individual who has retired with a
retirement benefit payable from a retirement system of a local unit
of government.
(n) (m)
"Retirement benefit"
includes a retirement health
benefit or retirement pension benefit, or both.
(o) (n)
"Retirement health
benefit" means, subject to
subdivision (p), an annuity, allowance, payment, or contribution
to, for, or on behalf of a former employee or a dependent of a
former employee to pay for any of the following components:
(i) Expenses related to medical, drugs, dental, hearing, or
vision care.
(ii) Premiums for insurance covering medical, drugs, dental,
hearing, or vision care.
(iii) Expenses or premiums for life, disability, long-term
care, or similar welfare benefits for a former employee.
(p) Retirement health benefit does not include a health care
stipend.
(q) (o)
"Retirement pension
benefit" means an allowance,
right, accrued right, or other pension benefit payable under a
defined benefit pension plan to a participant in the plan or a
beneficiary of the participant.
(r) (p)
"Retirement system" means
a retirement system, trust,
plan, or reserve fund that a local unit of government establishes,
maintains, or participates in and that, by its express terms or as
a result of surrounding circumstances, provides retirement pension
benefits or retirement health benefits, or both. Retirement system
does not include a state unit as that term is defined in section 2
of the public employee retirement benefit protection act, 2002 PA
100, MCL 38.1682.
(s) (q)
"Underfunded local unit of
government" means a local
unit of government that is in underfunded status.
(t) (r)
"Underfunded status"
means that the state treasurer
has determined that the local unit of government is underfunded
under the review provided in section 5 and the local unit of
government does not have a waiver under section 6.
Sec. 11. (1) The local unit recovery status fund is created
within the state treasury.
(2) The state treasurer may receive money or other assets from
any source for deposit into the fund. The state treasurer shall
direct the investment of the fund. The state treasurer shall credit
to the fund interest and earnings from fund investments.
(3) Money in the fund at the close of the fiscal year must
remain in the fund and must not lapse to the general fund.
(4) The state treasurer is the administrator of the fund for
auditing purposes.
(5) To be eligible for receiving a grant under this section,
within 3 years after the effective date of the amendatory act that
added this section, a local unit of government that is a county
road commission and whose actuarial liability of its retirement
health system is less than 40% funded or whose actuarial liability
of its retirement pension system is less than 60% funded according
to the most recent annual report under section 5 may elect to
participate in the local unit recovery status fund under this
section if the board approves the local unit of government's
corrective action plan under section 10 and the corrective action
plan addresses all of the following conditions:
(a) The local unit of government will not offer or provide a
retirement benefit other than a health care stipend to an employee
first employed by the local unit of government after the local unit
of government approves the corrective action plan.
(b) The local unit of government will not reopen a defined
benefit retirement system or reoffer any other defined benefit plan
after the effective date that defined benefit retirement system or
other defined benefit plan has been closed to new hires.
(c) The local unit of government will make its annual required
contributions to the retirement health benefit component of a
retirement system using measures that ensure sustainability, as
determined by the state treasurer.
(d) The local unit of government's retirement system will use
the uniform actuarial assumptions established under section 5.
(e) The board determines that the corrective action plan has a
reasonable likelihood that either of the following apply, as
applicable:
(i) The retirement pension system will be 60% funded within 20
years after the board approves the corrective action plan under
section 10.
(ii) The retirement health system will be 40% funded within 30
years after the board approves the corrective action plan under
section 10.
(6) A local unit of government that is a county road
commission may apply to the department of treasury for a grant from
the fund, and is eligible to receive a grant from the fund, if both
of the following occur:
(a) The board approves the local unit of government's
corrective action plan under section 10 and the corrective action
plan addresses all of the conditions in subsection (5).
(b) The county road commission board approves the changes to
be made in the corrective action plan.
(7) Subject to subsections (8) and (9), the state treasurer
shall make grants from the fund, on appropriation, to the
irrevocable trust created under section 11a of a local unit of
government that is a county road commission if the board approved
the local unit of government's corrective action plan under section
10 and the corrective action plan addresses all of the conditions
listed in subsection (5). Any money received from a grant from the
fund must within 30 days after receipt of the money be placed into
the irrevocable trust created for the retirement system to pay
retirement health benefits or the irrevocable trust created for the
retirement system to pay retirement pension benefits of the local
unit of government.
(8) The state treasurer shall establish a method of
prioritizing the fund for distribution. The state treasurer shall
include, but is not limited to, all of the following factors in
establishing a method under this subsection:
(a) Low funding ratios.
(b) High ratio of annual required contributions to the local
unit of government's revenue.
(c) The amount of any additional contributions necessary to be
eligible under subsection (5).
(d) A local unit of government's past history of making the
full annual required contribution or payments exceeding the annual
required contribution.
(9) The state treasurer shall make grants from the fund
subject to the following:
(a) For a grant to a retirement pension benefit plan, up to a
50% matching grant from the fund is available based on any of the
following sources of funds:
(i) Any money contributed above the annual required
contribution.
