BillCam

HOUSE BILL No. 6518

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.

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.

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.

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.

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.