SB-1040, As Passed House, June 14, 2012

HOUSE SUBSTITUTE FOR

SENATE BILL NO. 1040

      A bill to amend 1980 PA 300, entitled

"The public school employees retirement act of 1979,"

by amending the title and sections 5, 6, 8, 25, 41, 41a, 42, 43a,

43e, 81b, 84, 91, 108, 124, and 131 (MCL 38.1305, 38.1306,

38.1308, 38.1325, 38.1341, 38.1341a, 38.1342, 38.1343a, 38.1343e,

38.1381b, 38.1384, 38.1391, 38.1408, 38.1424, and 38.1431), the

title as amended by 1996 PA 488, section 5 as amended by 2001 PA

180, section 6 as amended by 1995 PA 272, section 8 as amended by

1997 PA 143, sections 25, 41, 42, and 91 as amended and sections

43e, 81b, 124, and 131 as added by 2010 PA 75, section 41a as

amended by 2007 PA 15, section 43a as amended by 2007 PA 111,

section 84 as amended by 1989 PA 194, and section 108 as amended

by 2008 PA 354, and by adding sections 43g, 59, 81d, 84b, 91a,

Senate Bill No. 1040 (H-3) as amended June 14, 2012

92b, 93, 94, and 131a; and to repeal acts and parts of acts.

THE PEOPLE OF THE STATE OF MICHIGAN ENACT:

 1                                TITLE

 2        An act to provide a retirement system for the public school

 3  employees of this state; to create certain funds for this

 4  retirement system; to provide for the creation of a retirement

 5  board; within the department of management and budget; to

 6  prescribe the powers and duties of the retirement board; to

 7  prescribe the powers and duties of certain state departments,

 8  agencies, officials, and employees; to authorize and make

 9  appropriations for the [retirement] system; to prescribe penalties

10  and provide remedies; and to repeal acts and parts of acts.

11        Sec. 5. (1) "Member" means a public school employee, except

12  that member does not include any of the following:

13        (a) A person enrolled in a neighborhood youth corps program

14  operated with funds from the federal office of economic

15  opportunity or a person enrolled in a comparable youth training

16  program designed to prevent high school dropouts and rehabilitate

17  high school dropouts operated by an intermediate school district.

18        (b) A person enrolled in a transitional public employment

19  program and employed by a reporting unit.

20        (c) A person employed by a reporting unit while enrolled as

21  a full-time student in that same reporting unit.

22        (d) A person who elects to participate in the optional

23  retirement program under the optional retirement act of 1967,

24  1967 PA 156, MCL 38.381 to 38.388.

25        (e) A retirant of this retirement system.

 1        (f) A person, not regularly employed by a reporting unit,

 2  who is employed by a reporting unit through a summer youth

 3  employment program established pursuant to the Michigan youth

 4  corps act, 1983 PA 69, MCL 409.221 to 409.229.

 5        (g) A person, not regularly employed by a reporting unit,

 6  who is employed by a reporting unit to administer a program

 7  described in subdivision (f), (h), (i), (j), or (k).

 8        (h) After September 30, 1983, a person, not regularly

 9  employed by a reporting unit, who is employed by a reporting unit

10  through participation in a program established pursuant to the

11  former job training partnership act, Public Law 97-300, 96 Stat.

12  1322 or beginning July 1, 2000, the workforce investment act of

13  1998, Public Law 105-220, 112 Stat. 936.

14        (i) A person, not regularly employed by a reporting unit,

15  who is employed by a reporting unit through participation in a

16  program established pursuant to the work first program under

17  section 57f of the social welfare act, 1939 PA 280, MCL 400.57f.

18        (j) A person, not regularly employed by a reporting unit,

19  who is employed by a reporting unit through participation in a

20  program established pursuant to the Michigan community service

21  corps program, first established under sections 25 to 35 of 1983

22  PA 259.

23        (k) A person, not regularly employed by a reporting unit,

24  who is employed by a reporting unit through participation in a

25  program established pursuant to the older American community

26  service employment program under the older American community

27  service employment act, title V of the older Americans act of

 1  1965, Public Law 89-73, 42 U.S.C. USC 3056 to 3056i.

 2        (l) A person, not regularly employed by a reporting unit, who

 3  is employed by a reporting unit in a temporary, intermittent, or

 4  irregular seasonal or athletic position and who is under the age

 5  of 19 years.

 6        (m) A person, not regularly employed by a reporting unit,

 7  who is employed by a reporting unit only in a temporary position

 8  to assist in the conduct of a school election.

 9        (n) A qualified participant who makes a valid election under

10  section 81d to not become a member of Tier 1.

11        (2) "Membership service" means service performed after June

12  30, 1945.

13        (3) "Noncontributory plan" means the plan which began

14  between July 1, 1974 and July 1, 1977, in which the reporting

15  unit elected to discontinue withholding contributions from

16  employees' compensation.

17        (4) "Noncontributory service" means credited service

18  rendered under the noncontributory plan.

19        (5) "Nonteacher" means a person employed by a reporting unit

20  who is not a teacher as defined in section 8(4).

21        Sec. 6. (1) "Original member" means a member employed in

22  Michigan public schools before July 1, 1945.

23        (2) "Out of system public education service" means service

24  performed in public education meeting 1 or more of the following

25  requirements:

26        (a) Performed in other states in the United States or its

27  territorial possessions.

 1        (b) Performed at the university of Michigan, Michigan state

 2  university, Wayne state university, Grand Valley state

 3  university, Oakland university, or Saginaw Valley university.

 4        (c) Service purchased before January 31, 1991 and performed

 5  in a juvenile training school operated by a county in this state.

 6        (d) Service purchased before January 31, 1991 and performed

 7  in a community mental health service program operated under

 8  former Act No. 54 of the Public Acts of 1963 1963 PA 54 for the

 9  severely mentally retarded in day care programs, day training

10  programs, or day care training programs that were transferred to

11  an intermediate school district by direction of the department of

12  education.

13        (e) Service purchased before January 31, 1991 and performed

14  as an elementary or secondary teacher at a United States armed

15  forces military base in the United States or a foreign country.

16        (f) Service purchased before January 31, 1991 and performed

17  as a teacher or administrator of American nationals in overseas

18  public elementary or secondary schools operated by the United

19  States department of defense.

20        (g) Performed by a person an individual who first becomes

21  employed by an institution of higher education described in

22  section 4, 5, or 6 of article VIII of the state constitution of

23  1963 on or after January 1, 1996.

24        (3) "Prior service" means service performed before July 1,

25  1945.

26        (4) "Public local school district" means a general powers

27  school district organized under the revised school code, 1976 PA

 1  451, MCL 380.1 to 380.1852, regardless of previous

 2  classification, or a school district of the first class under the

 3  revised school code, 1976 PA 451, MCL 380.1 to 380.1852.

 4  (5) (4) Except as otherwise provided in this subsection,

 5  "public school academy" means a public school academy established

 6  under part 6a or 6b of the revised school code, of 1976, Act No.

 7  451 of the Public Acts of 1976, being sections 380.501 to 380.507

 8  and 380.511 to 380.518 of the Michigan Compiled Laws 1976 PA 451,

 9  MCL 380.501 to 380.507; an urban high school academy established

10  under part 6c of the revised school code, 1976 PA 451, MCL

11  380.521 to 380.529; a school of excellence established under part

12  6e of the revised school code, 1976 PA 451, MCL 380.551 to

13  380.561; or a strict discipline academy established under

14  sections 1311b to 1311m of the revised school code, 1976 PA 451,

15  MCL 380.1311b to 380.1311m. Public school academy does not

16  include any of the following:

17        (a) A public school academy operated by a state public

18  university that is not subject to the optional retirement act of

19  1967, Act No. 156 of the Public Acts of 1967, being sections

20  38.381 to 38.388 of the Michigan Compiled Laws 1967 PA 156, MCL

21  38.381 to 38.388.

22        (b) A public school academy corporation formed by a state

23  public university that is not subject to Act No. 156 of the

24  Public Acts of 1967 the optional retirement act of 1967, 1967 PA

25  156, MCL 38.381 to 38.388.

26  (6) (5) Except as otherwise provided in this subsection,

27  "public school employee" means an employee of a public local

 1  school district, intermediate school district, public school

 2  academy, tax supported community or junior college, eastern

 3  Michigan university, central Michigan university, northern

 4  Michigan university, western Michigan university, Ferris state

 5  university, Michigan technological university, Lake Superior

 6  state university, or district library as defined in section 69g

 7  if the conditions in section 69g(1) are met for that employee.

 8  Service at Michigan technological university shall be creditable

 9  only if the amount of the accumulated contributions in the state

10  employees' retirement system created by the state employees'

11  retirement act, Act No. 240 of the Public Acts of 1943, being

12  sections 38.1 to 38.48 of the Michigan Compiled Laws 1943 PA 240,

13  MCL 38.1 to 38.69, for service is paid to the retirement system.

14  Service at Ferris state university shall be creditable as prior

15  service or membership service only if the employee was employed

16  at Ferris state university on a full-time basis for 2 or more

17  years after May 17, 1949. Until January 1, 1988, public school

18  employee also includes a person an individual holding a Michigan

19  teacher certificate and serving as an employee of the Michigan

20  high school athletic association, other than a person whose

21  effective date of employment with the Michigan high school

22  athletic association is on or after December 31, 1986. Public

23  school employee includes a public school employee on an approved

24  leave of absence that does not exceed 2 years from the date the

25  employee ceases to accumulate service credit. Public school

26  employee does not include a person an individual who first

27  becomes employed by a university described in this subsection on

 1  or after January 1, 1996, or an employee who is hired but has not

 2  yet performed services for remuneration under an express or

 3  implied contract with a reporting unit.

 4        Sec. 8. (1) "Service" means personal service performed as a

 5  public school employee or creditable under this act.

 6        (2) "Simple interest" means interest at 1 or more rates per

 7  annum determined by the retirement board.

 8        (3) "State of Michigan service" means service performed as a

 9  state employee in the classified or unclassified service under

10  the state employees' retirement act, 1943 PA 240, MCL 38.1 to

11  38.69.

12        (4) "Teacher" means a person employed by a reporting unit

13  who is engaged in teaching, who is engaged in administering and

14  supervising teaching, or who is under a teacher's contract with a

15  reporting unit.

16        (5) "Tier 1" means the retirement plan available to a member

17  under this act.

18        (6) "Tier 2" means the state of Michigan 457 plan

19  established under section 457 of the internal revenue code, 26

20  USC 457, for elective employee contributions and the state of

21  Michigan 401(k) plan established under section 401(k) of the

22  internal revenue code, 26 USC 401, for employer contributions.

23  (7) (5) "Transitional public employment program" means

24  participation in public service employment programs in the areas

25  of environmental quality, health care, education, public safety,

26  crime prevention and control, prison rehabilitation,

27  transportation, recreation, maintenance of parks, streets, and

 1  other public facilities, solid waste removal, pollution control,

 2  housing and neighborhood improvements, rural development,

 3  conservation, beautification, veterans' outreach, and other

 4  fields of human betterment and community improvement as part of a

 5  program of comprehensive manpower services authorized,

 6  undertaken, and financed under the comprehensive employment and

 7  training act of 1973, former Public Law 93-203, 87 Stat. 839.

 8        Sec. 25. (1) The board shall have only the rights,

 9  authority, and discretion in the proper discharge of its duties

10  provided in this act and former 1945 PA 136.

11        (2) The retirement board may promulgate rules pursuant to

12  the administrative procedures act of 1969, 1969 PA 306, MCL

13  24.201 to 24.328, for the implementation and administration of

14  this act. The retirement board shall not promulgate rules for the

15  establishment, implementation, administration, operation,

16  investment, or distribution of a Tier 2 retirement plan.

