March 23, 2010, Introduced by Rep. Cushingberry and referred to the Committee on Appropriations.
A bill to provide for the determination of distressed
municipal pension systems; to establish certain duties of certain
state officials and agencies; to provide a mandatory remedy for
municipalities sponsoring distressed pension systems; to establish
duties of certain public officers and employees; and to provide
remedies and penalties.
THE PEOPLE OF THE STATE OF MICHIGAN ENACT:
Sec. 1. This act shall be known and may be cited as the
"distressed municipal pension system act".
Sec. 2. The legislature finds all of the following:
(a) The public health and welfare of the citizens and
taxpayers of this state are adversely affected by the fiscal and
economic effects of distressed local government pension systems and
the sustainability of local pension systems is vitally necessary to
the provision of crucial governmental services to the people of
this state.
(b) The governing boards of trustees of local pension systems
have a fiduciary duty to invest and safeguard trust assets and
ensure the viability of local pension systems for the exclusive
benefit of employees and retirees who have performed service for
the political subdivisions of this state.
(c) Prudent and fiscally sound management of local pension
systems is essential to affordable and sustainable local pension
system funding, as well as the long-term financial integrity of the
political subdivisions of this state.
(d) Section 24 of article IX of the state constitution of 1963
provides that the accrued financial benefits of each pension plan
and retirement system of the state and its political subdivisions
shall be a contractual obligation thereof which shall not be
diminished or impaired thereby. The section further provides that
financial benefits arising on account of services rendered in each
fiscal year shall be funded during that year and that such funds
are not to be used for financing unfunded accrued liabilities.
Therefore, the funding, management, oversight, and fiscal integrity
of public pension and retirement systems is a matter of paramount
public importance which bears directly upon the fiscal integrity of
the state and its political subdivisions.
(e) Section 18 of article IX of the state constitution of 1963
provides for the investment of public funds accumulated to provide
pension benefits for public officials and employees, as implemented
by the public employee retirement system investment act, 1965 PA
314, MCL 38.1132 to 38.1140m, and section 13(1) of that act states
that its provisions shall supersede any investment authority
granted to any state or local government pension system.
(f) The retirement system created by the municipal employees
retirement act of 1984, 1984 PA 427, MCL 38.1501 to 38.1555, is the
sole and exclusive statewide municipal pension pool for local
government employees, and as an instrumentality of its
participating municipalities and participating courts, the
retirement system is vested with the power and duties of investment
fiduciary for the investment of all system assets, and ensures that
pension assets of each participating municipality and court are
separately accounted for and pooled for investment purposes only,
thus providing economies of scale that benefit all participating
municipalities and participating courts.
(g) Since its creation, the retirement system has properly
administered retirement plans for municipalities throughout this
state, providing appropriate consideration to the interests of each
participating municipality and its taxpayers, while protecting the
interests of the employees and retirees of each participating
municipality.
(h) The legislatively granted self-governance of the
retirement system promotes the state's fundamental interest in
safeguarding and protecting the accrued pension benefits that
retirees and employees of each participating municipality have
earned and ensuring that investments are prudently made so that
trust assets and investment earnings are accumulated for each such
municipality to pay the promised benefits for the mutual benefit of
each participating municipality, its retirees and employees, and
the citizens and taxpayers.
(i) The legislature finds that the authority and powers
conferred by this act constitute a necessary program and serve a
valid public purpose.
Sec. 3. All system assets shall be managed and invested as
provided by the public employee retirement system investment act,
1965 PA 314, MCL 38.1132 to 38.1140m.
Sec. 4. As used in this act:
(a) "Annual actuarial valuations and summary annual reports"
means those valuations and reports required by section 20h(2) of
the public employee retirement system investment act, 1965 PA 314,
MCL 38.1140h, to actuarially determine employer contributions to
local pension systems, including valuations and reports done every
other year where authorized by law.
(b) "Chief executive officer" means 1 of the following
officials:
(i) The mayor of a city.
(ii) The county executive of a county or, if a county does not
have a county executive, the chairperson of the county board of
commissioners.
(iii) The village president of a village.
(iv) The township supervisor of a township.
(v) For a municipality other than a city, county, village, or
township, the official granted general administrative or executive
control of the municipality as defined in section 2b(2) of the
municipal employees retirement act of 1984, 1984 PA 427, MCL
38.1502b.
(c) "Determination date" means either of the following:
(i) If no hearing has been requested under section 5(2)(a), the
date which is 10 days after the state treasurer initially
determines that a local pension system is a distressed pension
system.
