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.