HB-5266, As Passed Senate, March 10, 2004
SUBSTITUTE FOR
HOUSE BILL NO. 5266
A bill to amend 1943 PA 240, entitled
"State employees' retirement act,"
by amending sections 1a, 1e, 1i, 49, 53, 55, and 64 (MCL 38.1a,
38.1e, 38.1i, 38.49, 38.53, 38.55, and 38.64), section 1a as
amended by 1998 PA 205, sections 1e and 1i as amended and
sections 53, 55, and 64 as added by 1996 PA 487, and section 49
as amended by 2002 PA 93.
THE PEOPLE OF THE STATE OF MICHIGAN ENACT:
1 Sec. 1a. (1) "Accumulated contributions" means the sum of
2 all amounts deducted from the compensation of a member and
3 credited to the member's individual account in the employees'
4 savings fund, together with regular interest on that account.
5 (2) "Actuarial cost" means an amount that shall be paid,
6 except as otherwise specifically provided by this act, by a
7 member to purchase additional service credit as allowed under
1 this act. Actuarial cost shall be computed as provided in
2 section 17j.
3 (3) "Annuity" means annual payments for life derived from the
4 accumulated contributions of a member. An annuity shall be paid
5 in equal monthly installments.
6 (4) "Annuity reserve" means the present value, computed upon
7 the basis of mortality and other tables adopted by the retirement
8 board, of all payments to be made on account of an annuity, or
9 benefits in lieu of an annuity, granted to a member under this
10 act.
11 (5) "Appointing authority" means the departmental officer who
12 has the responsibility of making appointments and handling all
13 other personnel transactions affecting the employees in the
14 agency that the officer represents.
15 (6) "Banked leave time program" means the part B annual leave
16 hours within the annual and sick leave program for state
17 employees approved by a ruling of the internal revenue service on
18 September 5, 2003, in which a pay reduction or other concessions
19 are applied to a member or qualified participant in exchange for
20 additional part B annual leave hours.
21 Sec. 1e. (1) "Final average compensation" means the average
22 of those years of highest annual compensation paid to a member
23 during a period of 5 consecutive years of credited service; or if
24 the member has less than 5 years of credited service, then the
25 average of the annual compensation paid to the member during the
26 member's total years of credited service. For a person whose
27 retirement allowance effective date is on or after October 1,
1 1987, "final average compensation" means the average of those
2 years of highest annual compensation paid to a member during a
3 period of 3 consecutive years of credited service; or if the
4 member has less than 3 years of credited service, then the
5 average of the annual compensation paid to the member during the
6 member's total years of credited service. A member's final
7 average compensation shall not be diminished because of required
8 1-day layoffs. The compensation used in computing the final
9 average compensation for a period during which a member is in a
10 voluntary or involuntary pay reduction plan A or on a designated
11 temporary layoff shall include the value of the hours not worked
12 calculated at the member's hourly rate or rates of pay in effect
13 immediately before the applicable final average compensation
14 period. A member's final average compensation shall not be
15 increased or decreased by the member's participation in voluntary
16 or involuntary pay reduction plan B. Payment for accrued annual
17 leave at separation in excess of 240 hours and payment for part B
18 annual leave hours at separation shall not be included in final
19 average compensation. Beginning October 1, 2003, the
20 compensation used to compute the final average compensation for a
21 period during which a member is participating in the banked leave
22 time program shall include the value of any unpaid furlough hours
23 and the value of any unpaid hours exchanged for part B annual
24 leave hours calculated at the member's then current hourly rate
25 or rates of pay.
26 (2) "Final compensation" means a member's annual rate of
27 compensation at the time the member last terminates employment
1 with this state.
2 (3) "Furlough hours" means unworked hours incurred in
3 conjunction with the banked leave time program.
4 (4) (3) "Internal
revenue code" means the United States
5 internal revenue code of 1986.