(ii) The date on which the state treasurer confirms its
determination of a distressed pension system under section 5(2)(b)
and the appellate process provided in section 5(3) has been
exhausted.
(d) "Distressed pension system" means a local pension system
initially determined by the state treasurer to meet the
requirements of section 5(1).
(e) "Local pension system" means a pension system of a
municipality originally established by ordinance, charter, or law,
if the system is not a participating municipality in the municipal
employees retirement act of 1984, 1984 PA 427, MCL 38.1501 to
38.1555.
(f) "Municipality" means that term as defined in section 2b of
the municipal employees retirement act of 1984, 1984 PA 427, MCL
38.1502b.
(g) "Notification date" means the date on which the state
treasurer receives the notification described in section 5(1).
(h) "Participating municipality" means that term as defined in
section 2c of the municipal employees retirement act of 1984, 1984
PA 427, MCL 38.1502c.
(i) "Payroll" means the dollar amount used by an actuary in
the annual actuarial valuation or summary report to determine an
annual level percentage of payroll contribution rate.
(j) "Pension obligations" means any bonds, pension obligation
certificates, or other instruments, obligations, or evidences of
indebtedness issued by a municipality, the proceeds of which have
been allocated, in whole or in part, to and deposited with a local
pension system for the purpose of funding unfunded accrued
liabilities of the local pension system.
(k) "Retirement system" means the municipal employees
retirement system established under former 1945 PA 135 and
continued and restated under the municipal employees retirement act
of 1984, 1984 PA 427, MCL 38.1501 to 38.1555.
(l) "Transition date" means the date on which a municipality
becomes a participating municipality under this act, which shall
not be longer than 180 days after the determination date.
(m) "Transition period" means the period beginning on the
determination date and ending on the transition date.
Sec. 5. (1) The state treasurer shall initially determine that
a local pension system is a distressed pension system upon
receiving written notification from a trustee of the system, its
actuary, 10% of the members of the local pension system or an
elected or appointed officer, or the governing body of, or the
emergency financial manager for the municipality sponsoring the
local pension system that 2 or more of the following conditions
exist:
(a) The municipality has failed to make its periodic payment
toward the employer’s annual required contribution to the local
pension system as required by law for a period in excess of 120
days. The failure of the municipality to make a periodic payment
shall be determined by the state treasurer only upon the occurrence
of all of the following:
(i) The notification received by the state treasurer states
that the municipality has failed to make its periodic payment
toward the employer’s annual required contribution to the local
pension system as required by law for a period in excess of 120
days.
(ii) The state treasurer provides by certified or registered
mail written notice to the municipality that the state treasurer
has received the notification described in subparagraph (i) and that
the municipality has 30 days to provide the state treasurer with
written evidence verifying that the municipality has not failed to
make its periodic payment toward the employer’s annual required
contribution to the local pension system as required by law for a
period in excess of 120 days.
(iii) Either the municipality fails to respond to the state
treasurer’s notice under subparagraph (ii) within 30 days of receipt
of the notice or the state treasurer concludes that the evidence
provided in the municipality’s response does not verify that the
municipality has not failed to make its periodic payment toward the
employer’s annual required contribution to the local pension system
as required by law for a period in excess of 120 days.
(b) The sum of the employer's annual required contribution to
the local pension system as shown in the applicable annual
actuarial valuation or summary report plus the annual debt service
on that portion of any outstanding pension obligations allocated to
the local pension system has exceeded 30% of payroll for the last 3
consecutive local pension system years. This subdivision does not
apply to a local pension system which is closed to new
participants.
(c) The sum of the local pension system's actuarial accrued
liability as shown in its most recent annual actuarial valuation or
summary report, plus that portion of the outstanding principal
amount of any pension obligations the proceeds of which have been
allocated to and deposited with the local pension system, is 125%
or more of the actuarial value of the assets of the local pension
system as shown in its most recent annual actuarial valuation or
summary report.
(d) In each of the 3 prior fiscal years, the sum of the
employer's aggregate annual required contributions for all local
pension systems of the municipality plus the aggregate annual debt
service on the municipality's outstanding pension obligations
exceeds 15% or more of the budgeted revenues for the general fund.
(e) An investment fiduciary, as defined in section 12c(1) of
the public employee retirement system investment act, 1965 PA 314,
MCL 38.1132c, of the local pension system has been convicted or
entered a nolo contendere plea accepted by a court for a felony
resulting from misuse of pension trust funds belonging to the local
pension system, the receipt of a bribe, or other personal or
financial benefit arising out of or related to his or her service
for the local pension system.