17        (3) Beginning July 1, 2012, the retirement system shall

18  commence a 12-month study period under this subsection. As soon

19  as possible during the study period, the retirement system shall

20  provide to central Michigan university, Ferris state university,

21  Lake Superior state university, Michigan technological

22  university, northern Michigan university, western Michigan

23  university, and eastern Michigan university information and

24  cooperation requested by the universities for the purpose of

25  allowing the universities to study and prepare for the

26  implementation of new retiree health care coverage benefit design

27  options for members who retire from the universities. The

Senate Bill No. 1040 (H-3) as amended June 14, 2012

 1  information to be provided by the retirement system to the

 2  universities shall also include information sufficient to allow

 3  the universities to do all of the following:

 4        (a) Review the annual cost to the retirement system over

 5  each of the past 5 years of the health care coverage benefits

 6  provided by the retirement system to the [ ] retired

 7  members [OF THE UNIVERSITIES], calculated on a cash disbursement method.

 8        (b) Compare the [cost to the universities] under subdivision (a)

    with

 9  that of the aggregate cost of all reporting units during the past

10  5 years, calculated on a cash disbursement basis.

11        (c) Prepare and submit the results of the study under this

12  subsection to the retirement system, along with any proposed

13  recommendations on possible changes to the scope and design of

14  the health benefits available through the retirement system to

15  members who retire from the universities identified in this

16  subsection. The retirement system shall submit written

17  confirmation to the universities within 180 days that the

18  retirement system has received the results of the study and any

19  recommendations under this subdivision, has reviewed and

20  responded to the study and any recommendations, and has submitted

21  a copy of the study and any recommendations to the retirement

22  board for a discussion of the implementation of any

23  recommendations.

24        Sec. 41. (1) The annual level percentage of payroll

25  contribution rate or rate applied to current operating

26  expenditures, as applicable, to finance benefits being provided

27  and to be provided by the retirement system shall be determined

 1  by actuarial valuation pursuant to subsection (2) upon the basis

 2  of the risk assumptions that the retirement board and the

 3  department adopt after consultation with the state treasurer and

 4  an actuary. An annual actuarial valuation shall be made of the

 5  retirement system in order to determine the actuarial condition

 6  of the retirement system and the required contribution to the

 7  retirement system. An annual actuarial gain-loss experience study

 8  of the retirement system shall be made in order to determine the

 9  financial effect of variations of actual retirement system

10  experience from projected experience.

11        (2) Except as otherwise provided in this subsection, the

12  contribution rate for benefits shall be computed using an

13  individual projected benefit entry age normal cost method of

14  valuation. Except as otherwise provided in this section, for the

15  1995-96 state fiscal year and for each subsequent fiscal year

16  before the 2012-2013 state fiscal year, the contribution rate for

17  health benefits provided under section 91 shall be computed using

18  a cash disbursement method. For each fiscal year after the fiscal

19  year in which the actuarial accrued liability for health benefits

20  under section 91 is at least 100% funded by the health advance

21  funding subaccount created under section 34(2), the contribution

22  rate for health benefits provided under section 91 shall be

23  computed using an individual projected benefit entry age normal

24  cost method of valuation. The contribution rate for service

25  likely to be rendered in the current year, the normal cost

26  contribution rate, shall be equal to the aggregate amount of

27  individual projected benefit entry age normal costs divided by 1%

Senate Bill No. 1040 (H-3) as amended June 14, 2012

 1  of the aggregate amount of active members' valuation

 2  compensation. Except as otherwise provided under this subsection,

 3  the contribution rate for unfunded service rendered before the

 4  valuation date, the unfunded actuarial accrued liability

 5  contribution rate, shall be the aggregate amount of unfunded

 6  actuarial accrued liabilities divided by 1% of the actuarial

 7  present value over a period not to exceed 50 years of projected

 8  valuation compensation and a separate rate based on projected

 9  current operating expenditures as calculated for the 2013-2014

10  state fiscal year and each subsequent state fiscal year, where

11  unfunded actuarial accrued liabilities are equal to the actuarial

12  present value of benefits, reduced by the actuarial present value

13  of future normal cost contributions and the actuarial value of

14  assets on the valuation date. Beginning with the 2013-2014 state

15  fiscal year, the unfunded actuarial accrued liability

16  contribution rate and payment schedule for public local school

17  districts shall be applied to calculated current operating

18  expenditures. The unfunded actuarial accrued liability

19  contribution rate calculated and applied to current operating

20  expenditures shall be calculated after the unfunded actuarial

21  accrued liability contribution rate based on projected valuation

22  compensation is calculated and applied to payroll of reporting

23  units other than public local school districts, based on prior

24  base year data [PROJECTED FORWARD 3 YEARS] and methods as determined by

    the retirement system

25  and in consultation with the system actuary. Beginning with the

26  2012-2013 state fiscal year and for each subsequent fiscal year,

27  the unfunded actuarial accrued liability contribution rate

 1  applied to calculated current operating expenditures shall not

 2  exceed 11.9% and the unfunded actuarial accrued liability

 3  contribution rate applied to payroll shall not exceed 20.96%. Any

 4  additional unfunded actuarial accrued liability contributions as

 5  determined under this section for each fiscal year are to be paid

 6  by appropriation from the school aid fund established by section

 7  11 of article IX of the state constitution of 1963. Except as

 8  otherwise provided in section 41a, the unfunded actuarial accrued

 9  liability contribution rate shall be based upon and applied to

10  the combined payrolls of the employees who are members and

11  qualified participants.

12        (3) Before November 1 of each year, the executive secretary

13  of the retirement board shall certify to the director of the

14  department the aggregate compensation estimated to be paid public

15  school employees for the current state fiscal year and the

16  estimated current operating expenditures for the current school

17  fiscal year.

18        (4) On the basis of the estimate under subsection (3), the

19  annual actuarial valuation, and any adjustment required under

20  subsection (6), the director of the department shall compute the

21  sum due and payable to the retirement system and shall certify

22  this amount to the reporting units.

23        (5) The reporting units shall make payment of the amount

24  certified under subsection (4) to the director of the department

25  in 12 equal monthly payroll cycle installments for unfunded

26  actuarial accrued liability contributions and payroll cycle

27  installments for normal cost contributions.

 1        (6) Not later than 90 days after termination of each state

 2  fiscal year, the executive secretary of the retirement board

 3  shall certify to the director of the department and each

 4  reporting unit the actual aggregate compensation paid to public

 5  school employees during the preceding state fiscal year. Upon

 6  receipt of that certification, the director of the department

 7  shall may compute any adjustment required to the amount due to a

 8  difference between the estimated and the actual aggregate

 9  compensation and the estimated and the actual actuarial employer

10  contribution rate. The difference, if any, shall be paid as

11  provided in subsection (9). This subsection does not apply in a

12  fiscal year in which a deposit occurs pursuant to subsection

13  (14).

14        (7) The director of the department may require evidence of

15  correctness and may conduct an audit of the aggregate

16  compensation that the director of the department considers

17  necessary to establish its correctness.

18        (8) A reporting unit shall forward employee and employer

19  social security contributions and reports as required by the

20  federal old-age, survivors, disability, and hospital insurance

21  provisions of title II of the social security act, chapter 531,

22  49 Stat. 620, 42 USC 401 to 405, 406 to 418, 420 to 423, 424a to

23  426-1, and 427 to 433.42 USC 401 to 434.

24        (9) For an employer of an employee of a local public school

25  district or an intermediate school district, for differences

26  occurring in fiscal years beginning on or after October 1, 1993,

27  a minimum of 20% of the difference between the estimated and the

 1  actual aggregate compensation and the estimated and the actual

 2  actuarial employer contribution rate described in subsection (6),

 3  if any, shall be paid by that employer in the next succeeding

 4  state fiscal year and a minimum of 25% of the remaining

 5  difference shall be paid by that employer in each of the

 6  following 4 state fiscal years, or until 100% of the remaining

 7  difference is submitted, whichever first occurs. For an employer

 8  of other public school employees, for differences occurring in

 9  fiscal years beginning on or after October 1, 1991, a minimum of

10  20% of the difference between the estimated and the actual

11  aggregate compensation and the estimated and the actual actuarial

12  employer contribution rate described in subsection (6), if any,

13  shall be paid by that employer in the next succeeding state

14  fiscal year and a minimum of 25% of the remaining difference

15  shall be paid by that employer in each of the following 4 state

16  fiscal years, or until 100% of the remaining difference is

17  submitted, whichever first occurs. In addition, interest shall be

18  included for each year that a portion of the remaining difference

19  is carried forward. The interest rate shall equal the actuarially

20  assumed rate of investment return for the state fiscal year in

21  which payment is made. This subsection does not apply in a fiscal

22  year in which a deposit occurs pursuant to subsection (14).

23        (10) Beginning on the designated date, all assets held by

24  the retirement system shall be reassigned their fair market

25  value, as determined by the state treasurer, as of the designated

26  date, and in calculating any unfunded actuarial accrued

27  liabilities, any market gains or losses incurred before the

 1  designated date shall not be considered by the retirement

 2  system's actuaries.

 3        (11) Except as otherwise provided in this subsection,

 4  beginning on the designated date, the actuary used by the

 5  retirement board shall assume a rate of return on investments of

 6  8.00% per annum, as of the designated date, which rate may only

 7  be changed with the approval of the retirement board and the

 8  director of the department. Beginning on July 1, 2010, the

 9  actuary used by the retirement board shall assume a rate of

10  return on investments of 7.00% per annum for investments

11  associated with members who first became members on and after

12  July 1, 2010, which rate may only be changed with the approval of

13  the retirement board and the director of the department.

14        (12) Beginning on the designated date, the value of assets

15  used shall be based on a method that spreads over a 5-year period

16  the difference between actual and expected return occurring in

17  each year after the designated date and such methodology may only

18  be changed with the approval of the retirement board and the

19  director of the department.

20        (13) Beginning on the designated date, the actuary used by

21  the retirement board shall use a salary increase assumption that

22  projects annual salary increases of 4%. In addition to the 4%,

23  the retirement board shall use an additional percentage based

24  upon an age-related scale to reflect merit, longevity, and

25  promotional salary increase. The actuary shall use this

26  assumption until a change in the assumption is approved in

27  writing by the retirement board and the director of the

 1  department.

 2        (14) For fiscal years that begin on or after October 1,

 3  2001, if the actuarial valuation prepared pursuant to this

 4  section demonstrates that as of the beginning of a fiscal year,

 5  and after all credits and transfers required by this act for the

 6  previous fiscal year have been made, the sum of the actuarial

 7  value of assets and the actuarial present value of future normal

 8  cost contributions exceeds the actuarial present value of

 9  benefits, the amount based on the annual level percent of payroll

10  contribution rate or rate applied to current operating

11  expenditures, as applicable, pursuant to subsections (1) and (2)

12  may be deposited into the health advance funding subaccount

13  created by section 34.

14        (15) Notwithstanding any other provision of this act, if the

15  retirement board establishes an arrangement and fund as described

16  in section 6 of the public employee retirement benefit protection

17  act, 2002 PA 100, MCL 38.1686, the benefits that are required to

18  be paid from that fund shall be paid from a portion of the

19  employer contributions described in this section or other

20  eligible funds. The retirement board shall determine the amount

21  of the employer contributions or other eligible funds that shall

22  be allocated to that fund and deposit that amount in that fund

23  before it deposits any remaining employer contributions or other

24  eligible funds in the pension fund.

25        (16) Beginning with the 2012-2013 state fiscal year, the

26  actuary used by the retirement board shall use a current

27  operating expenditure increase assumption that projects annual

 1  current operating expenditure increases of 3.5%.