6 Sec. 1i. (1) "Service" means service rendered to this state
7 by an elected or appointed state official or employee of this
8 state. Credit for service shall be determined by appropriate
9 rules and regulations of the retirement board, but not more than
10 1 year of service shall be creditable for all service in 1
11 calendar year. The retirement board shall not allow credit for
12 service for any period of more than 1 month in any 1 calendar
13 year during which the employee was absent without pay. However,
14 full service credit shall be given for a period during which an
15 employee is on leave of absence and is receiving worker's
16 compensation benefits as the result of a duty-incurred
17 disability. Full service credit shall also be given to an
18 employee for required 1-day layoffs, for voluntary or involuntary
19 participation in pay reduction plan A, pay reduction plan B, or
20 both, in effect during the fiscal years ending on and after
21 September 30, 1981, and
for required and designated temporary
22 layoffs, and, beginning October 1, 2003, for furlough hours, and
23 for participation in the banked leave time program.
24 (2) "State treasurer" means the treasurer of this state.
25 (3) "Tier 1" means the retirement plan available to a member
26 under this act who was first employed and entered upon the
27 payroll before March 31, 1997 and who does not elect to become a
1 qualified participant of Tier 2.
2 (4) "Tier 2" means the retirement plan established pursuant
3 to section 401(k) of the internal revenue code that is available
4 to qualified participants under sections 50 to 69.
5 Sec. 49. (1) This section is enacted pursuant to
6 section 401(a) of the internal revenue code, 26 USC 401, that
7 imposes certain administrative requirements and benefit
8 limitations for qualified governmental plans. This state intends
9 that the retirement system be a qualified pension plan created in
10 trust under section 401 of the internal revenue code, 26 USC 401,
11 and that the trust be an exempt organization under section 501 of
12 the internal revenue code, 26 USC 501. The department shall
13 administer the retirement system to fulfill this intent.
14 (2) Except as
otherwise provided in this section,
15 employer-financed
benefits provided by the retirement system
16 under this act shall
not exceed the lesser of $90,000.00 or 100%
17 of the member's
average compensation for high 3 years as
18 described in section
415(b)(3) of the internal revenue code for
19 retirement occurring
at age 62 or older.
20 (3) The limitation
on employer financed benefits provided by
21 the retirement system
under subsection (2) applies unless
22 application of
subsections (4) and (5) produces a higher
23 limitation, in which
case the higher limitation applies.
24 (4) If a member
retires before age 62, the amount of
25 $90,000.00 in
subsection (2) is actuarially reduced to reflect
26 payment before age
62. The retirement system shall use an
27 interest rate of 5%
per year compounded annually to calculate the
1 actuarial reduction in
this subsection. If this subsection
2 produces a limitation
of less than $75,000.00 at age 55, the
3 limitation at age 55
is $75,000.00 and the limitations for ages
4 under age 55 shall be
calculated from a limitation of $75,000.00
5 at age 55.
6 (5) Section 415(d)
of the internal revenue code requires the
7 commissioner of
internal revenue to adjust the $90,000.00
8 limitation in
subsection (2) to reflect cost of living increases,
9 beginning with
calendar year 1988. This subsection shall be
10 administered using the
limitations applicable to each calendar
11 year as adjusted by
the commissioner of internal revenue under
12 section 415(d) of the
internal revenue code. The retirement
13 system shall adjust
the benefits subject to the limitation each
14 year to conform with
the adjusted limitation.
15 (2) The retirement system shall be administered in compliance
16 with the provisions of section 415 of the internal revenue code,
17 26 USC 415, and regulations under that section that are
18 applicable to governmental plans. Employer-financed benefits
19 provided by the retirement system under this act shall not exceed
20 the applicable limitations set forth in section 415 of the
21 internal revenue code, 26 USC 415, as adjusted by the
22 commissioner of internal revenue under section 415(d) of the
23 internal revenue code, 26 USC 415, to reflect cost-of-living
24 increases, and the retirement system shall adjust the benefits
25 subject to the limitation each calendar year to conform with the
26 adjusted limitation. For purposes of section 415(b) of the
27 internal revenue code, 26 USC 415, the applicable limitation
1 shall apply to aggregated benefits received from all qualified
2 pension plans for which the office of retirement services
3 coordinates administration of that limitation. If there is a
4 conflict between this section and another section of this act,
5 this section prevails.