(f) The local pension system’s average rate of investment
return, gross-of-fees, for the last 10 years is at least 2
percentage points less than the retirement system's rate of return,
gross-of-fees, over the same period.
(2) Upon the state treasurer's making an initial determination
that a local pension system is a distressed pension system, the
state treasurer shall promptly provide the chief executive officer
and governing body of the sponsoring municipality with written
notification of the initial determination and notice that the chief
executive officer of the municipality may, within 10 days after the
date of notification, request a hearing conducted by the state
treasurer or the state treasurer’s designee. Notice shall be
provided and the hearing shall be conducted in compliance with the
provisions applicable to contested cases in the administrative
procedures act of 1969, 1969 PA 306, MCL 24.201 to 24.328.
(3) Following the hearing, or if no hearing is requested,
following the expiration of the deadline under which a hearing may
be requested, the state treasurer shall confirm or revoke, in
writing, the determination of a distressed pension system. If
confirmed, the state treasurer shall provide a written report of
the findings of fact providing the basis for the confirmation of a
distressed pension system and a concise and explicit statement of
the underlying facts supporting these factual findings. The state
treasurer's decision shall be final and binding except as set forth
in subsection (4). The state treasurer shall prepare an official
record of the hearing in compliance with section 86 of the
administrative procedures act of 1969, 1969 PA 306, MCL 24.286.
(4) The chief executive officer of a municipality for which a
final determination of a distressed pension system has been made by
the state treasurer may appeal the final determination to the court
of appeals within 21 days after its issuance. The court shall
review the appeal in an expedited manner and shall sustain a
determination of the state treasurer upon finding that the
determination is authorized by law and supported by competent,
material, and substantial evidence on the whole record made before
the state treasurer.
(5) The use of funds from a pension system to file, commence,
initiate, further, or otherwise support an appeal under this
section is prohibited and punishable as otherwise set forth under
this act.
Sec. 6. (1) All of the following shall occur on the transition
date:
(a) A municipality for which a distressed pension system
determination has been made and not set aside under section 5 shall
become a participating municipality within the retirement system,
and is subject to this act, the municipal employees retirement act
of 1984, 1984 PA 427, MCL 38.1501 to 38.1555, and the plan document
of the retirement system, notwithstanding any provision of charter,
ordinance, resolution, regulation, rule, collective bargaining
agreement, or contract to the contrary.
(b) All powers formerly vested in the distressed pension
system board or other entity having responsibility for
administration of the distressed pension systems that are necessary
to effectuate the transition of the distressed pension system into
the retirement system shall on such date be vested in the chief
executive officer or an officer of the municipality designated by
the chief executive officer, and the distressed pension system
board or other entity having responsibility for administration of
the distressed pension system shall cease existence.
(c) The chief executive officer or any appropriate and
authorized official of the municipality or any appropriate and
authorized official of the distressed pension system shall execute
any instruments of conveyance, assignment, and transfer or other
documents as may, in the retirement system's reasonable judgment,
or pursuant to the retirement system's plan document as determined
by the retirement system, be necessary or appropriate to recognize,
facilitate, or accomplish the municipality's participation in the
retirement system and the transfer of the local pension system and
its trust assets to the retirement system.
(d) Pursuant to a reasonable transition plan established by
the retirement system after consultation with the chief executive
officer of the municipality sponsoring the distressed pension
system, the retirement system shall do both of the following:
(i) Assume responsibility for administration of pension
obligations that were previously administered by the distressed
pension system and custody of all related records and data.
(ii) Assume custody of the transferred assets of the distressed
pension system.
(2) On or after the transition date, the value of the assets
transferred from the custody of the distressed pension system to
the retirement system shall be jointly determined as of a date
certain by the custodian of the retirement system, the custodian of
the distressed pension system, and, where applicable, any
transition manager appointed pursuant to the transition plan
provided for in subsection (1)(d), which determination shall be
final and conclusive. The retirement system shall provide the
written determination of the value of the transferred assets to the
chief executive officer of the municipality.
(3) Beginning on the notification date, any contract or
agreement entered into, amended, or modified by a distressed
pension system board or other entity having responsibility for the
administration of a distressed pension system or by the
municipality sponsoring a distressed pension system without the
written consent of the retirement system shall be voidable to the
extent that the retirement system would assume, become party to or
transferee of, or otherwise be obligated under or affected by the
contract or agreement. No contract or agreement, or amendment or
modification thereto, is absolutely void under this subsection.