 2        (17) As used in this section, "current operating

 3  expenditures" for a public local school district includes

 4  functions 1xx, 2xx, 45x, and all object codes except 6xxx, as

 5  defined in the Michigan Public School Accounting Manual Bulletin

 6  1022, and is equal to the total of instructional and support

 7  services expenditures, including the total general fund charges

 8  incurred in the general, special education, and vocational

 9  education funds for the benefit of the current fiscal year,

10  whether paid or unpaid, and all expenditures of the instructional

11  programs plus applicable supporting service costs reduced by

12  capital outlay, debt service, community services, and outgoing

13  transfers and other transactions. Current operating expenditures

14  for a public local school district also include operating funds

15  for any public school or other public educational entity first

16  authorized or established by the public local school district on

17  or after the effective date of the amendatory act that added this

18  subsection.

19        Sec. 41a. For fiscal years that begin on or after March 28,

20  1996, the retirement system shall determine a separate

21  contribution rate for a reporting unit that is a university

22  listed in the definition of public school employee under section

23  6(5) 6. The retirement system shall determine the separate

24  contribution rate in the manner prescribed in section 41, except

25  that the unfunded actuarial accrued liability shall be amortized

26  over 40 years beginning October 1, 1996 and ending on September

27  30, 2036, with the payment schedule for universities being based

 1  on and applied to the combined payrolls of the universities'

 2  employees who are members and who were hired before January 1,

 3  1996 and the universities' employees who would have been members

 4  on or after January 1, 1996, but for the enactment of 1995 PA

 5  272. The amount of the unfunded accrued liability on which the

 6  separate contribution rate is determined shall be that amount

 7  which a reporting unit that is a university listed in the

 8  definition of public school employee under section 6(5) 6 is

 9  legally responsible for and is calculated by actuarial analysis.

10  Any reduction in the unfunded liability of the system pursuant to

11  governmental action affecting the entire system will be allocated

12  to all reporting units including universities as determined by

13  the system's actuary. For the 2006-2007 state fiscal year, the

14  contribution for unfunded actuarial accrued liability shall be

15  equal to 4.5% of the unfunded actuarial accrued liability.

16        Sec. 42. (1) Beginning with the 1994-95 state fiscal year, a

17  reporting unit shall contribute the entire percentage, amount

18  determined under section 41(2), of the aggregate annual

19  compensation of all employees who are members under the

20  noncontributory plan as provided by section 63 41 to the reserve

21  for employer contributions and to the reserve for health

22  benefits. The reporting unit contribution under this subsection

23  is the exclusive obligation of the reporting unit payable out of

24  general budget resources of the reporting unit, including funds

25  available under local millage and other local resources and from

26  the state school aid allocation to the reporting unit, and shall

27  not be a separate obligation by specific reimbursement or

 1  otherwise of this state.

 2        (2) As authorized by resolution or other enabling act of its

 3  governing body, the employer shall pick up all contributions of a

 4  member made pursuant to section 43a for all compensation paid on

 5  or after January 1, 1987 and reported to the retirement system.

 6  Although considered contributions of a member for certain

 7  purposes under this act, all contributions picked up shall be

 8  treated as paid by the employer in lieu of contributions by the

 9  employee. Contributions picked up as provided in this subsection

10  shall be paid from the same source of funds that is used for

11  paying compensation to the member. The employer may pick up these

12  contributions by either a reduction to the member's cash salary,

13  an offset against a future salary increase, or a combination of a

14  reduction in salary and offset against a future salary increase.

15  This subsection does not apply, and the employer shall not

16  deduct, offset, or remit contributions, until the department

17  receives notification from the United States internal revenue

18  service that contributions picked up shall not be included as

19  gross income of the member until they are distributed or made

20  available to the member, retirant, retirement allowance

21  beneficiary, or refund beneficiary.

22        (3) The employer shall deduct from a member's compensation

23  the contributions for social security provided in 1951 PA 205,

24  MCL 38.851 to 38.871. Contributions shall be made while the

25  member remains a public school employee. Each reporting unit

26  official shall deduct the social security contributions from the

27  compensation of each member for each payroll period after the

 1  date the employee becomes a member. Social security contributions

 2  shall be made notwithstanding that the minimum compensation

 3  provided by law is changed. Each member is considered to have

 4  agreed to the contributions prescribed in this subsection.

 5        (4) Each reporting unit official shall forward member

 6  contributions to the retirement system on a schedule and in a

 7  manner determined by the retirement system.

 8        (5) Each reporting unit official shall forward the entire

 9  employer contribution required by this act to the retirement

10  system on a schedule and in a manner determined by the retirement

11  system.

12        (6) Each reporting unit official shall submit to the

13  retirement system a report that includes the information for

14  retirement purposes, including, but not limited to, persons

15  employed, retirants performing services at a reporting unit who

16  are employed by an entity other than the reporting unit or who

17  are independent contractors, wages or amounts paid, hours, and

18  contributions required under this act. The report shall contain

19  the information on a pay period basis and shall be submitted to

20  the retirement system on a schedule and in a manner determined by

21  the retirement system. The superintendent for a reporting unit or

22  the chief administrator for a reporting unit that does not have a

23  superintendent shall complete an annual certification that gives

24  authorization for the employees of the reporting unit to report

25  the information to the retirement system.

26        (7) If a reporting unit fails to submit a report or

27  contributions, or both, according to the schedule established by

 1  the retirement board, a late fee shall be paid by the reporting

 2  unit. If the remittance of contributions is late, the late fee

 3  shall include interest for each day that the remittance of

 4  contributions is late. The retirement board periodically may

 5  establish the late fee, which shall not be less than $25.00, and

 6  interest charges, which shall not be less than 6% per annum. If a

 7  reporting unit fails to correct errors on a report before the

 8  errors are discovered by the retirement system or if such errors

 9  are intentional, the reporting unit shall pay the late fee and

10  interest charges as described in this subsection for each day

11  that the report is in error, unless reasonable cause is shown to

12  the satisfaction of the retirement system.

13        (8) Upon written notice from the retirement board, the

14  superintendent of public instruction and the state treasurer

15  shall withhold payment of state funds, in part or in whole,

16  payable from the state school aid appropriation or higher

17  education appropriations to a reporting unit that fails to comply

18  with this section.

19        Sec. 43a. (1) The contributions of a member who contributes

20  to the member investment plan shall be deducted by the employer

21  and remitted as employer contributions to the retirement system

22  pursuant to section 42. A member who contributes to the member

23  investment plan is entitled to the benefits provided in sections

24  43b and 43c.

25        (2) Until December 31, 1989 Except as otherwise provided in

26  subsection (7), a member who first became a member on or before

27  December 31, 1989 , and who elected or elects on or before

 1  December 31, 1989 to contribute to the member investment plan

 2  shall contribute 4% of the member's compensation to the member

 3  investment plan and beginning January 1, 1990 shall contribute

 4  3.9% of the member's compensation to the member investment plan.

 5        (3) On or before January 1, 1993, a member who first became

 6  a member on or before December 31, 1989, except as otherwise

 7  provided in subsection (4), and who did not elect to make

 8  contributions to the member investment plan, may irrevocably

 9  elect to make the contributions described in subsection (2). In

10  addition to making the contributions required under subsection

11  (2), a member who elects to make contributions to the member

12  investment plan under this subsection shall make a contribution

13  of 4% of the compensation received on or after January 1, 1987 to

14  December 31, 1989, and 3.9% of the compensation received on or

15  after January 1, 1990 to the date of the election, plus an amount

16  equal to the compound interest that would have accumulated on

17  those contributions as described in section 33, plus an amount

18  equal to the net actuarial cost of the additional benefits

19  attributable to service credited before January 1, 1987, as

20  determined by the retirement board. The method and timing of

21  payment by a member under this subsection shall be determined by

22  the retirement board. The contributions made under this

23  subsection shall be deposited into the reserve for employee

24  contributions.

25  (3) (4) A Except as otherwise provided in subsection (7), a

26  member who first became a member on or before December 31, 1986

27  but did not perform membership service between December 31, 1986

 1  and January 1, 1990, and who returns to membership service on or

 2  after January 1, 1990 and before July 1, 2008, shall make the

 3  contributions described in subsection (7).(5).

 4  (4) (5) A Except as otherwise provided in subsection (7), a

 5  member who first became a member on or after January 1, 1990 and

 6  before July 1, 2008 shall make the contributions described in

 7  subsection (7).(5).

 8        (6) A member who first became a member on or after January

 9  1, 1987 but before January 1, 1990 shall have 30 days from his or

10  her first date of employment to irrevocably elect to make the

11  contributions described in subsection (2).

12  (5) (7) A Except as otherwise provided in subsection (7), a

13  member who first became a member on or after January 1, 1990 and

14  before July 1, 2008 shall contribute the following amounts to the

15  member investment plan:

16 Member's annual school fiscal Amount payable to the member

17 year earned compensation investment plan

18 Not over $5,000.00                     3% of member's compensation

19 Over $5,000.00 but not over            $150.00, plus 3.6% of the

20 $15,000.00                             excess over $5,000.00

21 Over $15,000.00                        $510.00, plus 4.3% of the

22                                        excess over $15,000.00

23  (6) (8) A Except as otherwise provided in subsection (7), a

24  member who first became a member on or after July 1, 2008 shall

25  contribute the following amounts to the member investment plan:

26 Member's annual school Amount payable to the member

1  fiscal year earned compensation investment plan

2  Not over $5,000.00                     3% of member's compensation

3  Over $5,000.00 but not over            $150.00, plus 3.6% of excess

4  $15,000.00                             over $5,000.00

5  Over $15,000.00                        $510.00, plus 6.4% of the

6                                         excess over $15,000.00

 7        (7) Beginning [november] 1, 2012, a member described in

 8  subsections (2) to (6) who makes the election under section 59(1)

 9  and who does not make the attainment date designation under

10  section 59(1) shall contribute the percentage of the member's

11  annual school fiscal year earned compensation to the retirement

12  system as prescribed in section 43g until termination of

13  employment. Beginning [november] 1, 2012, a member described in

14  subsections (2) to (6) who makes the election and attainment date

15  designation under section 59(1) shall contribute the percentage

16  of the member's annual school fiscal year earned compensation to

17  the retirement system as prescribed in section 43g until his or

18  her attainment date and shall contribute the percentage of the

19  member's annual school fiscal year earned compensation to the

20  retirement system as prescribed in this section on and after his

21  or her attainment date until termination of employment. Beginning

22  [november] 1, 2012, a member described in subsections (2) to (6) who

23  makes or is considered to have made the alternative election

24  under section 59(2)(a) shall continue to contribute the

25  percentage of the member's annual school fiscal year earned

26  compensation to the retirement system as prescribed in this

27  section until termination of employment. Beginning [november] 1,

Senate Bill No. 1034 (H-3) as amended June 14, 2012

 1  2012, a member described in subsections (2) to (6) who makes the

 2  alternative election under section 59(2)(b) shall not contribute

 3  any percentage of the member's annual school fiscal year earned

 4  compensation to the retirement system under this section or

 5  section 43g.

 6        Sec. 43e. (1) Except as otherwise provided in this section

 7  or section 91a, beginning July 1, 2010, each member who first

 8  became a member before [August] 1, 2012 shall contribute 3% of the

 9  member's compensation to the appropriate funding account

10  established under the public employee retirement health care

11  funding act, 2010 PA 77, MCL 38.2731 to 38.2747. For the school

12  fiscal year that begins July 1, 2010, members who were employed

13  by a reporting unit and were paid less than $18,000.00 in the

14  prior school fiscal year and members who were hired on or after

15  July 1, 2010 with a starting salary less than $18,000.00 shall

16  contribute 1.5% of the member's compensation to the appropriate

17  funding account established under the public employee retirement

18  health care funding act. For each school fiscal year that begins

19  on or after July 1, 2011, members whose yearly salary is less

20  than $18,000.00 shall contribute 3% of the member's compensation

21  to the appropriate funding account established under the public

22  employee retirement health care funding act. The member

23  contributions under this section shall be deducted by the

24  employer and remitted as employer contributions in a manner that

25  the retirement system shall determine.