6 (3) (6) The
assets of the retirement system shall be held
7 in trust and invested for the sole purpose of meeting the
8 legitimate obligations of the retirement system and shall not be
9 used for any other purpose. The assets shall not be used for or
10 diverted to a purpose other than for the exclusive benefit of the
11 members, vested former members, retirants, and retirement
12 allowance beneficiaries before satisfaction of all retirement
13 system liabilities.
14 (4) (7) The
retirement system shall return post-tax member
15 contributions made by a member and received by the retirement
16 system to a member upon retirement, pursuant to internal revenue
17 service regulations and approved internal revenue service
18 exclusion ratio tables.
19 (5) (8) The
required beginning date for retirement
20 allowances and other distributions shall not be later than April
21 1 of the calendar year following the calendar year in which the
22 employee attains age 70-1/2 or April 1 of the calendar year
23 following the calendar year in which the employee retires.
24 (6) (9) If
the retirement system is terminated, the
25 interest of the members, vested former members, retirants, and
26 retirement allowance beneficiaries in the retirement system is
27 nonforfeitable to the extent funded as described in section
1 411(d)(3) of the internal revenue code, 26 USC 411, and related
2 internal revenue service regulations applicable to governmental
3 plans.
4 (7) (10) Notwithstanding
any other provision of this act to
5 the contrary that would limit a distributee's election under this
6 act, a distributee may elect, at the time and in the manner
7 prescribed by the retirement board, to have any portion of an
8 eligible rollover distribution paid directly to an eligible
9 retirement plan specified by the distributee in a direct
10 rollover. This subsection applies to distributions made on or
11 after January 1, 1993.
12 (8) (11) For
purposes of determining actuarial equivalent
13 retirement allowances under sections 31(1)(a) and (b) and 20(2),
14 the actuarially assumed interest rate shall be 8% with
15 utilization of the 1983 group annuity and mortality table.
16 (12)
Notwithstanding any other provision of this section,
17 the retirement system
shall be administered in compliance with
18 the provisions of
section 415 of the internal revenue code and
19 revenue service
regulations under that section that are
20 applicable to
governmental plans. If there is a conflict between
21 this section and
another section of this or any other act of this
22 state, this section
prevails.
23 (9) (13) Notwithstanding
any other provision of this act,
24 the compensation of a member of the retirement system shall be
25 taken into account for any year under the retirement system only
26 to the extent that it does not exceed the compensation limit
27 established in section 401(a)(17) of the internal revenue code,
1 26 USC 401, as adjusted by the commissioner of internal revenue.
2 This subsection applies to any person who first becomes a member
3 of the retirement system on or after October 1, 1996.
4 (10) (14) Notwithstanding
any other provision of this act,
5 contributions, benefits, and service credit with respect to
6 qualified military service will be provided under the retirement
7 system in accordance with section 414(u) of the internal revenue
8 code, 26 USC 414. This subsection applies to all qualified
9 military service on or after December 12, 1994.
10 Sec. 53. (1) For the purposes of this section and sections
11 54 to 69, the words and phrases defined in this section and
12 sections 54 to 69 have the meanings ascribed to them in those
13 sections.
14 (2) "Accumulated balance" means the total balance in a
15 qualified participant's, former qualified participant's, or
16 refund beneficiary's individual account in Tier 2.
17 (3) "Compensation" means the remuneration paid a participant
18 on account of the participant's services rendered to his or her
19 employer .