Contracts, agreements, amendments, and modifications described in
this subsection are voidable as pertains to the retirement system
only by decree of a court of proper jurisdiction in an action by
the retirement system.
(4) Notwithstanding any contrary provision of charter,
ordinance, resolution, regulation, rule, collective bargaining
agreement, contract, or the plan document of the retirement system,
a municipality that becomes a participating municipality pursuant
to this act shall remain a participating municipality unless such
participation is terminated by amendment of this act.
Sec. 7. (1) All current and former officers, employees, and
agents of a municipality for which a distressed pension system
determination has been made and not set aside pursuant to section 5
and all current and former officers, employees, and agents of the
distressed pension system have an affirmative and ongoing duty to
cooperate with the retirement system in accomplishing the
transition described in this act, and shall comply with all of the
following:
(a) Refrain from impairing, by action or inaction, the
retirement system's exercise of its duties and powers under this
act, the municipal employees retirement act of 1984, 1984 PA 427,
MCL 38.1501 to 38.1555, or the retirement system's plan document,
or do anything that would impair the efficient management of the
assets of the distressed pension system before or after the
transfer of assets to the retirement system.
(b) During the transition period, conduct operations of the
distressed pension system in the ordinary and usual course of
business, and have an affirmative and ongoing duty to fully
cooperate in the transition to the retirement system, including,
but not limited to, timely producing and sharing with the
retirement system all information and documents, providing the
retirement system with ready and sufficient access to all
information on assets, services, records, and any other materials
or documents the retirement system determines are necessary, both
before and after the transition date. During the transition period,
any contract related to the operation of the distressed pension
system which is entered into without written approval of the
retirement system is voidable as provided in section 6(3).
(2) A municipality and its distressed pension system, and the
officers and employees of each, shall not, directly or indirectly,
impede the exercise of powers or duties under this act by action or
inaction, including, but not limited to, action or inaction
pursuant to charter, ordinance, resolution, regulation, rule,
collective bargaining agreement, or contract.
(3) Any officer, employee, or agent of a sponsoring
municipality or that municipality’s distressed pension system who
intentionally violates this section is guilty of a misdemeanor and
is subject to a fine of not more than $2,000.00 or imprisonment for
not more than 1 year, or both.
(4) Any officer, employee, or agent of a sponsoring
municipality or that municipality's distressed pension system who
intentionally violates this section is subject to personal
liability in a civil action for actual and exemplary damages.
Sec. 8. (1) Financial benefits that have accrued under the
sponsoring municipality's distressed pension system to retirees,
beneficiaries, and deferred vested members, and such benefits that
have accrued or may accrue to active employees under the sponsoring
municipality's distressed pension system and this system, shall not
be diminished or impaired by this act.
(2) The retirement system shall pay benefits, investment
management expenses, administrative expenses, or other
disbursements attributable to the distressed pension system
exclusively from the transferred assets of the sponsoring
municipality's distressed pension system or subsequent
contributions by the municipality or its employees, together with
earnings or other increments on such funds and contributions, and
from no other source. At all times and on an annual basis, the
investment management expenses and administrative expenses of a
distressed pension system shall be separately determined and
accounted for by the retirement system in the same manner as for
all other participating municipalities and participating courts.
Sec. 9. (1) The retirement system shall not be liable for any
debt obligations, liens, or claims against either the participating
municipality or its distressed pension system, or their governing
bodies, members thereof, officers, employees, or others having any
relationship to them, either existing or arising out of actions
taken by them on, prior to, or after the transition date.
(2) The retirement system, its officers and employees, and the
members of the retirement board shall be immune from tort liability
arising from the enforcement and implementation of this act.
Sec. 10. The governing body of a municipality that becomes a
participating municipality under this act is hereby authorized,
with the consent of the retirement system and in compliance with
the plan document of the retirement system, to appropriate and
grant funds to the retirement system in furtherance of its
purposes.
Sec. 11. If any portion of this act or the application of this
act to any person or circumstances is found to be invalid by a
court, that invalidity shall not affect the remaining portions or
applications of this act, which can be given effect without the
invalid portion or application, as long as the remaining portions
are not determined by the court to be inoperable; and to this end,
this act is declared to be severable.
Sec. 12. Nothing in this act shall be construed to relieve,
transfer, diminish, or otherwise alter or affect the obligations of
a municipality which has been determined to have a distressed
pension system in connection with any bonds, notes, or other
evidences of indebtedness, including, but not limited to, pension
obligations.
Sec. 13. No person, entity, or party other than the chief
executive officer of a municipality sponsoring a distressed pension
system shall have standing to initiate a suit under this act.