26        (2) As used in this act, section, "funding account" means

27  the appropriate irrevocable trust created in the public employee

Senate Bill No. 1040 (H-3) as amended June 14, 2012

 1  retirement health care funding act, 2010 PA 77, MCL 38.2731 to

 2  38.2747, for the deposit of funds and the payment of retirement

 3  health care benefits.

 4        Sec. 43g. (1) Beginning with the first payroll date after

 5  [november] 1, 2012 and ending upon the member's termination of

 6  employment or attainment date, as applicable under section 59(1),

 7  each member who made the election under section 59(1) shall

 8  contribute an amount equal to a percentage of his or her

 9  compensation to the reserve for employee contributions or to the

10  member investment plan as set forth in subdivision (a) or (b), as

11  applicable, to provide for the amount of retirement allowance

12  that is calculated only on the credited service accrued and

13  compensation earned by that member after [OCTober 31], 2012.

14  Subject to subsection (2), the member shall not contribute any

15  amount under this subsection for any years of credited service

16  accrued or compensation earned before [november] 1, 2012. Subject to

17  subsection (2), the amount to be contributed under this

18  subsection is as follows:

19        (a) For a member who does not contribute to the member

20  investment plan as of [July 15], 2012, 4% of compensation to the

21  reserve for employee contributions.

22        (b) For a member who does contribute to the member

23  investment plan as of [july 15], 2012, 7% of compensation to the

24  member investment plan.

25        (2) The retirement system shall determine a method of

26  deducting the contributions provided for in this section from the

27  compensation of each member for each payroll and each payroll

Senate Bill No. 1040 (H-3) as amended June 14, 2012

 1  period. The contributions under subsection (1) shall not exceed

 2  the total normal cost contribution rate.

 3        (3) The employer shall pick up the member contributions

 4  required by subsection (1) for all compensation earned on or

 5  after [november] 1, 2012. Contributions picked up shall be treated

 6  as employer contributions in determining tax treatment under the

 7  internal revenue code. The employer shall pay these member

 8  contributions from the same source of funds that is used in

 9  paying compensation to the member.

10        (4) A member is entitled to the benefit of all contributions

11  made under this section in the same manner as provided under

12  section 29.

13        Sec. 59. (1) The retirement system shall permit each

14  qualified member to make an election with the retirement system

15  to continue to receive credit for any future service and

16  compensation on and after [november] 1, 2012, for purposes of a

17  calculation of a retirement allowance under section 84b. As part

18  of the election under this subsection, the retirement system

19  shall permit the qualified member to make a designation that the

20  contributions prescribed in section 43g shall be paid only until

21  the member's attainment date. A qualified member who makes the

22  election and the attainment date designation under this

23  subsection shall make the contributions prescribed in section 43g

24  only until the member's attainment date and shall make the

25  contributions prescribed in section 43a on and after his or her

26  attainment date. A qualified member who makes the election and

27  the attainment date designation under this subsection shall

Senate Bill No. 1040 (H-3) as amended June 14, 2012

 1  continue to receive credit for any future service accrued and

 2  compensation earned after his or her attainment date for the

 3  purpose of the calculation of a retirement allowance under

 4  section 84b. A qualified member who makes the election under this

 5  subsection and who does not make the attainment date designation

 6  or rescinds the attainment date designation under this subsection

 7  shall make the contributions prescribed in section 43g until

 8  termination of employment. A qualified member who makes the

 9  election under this subsection and who does not make the

10  attainment date designation under this subsection shall receive

11  credit for any future service accrued and compensation earned for

12  the purpose of the calculation of a retirement allowance under

13  section 84b.

14        (2) The retirement system shall permit each qualified member

15  to make an alternative election described in this subsection with

16  the retirement system, if the qualified member does not make the

17  election or the election and designation under subsection (1). A

18  qualified member who does not make the election or the election

19  and designation under subsection (1) and who does not make an

20  alternative election described in this subsection is considered

21  to have made the alternative election described in subdivision

22  (a). A qualified member who does not make the election or the

23  election and designation under subsection (1) shall be permitted

24  to make 1 of the following alternative elections:

25        (a) To continue to receive credit for any future service and

26  compensation on and after [november] 1, 2012, for the purpose of the

27  calculation of a retirement allowance under section 84b. A

Senate Bill No. 1040 (H-3) as amended June 14, 2012

 1  qualified member who makes or is considered to have made the

 2  alternative election in this subdivision shall continue to make

 3  the employee contributions as provided in section 43a and shall

 4  not make the employee contributions described in section 43g.

 5        (b) To freeze all service and compensation accrued to that

 6  member as of [OCtober 31], 2012 for the purpose of the

 7  calculation of a retirement allowance under section 84b and,

 8  beginning [november] 1, 2012, to be eligible for the employer

 9  contribution to the member's Tier 2 account as provided in

10  section 84b. Beginning [november] 1, 2012, a qualified member who

11  makes the alternative election in this subdivision shall not make

12  the employee contributions described in section 43a or 43g.

13        (3) The retirement system shall determine a method of

14  accepting qualified member elections, designations, and

15  alternative elections under this section. The retirement system

16  shall accept elections, designations, and alternative elections

17  under this section from qualified members during an election

18  period that begins on July [16], 2012 and ends at 5 p.m. eastern

19  daylight time on [September 28], 2012. A qualified member may rescind

20  an election, designation, or alternative election before the

21  close of the election period. An election, designation, or

22  alternative election made by a qualified member and not rescinded

23  before the close of the election period shall not be rescinded.

24        (4) A qualified member who does not make or who rescinds the

25  election under subsection (1) on or before the close of the

26  election period and who makes or is considered to have made the

27  alternative election under subsection (2)(a) is subject to all of

Senate Bill No. 1040 (H-3) as amended June 14, 2012

 1  the following:

 2        (a) He or she ceases to receive credit for any future

 3  service and compensation for purposes of a calculation of a

 4  retirement allowance as prescribed in section 84, beginning 12

 5  midnight on [October 31], 2012.

 6        (b) He or she becomes subject to section 84b for any future

 7  service and compensation on or after 12:01 a.m. on [november] 1,

 8  2012 for purposes of a calculation of a retirement allowance.

 9        (c) He or she shall receive a retirement allowance

10  calculated under section 84 that is based only on credited

11  service and compensation allowed under section 84b(1) and (2).

12  This subdivision does not affect an individual's right to health

13  insurance coverage provided under section 91 or credit for

14  service provided under section 84b(7).

15        (5) A qualified member who does not make or who rescinds an

16  election under subsection (1) and who makes the alternative

17  election under subsection (2)(b) on or before the close of the

18  election period under this section is subject to all of the

19  following:

20        (a) He or she ceases to receive credit for any future

21  service and compensation for purposes of a calculation of a

22  retirement allowance as prescribed in section 84, beginning 12

23  midnight on [October 31], 2012.

24        (b) He or she becomes subject to section 84b for any future

25  service and compensation on or after 12:01 a.m. on [november] 1,

26  2012 for purposes of a calculation of a retirement allowance and

27  eligibility for the employer contribution to the member's Tier 2

 1  account.

 2        (c) He or she shall receive a retirement allowance

 3  calculated under section 84 that is based only on credited

 4  service and compensation allowed under section 84b(3) and (4).

 5  This subdivision does not affect an individual's right to health

 6  insurance coverage provided under section 91 or credit for

 7  service provided under section 84b(7).

 8        (6) A qualified member who makes the election and the

 9  attainment date designation under subsection (1) and who does not

10  rescind the election and designation on or before the close of

11  the election period under this section is subject to all of the

12  following:

13        (a) He or she ceases to receive credit for any future

14  service and compensation for purposes of a calculation of a

15  retirement allowance as prescribed in section 84, beginning 12

16  midnight on the member's attainment date.

17        (b) He or she becomes subject to section 84b for any future

18  service and compensation on or after 12:01 a.m. on the day after

19  the attainment date if he or she remains employed by an employer.

20        (c) He or she shall receive a retirement allowance

21  calculated under section 84 that is based only on credited

22  service and compensation allowed under section 84b(5) and (6).

23  This subdivision does not affect a person's right to health

24  insurance coverage provided under section 91 or credit for

25  service provided under section 84b(7).

26        (7) An individual who is not a qualified member, who was a

27  member before July 1, 2010, who is a deferred member or former

Senate Bill No. 1040 (H-3) as amended June 14, 2012

 1  nonvested member on [July 15], 2012, and who is reemployed on or

 2  after July [16,] 2012 shall be treated in the same manner as a

 3  member described in subsection (4) and shall become subject to

 4  section 84b for any future service and compensation.

 5        (8) Any member who is reemployed on or after July [16,] 2012

 6  and who, while a member, made an election, designation, or

 7  alternative election or is considered to have made an alternative

 8  election under this section shall be treated as retaining that

 9  election, designation, or alternative election on his or her date

10  of reemployment.

11        (9) As used in this section:

12        (a) "Attainment date" means that term as defined in section

13  84b.

14        (b) "Qualified member" means a member who meets all of the

15  following requirements:

16        (i) He or she first became a member before July 1, 2010.

17        (ii) He or she has earned service credit in the 12 months

18  ending [July 15], 2012 or was on an approved professional services

19  or military leave of absence on [July 15], 2012.

20        Sec. 81b. (1) Notwithstanding section 81, a member may

21  retire with a retirement allowance computed according to this

22  section if all of the following apply:

23        (a) The member files a written application with the

24  retirement board within the incentivized retirement application

25  period stating a retirement allowance effective date that is on

26  or after July 1, 2010 but not later than September 1, 2010. A

27  member may withdraw a written application submitted by a member

 1  on or before June 11, 2010. A written application submitted by a

 2  member and not withdrawn on or before June 11, 2010 is

 3  irrevocable.

 4        (b) On the last day of the month immediately preceding the

 5  retirement allowance effective date stated in the application,

 6  the member's combined age and length of credited service is equal

 7  to or greater than 80 years or the member is eligible to retire

 8  under section 81 with a retirement allowance that is not subject

 9  to reduction under section 84(2).

10        (c) The member was employed as a public school employee for

11  the 6-month period ending May 1, 2010. A member who has worked in

12  the 6-month period ending May 1, 2010 and is on layoff or on an

13  approved leave of absence status from reporting unit employment

14  is considered to have met the employment requirement of this

15  subdivision.

16        (2) Upon his or her retirement as provided in this section,

17  a member who retires with a retirement effective date on or

18  before September 1, 2010 shall receive a retirement allowance

19  equal to the member's number of years and fraction of a year of

20  credited service multiplied by 1.6% of the member's final average

21  compensation if the final average compensation is $90,000.00 or

22  less and the member is eligible to retire under section 81 with a

23  retirement allowance that is not subject to reduction under

24  section 84(2). If the member is eligible to retire under section

25  81 with a retirement allowance that is not subject to reduction

26  under section 84(2) and has a final average compensation that is

27  greater than $90,000.00, the retirement allowance shall be equal

 1  to the member's number of years and fraction of a year of

 2  credited service multiplied by 1.6% of his or her final average

 3  compensation up to a final average compensation of $90,000.00 and

 4  the remaining portion of the retirement allowance shall be equal

 5  to the member's number of years and fraction of a year of

 6  credited service multiplied by 1.5% of the portion of final

 7  average compensation over $90,000.00. For members eligible under

 8  this section because the member's combined age and length of

 9  credited service is equal to or greater than 80 years, upon his

10  or her retirement as provided in this section, a member who

11  retires with a retirement effective date on or before September

12  1, 2010 shall receive a retirement allowance equal to the

13  member's number of years and fraction of a year of credited

14  service multiplied by 1.55% of the member's final average

15  compensation if the final average compensation is $90,000.00 or

16  less. For members eligible to retire under this section because

17  the member's combined age and length of credited service is equal

18  to or greater than 80 years whose final average compensation is

19  greater than $90,000.00, the retirement allowance shall be

20  calculated so that the member receives a portion of his or her

21  retirement allowance equal to the member's number of years and

22  fraction of a year of credited service multiplied by 1.55% of his

23  or her final average compensation up to a final average

24  compensation of $90,000.00 and the remaining portion of the

25  retirement allowance shall be calculated as equal to the member's

26  number of years and fraction of a year of credited service

27  multiplied by 1.5% of the portion of final average compensation

 1  over $90,000.00.