(ii) Any contributions from the county general fund.
(iii) Any contributions from county road millages.
(b) For a grant to a retirement health benefit plan, up to a
50% matching grant from the fund is available based on any money
contributed toward a full annual required contribution.
(10) If the board determines that the conditions of a local
unit of government's corrective action plan, or a subsequent
revised corrective action plan approved by the municipal stability
board and the county road commission board, described in subsection
(5) are not being met, by a certain date established by the state
treasurer, the local unit of government shall pay to the state
treasurer all money the irrevocable trust of the local unit of
government created under section 11a received from the fund under
this section, and shall also pay interest, at a rate as determined
by the department of treasury, on all money received from the fund
under this section. In addition, the board shall continue to
monitor that local unit of government until it is no longer an
underfunded local unit of government.
(11) As used in this section, "local unit recovery status
fund" or "fund" means the fund created in subsection (1).
Sec. 11a. An irrevocable trust is authorized and created by
this act for each retirement system. An irrevocable trust
established under this section must at all times be established and
administered in accordance with section 115 of the internal revenue
code of 1986, 26 USC 115. All of the following apply to an
irrevocable trust:
(a) The governing board of each retirement system is the
grantor and shall administer the irrevocable trust created for that
retirement system in order to pay retirement health benefits. The
members of the retirement system board, or the governing body of
the local unit of government if there is no retirement system
board, shall act as the trustees of the irrevocable trust for that
retirement system.
(b) The trustees shall adopt a written trust agreement that
contains all of the following provisions consistent with this act:
(i) Recitals describing the creation and purpose of the trust.
(ii) Language reflecting the requirements of this subsection.
(iii) Sections outlining the management and operation of the
trust.
(iv) A description of the various accounts that carry out the
functions of the trust.
(v) Provisions setting forth the powers and duties of the
trustees.
(vi) Policies and procedures for administering the irrevocable
trust.
(c) Each trust must 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.
(d) Assets contributed to the irrevocable trust are
irrevocable and may not be refused, refunded, or returned to the
employer or employee making the contribution.
(e) The assets of the irrevocable trust are to be used solely
to perform this essential function of the local unit of government.
The trust must only provide retirement health benefits as provided
under applicable law and pay fees and expenses for the
administrative costs in carrying out this essential governmental
function.
(f) The assets in the irrevocable trust must be invested in
accord with the public employee retirement system investment act,
1965 PA 314, MCL 38.1132 to 38.1141.
(g) The assets of the irrevocable trust and the ability of a
retirant to receive retirement health benefits is not subject to
execution, garnishment, attachment, the operation of bankruptcy or
insolvency laws, or other process of law and is unassignable.
(h) The assets of the irrevocable trust must be used
exclusively for retirement health benefits and must not be diverted
for a purpose other than the payment of retirement health benefits
and the administrative costs of providing retirement health
benefits.
(i) The governing board of a retirement system may from time
to time authorize the deposit into the irrevocable trust of any
eligible money on deposit within its retirement system for the
purpose of payment of eligible retirement health benefits.
Distributions from the irrevocable trust may be made to satisfy the
requirements of the retirement system for retirement health
benefits provided by the retirement system.
(j) 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.
(k) The irrevocable trust is not considered to be invalid
because of any indefiniteness or uncertainty of the persons
designated as beneficiaries. The irrevocable trust is not
considered to be invalid as violating any existing law against
perpetuities, against suspension of the power of alienation of
title to property, or against trusts for the purpose of the
accumulation of income, but each trust may continue for the amount
of time that may be necessary to accomplish the purpose for which
it was created.
(l) All assets and income of the irrevocable trust are exempt
from taxation by this state or any political subdivision of this
state. Distributions from the irrevocable trust shall not be
treated as taxable income to former employees or their retiree
health dependents by this state or any political subdivision of
this state.
(m) A trustee of the irrevocable trust is not any of the
following:
(i) Personally liable for any liability, loss, or expense
suffered by the trust, unless the liability, loss, or expense
arises out of or results from the willful misconduct or intentional
wrongdoing of the trustee.
(ii) Responsible for the adequacy of the trust to meet and
discharge any obligation under applicable law.
(iii) Required to take action to enforce the payment of any
contribution or appropriation to the trust.
(n) A trustee of the irrevocable trust may be indemnified by
the trust against costs, liabilities, losses, damages, and
expenses, including attorney fees, as more fully provided in the
respective trust agreements, unless the costs, liabilities, losses,
damages, or expenses arise out of or result from the willful
misconduct or intentional wrongdoing of the trustee.
(o) Any assets remaining in the irrevocable trust after all
payments for eligible retirement health benefits have been paid and
all other liabilities of the trust have been satisfied must be
distributed to this state, the local unit of government, or other
employers within the applicable retirement system if the employers
are organizations, the income of which is excluded under section
115(1) of the internal revenue code of 1986, 26 USC 115.