Compensation includes only wages, tips, and other
20 compensation as
reported by the employer on the participant's
21 federal form W-2, wage
and tax statement. equal to the
sum of
22 the following:
23 (a) A participant's W-2 earnings for services performed for
24 the employer excluding part B annual leave hours paid at
25 separation.
26 (b) Any amount contributed or deferred at the election of the
27 participant which is excluded from gross income under section
1 125, 132(f)(4), 401(k), 403(b), or 457 of the internal revenue
2 code, 26 USC 125, 132, 401, 403, and 457.
3 (c) Beginning October 1, 2003, the value of any unpaid
4 furlough hours and the value of any unpaid hours exchanged for
5 part B annual leave hours calculated at the participant's then
6 current hourly rate or rates of pay for a period during which a
7 participant is participating in the banked leave time program.
8 (d) The value of hours not worked during which a participant
9 is in a voluntary or involuntary pay reduction plan A or on 1-day
10 layoff or designated temporary layoff calculated at the
11 participant's then current hourly rate or rates of pay.
12 Sec. 55. (1) "Plan document" means the document that
13 contains the provisions and procedures of Tier 2 in conformity
14 with this act and the internal revenue code.
15 (2) (1) "Qualified
participant" means an individual who is
16 a participant of Tier 2 and who meets 1 of the following
17 requirements:
18 (a) An individual who is first employed and entered upon the
19 payroll of his or her employer on or after March 31, 1997, and
20 who before March 31, 1997 would have been eligible to be a member
21 of Tier 1.
22 (b) An individual who elects to terminate membership in Tier
23 1 and who elects to participate in Tier 2 in the manner
24 prescribed in section 50.
25 (3) (2) "Refund
beneficiary" means an individual nominated
26 by a qualified participant or a former qualified participant
27 under section 66 to receive a distribution of the participant's
1 accumulated balance in the manner prescribed in section 67.
2 (4) (3) "State
treasurer" means the treasurer of this
3 state.
4 (5) Except as otherwise provided in this subsection, "year of
5 service" means each period during which a qualified participant
6 is employed by the employer and is credited with 2,080 hours of
7 service. The Tier 2 plan administrator and the plan document may
8 provide for a lesser number of annual hours and a maximum number
9 of hours per pay period for any classification of employees,
10 provided that no participant shall receive credit for more than 1
11 year of service for any 12-month period of employment. Beginning
12 January 1, 2003, full service credit shall also be given to a
13 participant for furlough hours, for required 1-day layoffs, for
14 required and designated temporary layoffs, for a year in which a
15 participant temporarily leaves employment to enter active
16 military duty and then dies during that active military duty, and
17 for participation in the banked leave time program. In the event
18 a terminated participant is reemployed, such individual shall
19 retain credit for all full and partial years of service completed
20 prior to such reemployment, for purposes of determining his or
21 her vesting percentage in any employer contributions made
22 pursuant to section 63(2) and (3) after his or her reemployment.
23 Sec. 64. (1) A qualified participant is immediately 100%
24 vested in his or her contributions made to Tier 2 and employer
25 contributions under the banked leave time program. A Except as
26 otherwise provided in this section, a qualified participant shall
27 vest in the employer contributions made on his or her behalf to
1 Tier 2 according to the following schedule:
2 (a) Upon completion of 2 years of service, 50%.
3 (b) Upon completion of 3 years of service, 75%.
4 (c) Upon completion of 4 years of service, 100%.
5 (2) A qualified participant is vested in the health insurance
6 coverage provided in section 68 if the qualified participant
7 meets 1 of the following requirements:
8 (a) The qualified participant has completed 10 years of
9 service as a qualified participant and was not a member, deferred
10 member, or former nonvested member of Tier 1.
11 (b) The qualified participant was a member, deferred member,
12 or former nonvested member of Tier 1 who made an election to
13 participate in Tier 2 pursuant to section 50, and who has met the
14 service requirements he or she would have been required to meet
15 in order to vest in health benefits under section 20d.