 2        (3) Except as otherwise provided in this subsection, the

 3  superintendent for a reporting unit or the chief administrator

 4  for a reporting unit that does not have a superintendent may

 5  extend the effective date of retirement under subsection (1) of a

 6  member employed by that reporting unit to a date not later than

 7  September 1, 2011. Each reporting unit having a member who elects

 8  to retire under this section may extend the retirement effective

 9  date of 1 member under this section. Up to an additional 2,500

10  extensions shall be allotted to reporting units using a pro-rata

11  methodology determined by the retirement system. The retirement

12  system shall notify reporting units of any additional extension

13  allotments by May 22, 2010. To make an extension under this

14  subsection, the superintendent or chief administrator shall

15  submit to the retirement system notification of members whose

16  retirement dates the superintendent or chief administrator will

17  extend along with the written concurrence of the member on or

18  before June 15, 2010. The superintendent or chief administrator

19  shall not request, and the retirement system shall not implement,

20  the extension of a member that exceeds the number of extensions

21  allotted to his or her reporting unit.

22        (4) For purposes of this section, "incentivized retirement

23  application period" means the period beginning on the effective

24  date of the amendatory act that added this section May 19, 2010

25  and ending on June 11, 2010.

26        (5) Any additional costs to the retirement system as a

27  result of the retirement allowance calculations under this

Senate Bill No. 1040 (H-3) as amended June 14, 2012

 1  section shall be amortized over a 5-year 10-year period.

 2        Sec. 81d. (1) The retirement system shall permit each

 3  qualified participant who first becomes a qualified participant

 4  and first works for a reporting unit on or after [August] 1, 2012 to

 5  make an election to not become a member of Tier 1 and become only

 6  a qualified participant in Tier 2.

 7        (2) The retirement system shall determine a method of

 8  accepting elections under subsection (1) and reporting units

 9  shall secure those elections during the period beginning on the

10  date of the individual's employment and ending upon the

11  expiration of 75 days from the individual's first payroll date.

12  An election under subsection (1) is irrevocable.

13        (3) An individual who does not make an election for any

14  reason on or before the close of the election period is

15  considered to have made an election to become a member of Tier 1

16  and is subject to all of the following as of the date of his or

17  her employment:

18        (a) He or she is eligible to accrue any service credit or

19  qualify for any retirement allowance under Tier 1 under the terms

20  as provided in section 81c.

21        (b) He or she is also a qualified participant under Tier 2.

22        (4) An individual who makes the election under subsection

23  (1) on or before the close of the election period is considered

24  to have made an election to not become a member of Tier 1 and is

25  subject to all of the following as of the date of his or her

26  employment:

27        (a) He or she is not eligible to accrue any service credit

 1  or qualify for any retirement allowance under Tier 1 under the

 2  terms as provided in section 81c.

 3        (b) He or she is only a qualified participant under Tier 2.

 4        (5) The retirement system shall collect from the individual

 5  all amounts required under sections 43a and 131(2) and shall

 6  collect all required employer contributions required under Tier 1

 7  from his or her date of employment. If an individual makes a

 8  valid election under subsection (1) to not become a member of

 9  Tier 1, the retirement system shall determine and implement a

10  method to reconcile employer and employee contributions to be

11  deposited to Tier 2, and any such employee contributions will be

12  considered to be elective contributions under section 131.

13        Sec. 84. (1) Except Subject to section 84b and except as

14  provided in subsection (2), upon the member's retirement from

15  service as provided in section 81, a member shall receive a

16  retirement allowance that equals the product of the member's

17  total years, and fraction of a year, of credited service

18  multiplied by 1.5% of the member's final average compensation. A

19  member shall not be allowed to use more than 15 years of out of

20  system public education service, or more out of system public

21  education service than service performed under this act or former

22  Act No. 136 of the Public Acts of 1945 1945 PA 136 unless, before

23  July 1, 1974, the member applied for out of system public

24  education service credit based upon payment of contributions for

25  the service as required under section 69, or former acts, in

26  which case the total out of system public education service

27  credited, not to exceed 15 years, shall be used to compute the

 1  member's retirement allowance if the minimum service requirements

 2  performed under this act or former acts or as a state employee

 3  under the state employees' retirement act, Act No. 240 of the

 4  Public Acts of 1943, as amended, 1943 PA 240, MCL 38.1 to 38.69,

 5  are met. Credit for state of Michigan service shall be on the

 6  same basis for eligibility for retirement provided in this act as

 7  if the service were performed under this act, former Act No. 136

 8  of the Public Acts of 1945, former Act No. 56 of the Public Acts

 9  of 1941, or former Act No. 184 of the Public Acts of 1937.1945 PA

10  136, former 1941 PA 56, or former 1937 PA 184.

11        (2) If a member having less than 30 years credited service

12  retires before the member's sixtieth birthday as provided in

13  section 81, the member's retirement allowance provided in

14  subsection (1) shall be reduced 1/2 of 1% for each month, and

15  fraction of a month, within the period from the effective date of

16  the member's retirement to the date of the member's sixtieth

17  birthday, and shall continue at that same percentage after

18  becoming 60 years of age.

19        (3) The reduction of 1/2 of 1% for each month and fraction

20  of a month from the member's retirement allowance effective date

21  to the date of the member's sixtieth birthday provided for in

22  former Act No. 136 of the Public Acts of 1945, 1945 PA 136,

23  applicable to a member who retired before July 1, 1974 and before

24  attainment of age 60, shall not apply to a member who retired

25  before that date, at age 55 or more, having 30 or more years of

26  credited service. The retirement allowance shall be recalculated

27  disregarding the reduction and the person receiving the

 1  retirement allowance shall be eligible to receive an adjusted

 2  retirement allowance based on the recalculation beginning January

 3  1, 1986, but shall not be eligible to receive the adjusted amount

 4  attributable to any month beginning before January 1, 1986.

 5        (4) The reduction provided for in subsection (2) shall not

 6  apply to a member who retires under either section 86 or 87, or

 7  to a retirement allowance beneficiary who is granted an allowance

 8  under section 43c(c), 89, or 90.

 9        (5) The retirement allowance of a person who satisfies the

10  requirements of this subsection shall be recalculated based on

11  1.5% of final average compensation times years of credited

12  service. The person receiving the retirement allowance shall be

13  eligible to receive an adjusted retirement allowance based on the

14  recalculation beginning January 1, 1986, but shall not be

15  eligible to receive the adjusted amount attributable to any month

16  beginning before January 1, 1986. A retirement allowance shall be

17  recalculated under this subsection if 1 of the following applies:

18        (a) The retirement allowance was payable to a retirant or

19  retirement allowance beneficiary under chapter II of former Act

20  No. 136 of the Public Acts of 1945 1945 PA 136 and the retirement

21  allowance effective date was on or after July 1, 1956 but before

22  July 1, 1974.

23        (b) The retirement allowance was payable to a plan II

24  retirant or retirement allowance beneficiary under chapter I of

25  former Act No. 136 of the Public Acts of 1945 1945 PA 136 and the

26  retirement allowance effective date was before July 1, 1974.

27        (6) A member retiring pursuant to section 81 who acquires at

Senate Bill No. 1040 (H-3) as amended June 14, 2012

 1  least 5 years of combined credited service under this act or

 2  under former Act No. 136 of the Public Acts of 1945, 1945 PA 136,

 3  and who is already in receipt of a retirement allowance under

 4  chapter II of former Act No. 136 of the Public Acts of 1945, 1945

 5  PA 136, may elect to return to the retirement system any

 6  retirement allowance payments received, and receive a single

 7  retirement allowance computed on the combined years of service

 8  credited under this act and any former act.

 9        Sec. 84b. (1) Beginning [November] 1, 2012, the calculation of

10  a retirement allowance under this act for a member who did not

11  make the election under section 59(1) and who made or is

12  considered to have made the alternative election under section

13  59(2)(a) shall include only the following items of credited

14  service, as applicable, multiplied by 1.5% of final average

15  compensation as provided in section 84:

16        (a) The years and fraction of a year of credited service

17  accrued to that member before [november] 1, 2012.

18        (b) Service credit that was purchased before [november] 1,

19  2012.

20        (c) Service credit that is purchased under a payment plan

21  pursuant to this act that was in effect as of [October 31], 2012.

22        (d) Credit for years of service under sections 73 and

23  108(10).

24        (2) Beginning [november] 1, 2012, the calculation of a

25  retirement allowance under this act for a member described in

26  subsection (1) shall also include the following items of credited

27  service, as applicable, multiplied by 1.25% of final average

Senate Bill No. 1040 (H-3) as amended June 14, 2012

 1  compensation:

 2        (a) The years and fraction of a year of credited service

 3  accrued to that member on and after [november] 1, 2012.

 4        (b) Service credit that was purchased on and after [november]

 5  1, 2012, except as provided in subsection (1)(c).

 6        (3) Beginning [november] 1, 2012, the calculation of a

 7  retirement allowance under this act for a member who did not make

 8  the election under section 59(1) and who made the alternative

 9  election under section 59(2)(b) shall include only the following

10  items of credited service, as applicable, multiplied by 1.5% of

11  final average compensation as provided in section 84:

12        (a) The years and fraction of a year of credited service

13  accrued to that member before [november] 1, 2012.

14        (b) Service credit that was purchased before [november] 1,

15  2012.

16        (c) Service credit that is purchased under a payment plan

17  pursuant to this act that was in effect as of [october 31], 2012.

18        (d) Credit for years of service under sections 73 and

19  108(10).

20        (4) Beginning [november] 1, 2012, the calculation of a

21  retirement allowance under this act for a member described in

22  subsection (3) shall not include any year or fraction of a year

23  of service performed by that member on and after [november] 1, 2012

24  or any service credit that is purchased by that member after

25  [november] 1, 2012, except as provided in subsection (3)(c).

26  Beginning with the first payroll date after [november] 1, 2012, and

27  ending upon the member's termination of service, the employer of

Senate Bill No. 1040 (H-3) as amended June 14, 2012

 1  a member described in subsection (3) shall contribute 4% of the

 2  member's compensation as defined in section 122(2) to the

 3  member's Tier 2 account. A member is vested in employer

 4  contributions made under this subsection according to the vesting

 5  provisions under section 132. A member shall be credited with

 6  years of service accrued under Tier 1 as of [november] 1, 2012 for

 7  purposes of meeting the applicable vesting requirements.

 8        (5) Beginning [november] 1, 2012, the calculation of a

 9  retirement allowance under this act for a member who makes the

10  election and attainment date designation under section 59(1)

11  shall include only the following items of credited service, as

12  applicable, multiplied by 1.5% of final average compensation as

13  provided in section 84:

14        (a) The years and fraction of a year of credited service

15  accrued to that member on or before the attainment date.

16        (b) Service credit that was purchased on or before the

17  attainment date.

18        (c) Service credit that is purchased under a payment plan

19  pursuant to this act that was in effect as of the attainment

20  date.

21        (d) Credit for years of service under sections 73 and

22  108(10).

23        (6) Beginning [november] 1, 2012, the calculation of a

24  retirement allowance under this act for a member described in

25  subsection (5) shall also include the following items of credited

26  service, as applicable, multiplied by 1.25% of final average

27  compensation:

Senate Bill No. 1040 (H-3) as amended June 14, 2012

 1        (a) The years and fraction of a year of credited service

 2  accrued to that member on and after the attainment date.

 3        (b) Service credit that was purchased on and after the

 4  attainment date, except as provided in subsection (5)(c).

 5        (7) Beginning [november] 1, 2012, a member described in

 6  subsection (1), (3), or (5) shall continue to accumulate years of

 7  service credit as necessary for the purpose of vesting in a

 8  retirement allowance and to determine when a retirement allowance

 9  may begin under this act, regardless of when the service credit

10  was accrued, except as otherwise provided in section 59(8). A

11  member described in subsection (1), (3), or (5) shall continue to

12  be treated as a member for all purposes, except as otherwise

13  provided in section 59(8) and except for the limitations on

14  credited service and calculation of a retirement allowance as

15  provided in subsections (1) through (6).

16        (8) The calculation of a retirement allowance under this act

17  for a member who makes the election under section 59(1) but who

18  does not make the attainment date designation under section 59(1)

19  shall include all items of credited service accrued to that

20  member, regardless of when the service credit was accrued, which

21  shall be multiplied by 1.5% of final average compensation as

22  provided in section 84.

23        (9) As used in this section, "attainment date" means the

24  final day of the pay period in which the member attains 30 years

25  of credited service.

26        Sec. 91. (1) Except as otherwise provided in this section,

27  the retirement system shall pay the entire monthly premium or

Senate Bill No. 1040 (H-3)as amended June 14, 2012

 1  membership or subscription fee for hospital, medical-surgical,

 2  and sick care benefits for the benefit of a retirant or

 3  retirement allowance beneficiary who elects coverage in the plan

 4  authorized by the retirement board and the department. Except as

 5  otherwise provided in this section, beginning January 1, 2013,

 6  the retirement system shall pay 80% of the entire monthly premium

 7  or membership or subscription fee for hospital, medical-surgical,

 8  and sick care benefits for the benefit of a retirant or

 9  retirement allowance beneficiary who elects coverage in the plan

10  authorized by the retirement board and the department.

11  [Except as otherwise provided in subsections (7) to (15), for a

12  retirant or retirement allowance beneficiary who is enrolled in the

13  hospital, medical-surgical, and sick care benefits plan on January 1,

14  2013 and who is eligible for medicare ]

15  on that date, the retirement system shall pay 90% of the entire

16  monthly premium or membership or subscription fee for hospital,

17  medical-surgical, and sick care benefits for the benefit of a

18  retirant or retirement allowance beneficiary who elects coverage

19  in the plan authorized by the retirement board and the

20  department. Except as otherwise provided in subsection (8), this

21  subsection does not apply to a retirant who first becomes a

22  member after June 30, 2008.

23        (2) The retirement system may pay up to the maximum of the

24  amount payable under subsection (1) toward the monthly premium

25  for hospital, medical-surgical, and sick care benefits for the

26  benefit of a retirant or retirement allowance beneficiary

27  enrolled in a group health insurance or prepaid service plan not

Senate Bill No. 1040 (H-3) as amended June 14, 2012

 1  authorized by the retirement board and the department, if

 2  enrolled before June 1, 1975, for whom the retirement system on

 3  July 18, 1983 was making a payment towards his or her monthly

 4  premium.

 5        (3) A retirant or retirement allowance beneficiary receiving

 6  hospital, medical-surgical, and sick care benefits coverage under

 7  subsection (1) or (2), until eligible for medicare, shall have an

 8  amount equal to the cost chargeable to a medicare recipient for

 9  part B of medicare deducted from his or her retirement allowance.

10        (4) The Until December 31, 2012, the retirement system shall

11  pay 90% of the monthly premium or membership or subscription fee

12  for dental[ AND VISION           ] benefits for the benefit of a

13  retirant or retirement allowance beneficiary who elects coverage

14  in the plan authorized by the retirement board and the

15  department. Except as otherwise provided in this section,

16  beginning January 1, 2013, the retirement system shall pay 80% of

17  the monthly premium or membership or subscription fee for dental[

18  aND VISION ] benefits for the benefit of a retirant or

19  retirement allowance beneficiary who elects coverage in the plan

20  authorized by the retirement board and the department.

21  [Except as otherwise provided in subsections (7) to (15), for a retirant

22  or retirement allowance beneficiary who is enrolled in the dental and

23  vision plan on January 1, 2013 and who is

24  ] 65 years of age or older

25  on that date, the retirement system shall pay 90% of the entire

26  monthly premium or membership or subscription fee for [DENTAL

27  AND VISION ] benefits for the benefit of a

House Bill No. 1040 (H-3) as amended June 14, 2012

 1  retirant or retirement allowance beneficiary who elects coverage

 2  in the plan authorized by the retirement board and the

 3  department. Payments shall begin under this subsection upon

 4  approval by the retirement board and the department of plan

 5  coverage and a plan provider. Except as otherwise provided in

 6  subsection (8), this subsection does not apply to a retirant who

 7  first becomes a member after June 30, 2008.

 8        (5) The Until December 31, 2012, the retirement system shall

 9  pay up to 90% of the maximum of the amount payable under

10  subsection (1) toward the monthly premium or membership or

11  subscription fee for hospital, medical-surgical, and sick care

12  benefits coverage described in subsections (1) and (2) for each

13  health insurance dependent of a retirant receiving benefits under

14  subsection (1) or (2). Payment Until December 31, 2012, payment

15  shall not exceed 90% of the actual monthly premium or membership

16  or subscription fee. [Except as otherwise provided in subsections (7)

    through (15), for a health insurance dependent who is enrolled in the

    hospital, medical-surgical, and sick care benefit plan on January 1, 2013

    and who is eligible for medicare on that date, the retirement system

    shall pay 90% of the entire monthly premium or membership or subscription

    fee for hospital, medical-surgical, and sick care benefits for the

    benefit of each health insurance dependent of a retirant receiving

    benefits under subsection (1) or (2).] The Until December 31, 2012, the

retirement

17  system shall pay 90% of the monthly premium or membership or

18  subscription fee for dental[, vision, and hearing AND VISION] benefits

19  described in subsection (4) for the benefit of each health

20  insurance dependent of a retirant receiving benefits under

21  subsection (4). Beginning January 1, 2013, any payment described

22  in this subsection shall not exceed 80% of the actual monthly

23  premium or membership or subscription fee. [except as otherwise

24  provided in subsections (7) to (15), for a health insurance

25  dependent of a retirant who is enrolled in the dental and vision

26  plan on january 1, 2013 and who is

27  ] 65 years of age or older on that date, the

Senate Bill No. 1040 (H-3)as amended June 14, 2012

 1  retirement system shall pay 90% of the entire monthly premium or

 2  membership or subscription fee for dental [AND VISION ]

 3  benefits for the benefit of each health insurance dependent of

 4  the retirant receiving benefits under subsection (4). Payment

 5  for health benefits coverage for a health insurance dependent of

 6  a retirant shall not be made after the retirant's death, unless

 7  the retirant designated a retirement allowance beneficiary as

 8  provided in section 85 and the dependent was covered or eligible

 9  for coverage as a health insurance dependent of the retirant on

10  the retirant's date of death. Payment for health benefits

11  coverage shall not be made for a health insurance dependent after

12  the later of the retirant's death or the retirement allowance

13  beneficiary's death. Payment under this subsection and subsection

14  (6) began October 1, 1985 for health insurance dependents who on

15  July 10, 1985 were covered by the hospital, medical-surgical, and

16  sick care benefits plan authorized by the retirement board and

17  the department. Payment under this subsection and subsection (6)

18  for other health insurance dependents shall not begin before

19  January 1, 1986. Except as otherwise provided in subsection (8),

20  this subsection does not apply to a retirant who first becomes a

21  member after June 30, 2008.

22        (6) The payment described in subsection (5) shall also be

23  made for each health insurance dependent of a deceased member or

24  deceased duty disability retirant if a retirement allowance is

25  being paid to a retirement allowance beneficiary because of the

26  death of the member or duty disability retirant as provided in

27  section 43c(c), 89, or 90. Payment for health benefits coverage

Senate Bill No. 1040 (H-3) as amended June 14, 2012

 1  for a health insurance dependent shall not be made after the

 2  retirement allowance beneficiary's death.

 3        (7) The payments provided by this section shall not be made

 4  on behalf of a retiring section 82 deferred member or health

 5  insurance dependent of a deferred member having less than 21 full

 6  years of attained credited service or the retiring deferred

 7  member's retirement allowance beneficiary, and shall not be made

 8  on behalf of a retirement allowance beneficiary of a deferred

 9  member who dies before retiring. The retirement system shall pay,

10  on behalf of a retiring section 82 deferred member or health

11  insurance dependent of a deferred member or a retirement

12  allowance beneficiary of a deceased deferred member, either of

13  whose allowance is based upon not less than 21 years of attained

14  credited service, 10% of the payments provided by this section,

15  increased by 10% for each attained full year of credited service

16  beyond 21 years, not to exceed 100% of the payments provided by

17  this section. This subsection applies to any member who first

18  became a member on or before June 30, 2008 and attains deferred

19  status under section 82 after October 31, 1980.

20        (8) For a member or deferred member who first becomes a

21  member after June 30, 2008 and before [August] 1, 2012, the

22  retirement system shall pay up to 90% 80% of the monthly premium

23  or membership or subscription fee for the hospital, medical-

24  surgical, and sick care benefits plan, the dental plan, [AND] vision

25  plan, [and hearing plan,] or any combination of the plans for the

26  benefit of the retirant and his or her retirement allowance

27  beneficiary and health insurance dependents, or for the benefit

Senate Bill No. 1040 (H-3) as amended June 14, 2012

 1  of the deceased member's retirement allowance beneficiary if the

 2  retirant or deceased member has 25 years or more of service

 3  credit under this act, and the retirant, deceased retirant, or

 4  deceased member was at least 60 years of age at the time of

 5  application for benefits under this section. If the retirant or

 6  deceased member is less than 60 years of age at the time of

 7  application for benefits under this section, the retirement

 8  system shall pay 90% 80% of the monthly premium or membership or

 9  subscription fee for the hospital, medical-surgical, and sick

10  care benefits plan, the dental plan, [AND] vision plan, [and hearing

11  plan,] or any combination of the plans for the benefit of the

12  retirant and his or her retirement allowance beneficiary and the

13  retirant's health insurance dependents, or for the benefit of the

14  deceased member's retirement allowance beneficiary if the

15  retirant or deceased member has 25 or more years of service

16  credit granted under section 68. If a retirant, deceased

17  retirant, or deceased member described in this subsection has 10

18  or more but less than 25 years of service credit under this act

19  and the retirant was at least 60 years of age at the time of

20  application for benefits under this section, the retirement

21  system shall pay a portion of the monthly premium or membership

22  or subscription fee for the plans or combination of plans equal

23  to the product of 3% and the retirant's, deceased retirant's, or

24  deceased member's years of service for the first 10 years and 4%

25  for each year after the first 10 years, up to 80%. This

26  subsection does not apply to a member who receives a disability

27  retirement allowance under section 86 or 87 or to a deceased

Senate Bill No. 1040 (H-3) as amended June 14, 2012

 1  member's retirement allowance beneficiary under section 90.

 2        (9) The retirement system shall not pay the premiums or

 3  membership or subscription fees under subsection (8) until the

 4  retirant or retirement allowance beneficiary requests enrollment

 5  in the plans or combination of plans in writing in the manner

 6  prescribed by the retirement system. Not more than 1 year's year

 7  of service credit shall be counted for purposes of this

 8  subsection (8) and this subsection (8) in any school fiscal year.

 9        (10) A member who retires under section 43b or 81 and who

10  elects to purchase service credit on or after July 1, 2008 is not

11  eligible for payments under this section for the hospital,

12  medical-surgical, and sick care benefits plan, the dental plan, [OR]

13  vision plan, [or hearing plan,] or any combination of the plans

14  described in this section until the first date that the member

15  would have been eligible to retire under section 43b or 81 if he

16  or she had not purchased the service credit and had accrued a

17  sufficient amount of service credit under section 68. A member

18  who first becomes a member on or after July 1, 2008 shall not be

19  eligible for health benefits under this subsection until at least

20  the time of application under subsection (8). The retirement

21  system shall apply a method that enables it to make the

22  determination under this subsection.

23        (11) Except for a member who retires under section 86 or 87

24  or a member who meets the requirements under subsection (7) or

25  (8), the retirement system shall not pay the benefits provided in

26  subsection (1) or (4) unless the member was employed and has

27  received a minimum total of 1/2 of a year of service credit

Senate Bill No. 1040 (H-3) as amended June 14, 2012

 1  granted pursuant to section 68 during the 2 school fiscal years

 2  immediately preceding the member's retirement allowance effective

 3  date or the member has received a minimum of 1/10 of a year of

 4  service credit granted pursuant to section 68 during each of the

 5  5 school fiscal years immediately preceding the member's

 6  retirement allowance effective date. This subsection does not

 7  apply to a member who is unable to meet the service credit

 8  requirements of this subsection because of 1 or more periods of

 9  unpaid leaves of absence approved by the reporting unit during

10  the period of leave of absence, as a result of a mental or

11  physical disability supported by the member's doctor during the

12  period of leave of absence.

13        (12) Any retirant or retirement allowance beneficiary

14  excluded from payments under this section may participate in the

15  hospital, medical-surgical, and sick care benefits plan, the

16  dental plan, [OR] vision plan, [or hearing plan,] or any combination of

17  the plans described in this section in the manner prescribed by

18  the retirement system at his or her own cost.

19        (13) The hospital, medical-surgical, and sick care benefits

20  plan, dental plan, [AND] vision plan, [and hearing plan] that covers

21  retirants, retirement allowance beneficiaries, and health

22  insurance dependents pursuant to this section shall contain a

23  coordination of benefits provision that provides all of the

24  following:

25        (a) If the person covered under the hospital, medical-

26  surgical, and sick care benefits plan is also eligible for

27  medicare or medicaid, or both, then the benefits under medicare

 1  or medicaid, or both, shall be determined before the benefits of

 2  the hospital, medical-surgical, and sick care benefits plan

 3  provided pursuant to this section.

 4        (b) If the person covered under any of the plans provided by

 5  this section is also covered under another plan that contains a

 6  coordination of benefits provision, the benefits shall be

 7  coordinated as provided by the coordination of benefits act, 1984

 8  PA 64, MCL 550.251 to 550.255.

 9        (c) If the person covered under any of the plans provided by

10  this section is also covered under another plan that does not

11  contain a coordination of benefits provision, the benefits under

12  the other plan shall be determined before the benefits of the

13  plan provided pursuant to this section.

14        (14) Beginning January 1, 2009, upon the death of the

15  retirant, a retirement allowance beneficiary who became a

16  retirement allowance beneficiary under section 85(8) or (9) is

17  not a health insurance dependent and is not entitled to health

18  benefits under this section except as provided in this

19  subsection. Beginning January 1, 2009, a surviving spouse

20  selected as a retirement allowance beneficiary under section

21  85(8) or (9) may elect the insurance coverages provided in this

22  section provided that if payment for the elected coverages is the

23  responsibility of the surviving spouse and is paid in a manner

24  prescribed by the retirement system.

25        (15) This section does not apply to a retirant or a health

26  insurance dependent of that retirant under either of the

27  following circumstances:

Senate Bill No. 1040 (H-3) as amended June 14, 2012

 1        (a) The individual first became a member or qualified

 2  participant on or after [August] 1, 2012.

 3        (b) The member made the election to opt out of health

 4  insurance coverage or receives a separate retirement allowance

 5  under section 91a.

 6  (16) (15) For purposes of this section:

 7        (a) "Health insurance dependent" means any of the following:

 8        (i) Except as provided in subsection (14), the spouse of the

 9  retirant or the surviving spouse to whom the retirant or deceased

10  member was married at the time of the retirant's or deceased

11  member's death.

12        (ii) An unmarried child, by birth or adoption, of the

13  retirant or deceased member, until December 31 of the calendar

14  year in which the child becomes 19 years of age.

15        (iii) An unmarried child, by birth or adoption, of the

16  retirant or deceased member, until December 31 of the calendar

17  year in which the child becomes 25 years of age, who is enrolled

18  as a full-time student, and who is or was at the time of the

19  retirant's or deceased member's death a dependent of the retirant

20  or deceased member as defined in section 152 of the internal

21  revenue code, 26 USC 152.

22        (iv) An unmarried child, by birth or adoption, of the

23  retirant or deceased member who is incapable of self-sustaining

24  employment because of mental or physical disability, and who is

25  or was at the time of the retirant's or deceased member's death a

26  dependent of the retirant or deceased member as defined in

27  section 152 of the internal revenue code, 26 USC 152.

Senate Bill No. 1040 (H-3) as amended June 14, 2012

 1        (v) The parents of the retirant or deceased member, or the

 2  parents of his or her spouse, who are residing in the household

 3  of the retirant or retirement allowance beneficiary.

 4        (vi) An unmarried child who is not the child by birth or

 5  adoption of the retirant or deceased member but who otherwise

 6  qualifies to be a health insurance dependent under subparagraph

 7  (ii), (iii), or (iv), if the retirant or deceased member is the legal

 8  guardian of the unmarried child.

 9        (b) "Medicaid" means benefits under the federal medicaid

10  program established under title XIX of the social security act,

11  42 USC 1396 to 1396v.1396w-5.

12        (c) "Medicare" means benefits under the federal medicare

13  program established under title XVIII of the social security act,

14  42 USC 1395 to 1395hhh.1395kkk.

15        Sec. 91a. (1) An individual who first became a member or

16  qualified participant on or after [August] 1, 2012 or who made the

17  election under subsection (5) shall not receive any health

18  insurance coverage premium from the retirement system for any

19  benefits under section 91 or as a result of benefits provided

20  under section 86, 87, or 89. In lieu of any of these benefits

21  that might have been paid by the retirement system, a member's or

22  qualified participant's employer shall make a matching

23  contribution up to 2% of the member's or qualified participant's

24  compensation to Tier 2 for each member who first became a member

25  or qualified participant on or after [August] 1, 2012 or who made the

26  election under subsection (5). A matching contribution under this

27  subsection shall not be used as the basis for a loan from an

Senate Bill No. 1040 (H-3) as amended June 14, 2012

 1  employee's Tier 2 account. [If the department or retirement system offers

    a health expenditure account or similar account for the purpose of

    managing a member's health care funds under this section, as permitted

    by state or federal law, the department or retirement system shall issue

    a request for proposals before implementation of that health expenditure

    account or similar account.]

 2        (2) An individual who first became a member or qualified

 3  participant on or after [August] 1, 2012 or who made the election

 4  under subsection (5) may make a contribution up to 2% of the

 5  member's or qualified participant's compensation to a Tier 2

 6  account. A member or qualified participant described in this

 7  subsection may make additional contributions to his or her Tier 2

 8  account as permitted by the department and the internal revenue

 9  code.

10        (3) Except as otherwise provided in this subsection, a

11  member or qualified participant is vested in contributions made

12  to his or her Tier 2 account under subsections (1) and (2)

13  according to the vesting provisions under section 132. A member

14  who is eligible for the payment of health insurance coverage

15  premiums by the retirement system as a result of benefits

16  provided under section 90 is not vested in any employer

17  contributions under subsection (1) and forfeits the employer

18  contributions and earnings on those contributions.

19        (4) The contributions described in this section shall begin

20  with the first payroll date after the member or qualified

21  participant is employed or on or after [november] 1, 2012 for a

22  member who makes the election under subsection (5) and end upon

23  his or her termination of employment.

24        (5) Except as otherwise provided in this section, beginning

25  July [16,] 2012 and ending at 5 p.m. eastern daylight time on [september

26  28], 2012, the retirement system shall permit each qualified

27  member to make an election to opt out of health insurance

Senate Bill No. 1040 (H-3) as amended June 14, 2012

 1  coverage premiums that would have been paid by the retirement

 2  system under section 91 and opt into the Tier 2 account

 3  provisions of this section effective [november] 1, 2012. A qualified

 4  member who makes the election under this subsection shall cease

 5  accruing years of service credit for purposes of calculating a

 6  portion of the health insurance coverage premiums that would have

 7  been paid by the retirement system under section 91 as if that

 8  section continued to apply.

 9        (6) A qualified member who does not make the election under

10  subsection (5) continues to be eligible for the payment of health

11  insurance coverage premiums by the retirement system under

12  section 91 and is not eligible for the Tier 2 account provisions

13  of this section. An individual who is not a qualified member, who

14  is a former member on [July 15], 2012, and who is reemployed by an

15  employer on or after July [16,] 2012 shall be treated in the same

16  manner as a member described in this subsection who did not make

17  the election under subsection (5).

18        (7) The retirement system shall calculate an amount to be

19  credited to a Tier 2 account for each member who makes the

20  election under subsection (5). The amount described in this

21  subsection shall be an amount equal to the contributions made by

22  the member under section 43e. A member who makes the election

23  under subsection (5) shall cease making contributions under

24  section 43e as determined by the retirement system, but no later

25  than the first payroll date after [november] 1, 2012. The amount

26  calculated under this subsection shall be deposited into the

27  member's Tier 2 account as determined by the retirement system,

 1  but no later than the first payroll date after January 1, 2013. A

 2  member is immediately 100% vested in amounts deposited to his or

 3  her Tier 2 account under this subsection.

 4        (8) A member or former member who does not make the election

 5  under subsection (5), who is 60 years of age or older, who does

 6  not qualify for the payment of health insurance coverage premiums

 7  by the retirement system under section 91, and who files an

 8  application with the retirement system on or after termination of

 9  employment shall receive a separate retirement allowance as

10  calculated under this subsection. Except as otherwise provided

11  under this subsection, the separate retirement allowance under

12  this subsection shall be paid for 60 months and shall be equal to

13  1/60 of the amount equal to the contributions made by the member

14  under section 43e. The retirement system may pay out de minimus

15  amounts as a lump sum as determined by the retirement system and

16  as permitted by the internal revenue code. A member receiving a

17  separate retirement allowance under this subsection shall not

18  subsequently receive the payment of health insurance coverage

19  premiums by the retirement system under section 91. A member who

20  dies before qualifying for the payment of health insurance

21  coverage premiums by the retirement system under section 91 shall

22  have a separate retirement allowance as provided in this

23  subsection paid to the member's beneficiary upon application to

24  the retirement system. A member who qualifies for the payment of

25  health insurance coverage premiums by the retirement system under

26  section 91 but who dies before the payment of health insurance

27  coverage premiums by the retirement system in an amount equal to

Senate Bill No. 1040 (H-3) as amended June 14, 2012

 1  or greater than the amounts contributed under section 43e shall

 2  have a separate retirement allowance as provided in this

 3  subsection paid to the member's beneficiary [following the cessation

    of health insurance coverage premiums paid by the retirement system] in

    an amount equal to

 4  the difference between the health insurance coverage premiums

 5  paid by the retirement system under section 91 and contributions

 6  made by the member under section 43e. The amount of the separate

 7  retirement allowance as determined under this subsection shall be

 8  increased in a manner as determined by the retirement system by a

 9  percentage equal to 1.5% multiplied by the total number of years

10  that member made contributions under section 43e.

11        (9) A member or former member who has a break in service and

12  is reemployed retains the same election that the member made

13  under this section before the break in service. If the member

14  made the election under subsection (5), the member shall continue

15  to receive the Tier 2 account contributions as provided in

16  subsections (1) and (2). If the member did not make the election

17  under subsection (5), the member shall continue to make the

18  contributions as provided under section 43e and is subject to

19  subsection (8), if applicable.

20        (10) In lieu of any other health insurance coverage premium

21  that might have been paid by the retirement system under section

22  91, a credit to a health reimbursement account within the trust

23  created under the public employee retirement health care funding

24  act, 2010 PA 77, MCL 38.2731 to 38.2747, shall be made by the

25  retirement system in the amounts and to the members or qualified

26  participants as follows:

27        (a) Two thousand dollars to an individual who first became a

Senate Bill No. 1040 (H-3) as amended June 14, 2012

 1  member or qualified participant on or after [august] 1, 2012, who is

 2  60 years of age or older, and who has at least 10 years of

 3  service at his or her first termination of employment.

 4        (b) One thousand dollars to an individual who first became a

 5  member or qualified participant on or after [august] 1, 2012, who is

 6  less than 60 years of age, and who has at least 10 years of

 7  service at his or her first termination of employment.

 8        (11) The retirement system shall determine a method to

 9  implement subsections (5) to (10), including a method for

10  crediting the amounts in those subsections to comply with any

11  restrictions imposed by the internal revenue code.

12  Notwithstanding any provision of this act to the contrary, the

13  Tier 2 plan provisions of this section shall be implemented by

14  the department as soon as feasible but not later than January 1,

15  2013.

16        (12) Subsections (5) to (10) do not apply to a member who is

17  eligible for the payment of health insurance coverage premiums by

18  the retirement system as a result of benefits provided under

19  section [90 ].

20        (13) On or before July 1, 2017, the retirement system shall

21  provide a report to the chairs of the house and senate

22  appropriations committees that provides the projected impact of

23  subsection (10) as it applies to members first employed and

24  entered upon the payroll of reporting units on or after July 1,

25  2017 with regard to the annual required contribution as used by

26  the governmental accounting standards board and for purposes of

27  the annual financial statements prepared under section 28(1).

Senate Bill No. 1040 (H-3) as amended June 14, 2012

 1        (14) As used in this section:

 2        (a) "Compensation" means that term as defined in section

 3  122(2).

 4        (b) "Qualified member" means a member who meets all of the

 5  following requirements:

 6        (i) He or she first became a member before [august] 1, 2012.

 7        (ii) He or she has earned service credit in the 12 months

 8  ending [july 15],2012 or was on an approved professional services

 9  or military leave of absence on [july 15], 2012.

10        Sec. 92b. (1) There is appropriated for the fiscal year

11  ending September 30, 2012, $4,700,000.00 to the office of

12  retirement services in the department of technology, management,

13  and budget for administration of the changes under the amendatory

14  act that added this section.

15        (2) The appropriation authorized in subsection (1) is a work

16  project appropriation and any unencumbered or unallotted funds

17  are carried forward into the following fiscal year. The following

18  is in compliance with section 451a(1) of the management and

19  budget act, 1984 PA 431, MCL 18.1451a:

20        (a) The purpose of the project is to administer changes

21  under the amendatory act that added this section.

22        (b) The work project will be accomplished through a plan

23  utilizing interagency agreements, employees, and contracts.

24        (c) The total estimated completion cost of the work project

25  is $4,700,000.00.

26        (d) The estimated completion date for the work project is

27  September 30, 2013.

 1        Sec. 93. (1) The director of the department, senate majority

 2  leader, and speaker of the house of representatives shall

 3  commission an independent third party at a cost of no more than

 4  $100,000.00 to conduct a study and prepare a report analyzing the

 5  current retirement system and develop a proposed plan to ensure

 6  the long-term sustainability of the retirement system. The office

 7  of retirement services on behalf of the department shall assist

 8  with the study. Input shall be solicited from the retirement

 9  system membership constituency organizations.

10        (2) On or before December 31, 2012, the study required under

11  subsection (1) shall be delivered to the senate majority leader,

12  speaker of the house of representatives, the senate and house of

13  representatives appropriations committees, and the senate and

14  house of representatives fiscal agencies. The study shall include

15  primary and alternative recommendations considered necessary.

16        (3) The study required under subsection (1) shall review the

17  advantages and disadvantages of implementing benefit design

18  changes and shall include, but is not limited to, a review of the

19  adequacy of the benefits, long-term retention of employees,

20  investment return and other risk, and the economic impact of

21  implementing the following:

22        (a) Defined contribution, hybrid defined contribution, and

23  other defined contribution plan options as opposed to defined

24  benefit plan options.

25        (b) Plan design, funding methods, benefits provided, and

26  other features originally enacted or amended in other public

27  state school employee plans and private retirement plans covering

Senate Bill No. 1040 (H-3) as amended June 14, 2012

 1  comparable employees.

 2        (c) Funding or not funding the annual required contribution

 3  as used by the governmental accounting standards board or other

 4  annual funding requirements to meet any unfunded liabilities of

 5  the retirement system.

 6        (d) Amendments to the retirement system features, such as

 7  reporting unit and member contributions, vesting, service credit

 8  purchases, retirement allowance calculations, cost of living

 9  allowances, and other similar features.

10        (e) A change in the funding method of health benefits

11  provided under section 91 from a cash disbursement method to an

12  individual projected benefit entry age normal cost method of

13  valuation.

14        (4) The study required under subsection (1) shall review and

15  identify the normal costs and transition costs of closing to all

16  new members and qualified participants the Tier 1 and Tier 2

17  plans in effect on the effective date of this section and

18  implementing a Tier 3 plan that is identical to the retirement

19  plan established pursuant to section 401(k) of the internal

20  revenue code, 26 USC 401, and that is available to qualified

21  participants under sections 50 to 69 of the state employees'

22  retirement act, 1943 PA 240, MCL 38.50 to 38.69.

23        Sec. 94. The office of retirement services shall conduct a

24  study regarding the degree to which [CURRENT OPERATION EXPENDITURES ARE]

    a

25  stable, growing, and equitable base for charging unfunded accrued

26  liability costs to public local school districts, as compared to

27  alternate measures of district financial activity. [The study shall

    include an analysis of the degree to which current unfunded accrued

    liabilities are the result of stranded cost factors.] The office of

Senate Bill No. 1040 (H-3) as amended June 14, 2012

 1  retirement services shall deliver a report regarding the findings

 2  of the study and recommendations regarding the use of [CURRENT

 3  operating expenditures] or an alternate measure as the basis for

    charging

 4  unfunded accrued liability costs to public local school districts

 5  to the senate majority leader, the speaker of the house of

 6  representatives, the senate and house of representatives

 7  appropriations committees, and the senate and house of

 8  representatives fiscal agencies on or before December 31, 2012.

 9        Sec. 108. (1) This section is enacted pursuant to federal

10  law that imposes certain administrative requirements and benefit

11  limitations for qualified governmental plans. This state intends

12  that the retirement system be a qualified pension plan created in

13  trust under section 401 of the internal revenue code, 26 USC 401,

14  and that the trust be an exempt organization under section 501 of

15  the internal revenue code, 26 USC 501. The department shall

16  administer the retirement system to fulfill this intent.

17        (2) The retirement system shall be administered in

18  compliance with the provisions of section 415 of the internal

19  revenue code, 26 USC 415, and regulations under that section that

20  are applicable to governmental plans and beginning January 1,

21  2010, applicable provisions of the final regulations issued by

22  the internal revenue service on April 5, 2007. Employer-financed

23  benefits provided by the retirement system under this act shall

24  not exceed the applicable limitations set forth in section 415 of

25  the internal revenue code, 26 USC 415, as adjusted by the

26  commissioner of internal revenue under section 415(d) of the

27  internal revenue code, 26 USC 415, to reflect cost-of-living

 1  increases, and the retirement system shall adjust the benefits,

 2  including benefits payable to retirants and retirement allowance

 3  beneficiaries, subject to the limitation each calendar year to

 4  conform with the adjusted limitation. For purposes of section

 5  415(b) of the internal revenue code, 26 USC 415, the applicable

 6  limitation shall apply to aggregated benefits received from all

 7  qualified pension plans for which the office of retirement

 8  services coordinates administration of that limitation. If there

 9  is a conflict between this section and another section of this

10  act, this section prevails.

11        (3) The assets of the retirement system shall be held in

12  trust and invested for the sole purpose of meeting the legitimate

13  obligations of the retirement system and shall not be used for

14  any other purpose. The assets shall not be used for or diverted

15  to a purpose other than for the exclusive benefit of the members,

16  deferred members, retirants, and retirement allowance

17  beneficiaries.

18        (4) The retirement system shall return post-tax member

19  contributions made by a member and received by the retirement

20  system to a member upon retirement, pursuant to internal revenue

21  service regulations and approved internal revenue service

22  exclusion ratio tables.

23        (5) The required beginning date for retirement allowances

24  and other distributions shall not be later than April 1 of the

25  calendar year following the calendar year in which the employee

26  attains age 70-1/2 or April 1 of the calendar year following the

27  calendar year in which the employee retires. The required minimum

 1  distribution requirements imposed by section 401(a)(9) of the

 2  internal revenue code, 26 USC 401, shall apply to this act and be

 3  administered in accordance with a reasonable and good faith

 4  interpretation of the required minimum distribution requirements

 5  for all years to which the required minimum distribution

 6  requirements apply to the act.

 7        (6) If the retirement system is terminated, the interest of

 8  the members, deferred members, retirants, and retirement

 9  allowance beneficiaries in the retirement system is

10  nonforfeitable to the extent funded as described in section

11  411(d)(3) of the internal revenue code, 26 USC 411, and the

12  related internal revenue service regulations applicable to

13  governmental plans.

14        (7) Notwithstanding any other provision of this act to the

15  contrary that would limit a distributee's election under this

16  act, a distributee may elect, at the time and in the manner

17  prescribed by the retirement board, to have any portion of an

18  eligible rollover distribution paid directly to an eligible

19  retirement plan specified by the distributee in a direct

20  rollover. This subsection applies to distributions made on or

21  after January 1, 1993. Beginning October 1, 2010, a nonspouse

22  beneficiary may elect to have any portion of an amount payable

23  under this act that is an eligible rollover distribution treated

24  as a direct rollover that will be paid in a direct trustee-to-

25  trustee transfer to an individual retirement account or

26  individual retirement annuity described in section 408(a) or (b)

27  of the internal revenue code, 26 USC 408, that is established for

 1  the purpose of receiving a distribution on behalf of the

 2  beneficiary and that will be treated as an inherited individual

 3  retirement account or individual retirement annuity pursuant to

 4  section 402(c)(11) of the internal revenue code, 26 USC 402.

 5        (8) For purposes of determining actuarial equivalent

 6  retirement allowances under sections 45 and 85(1)(b), (1)(c),

 7  (1)(d), and (2), the actuarially assumed interest rate shall be

 8  8% with utilization of the 1983 group annuity and mortality

 9  table.

10        (9) Notwithstanding any other provision of this act, the

11  compensation of a member of the retirement system shall be taken

12  into account for any year under the retirement system only to the

13  extent that it does not exceed the compensation limit established

14  in section 401(a)(17) of the internal revenue code, 26 USC 401,

15  as adjusted by the commissioner of internal revenue. This

16  subsection applies to any person who first becomes a member of

17  the retirement system on or after October 1, 1996.

18        (10) Notwithstanding any other provision of this act,

19  contributions, benefits, and service credit with respect to

20  qualified military service will be provided under the retirement

21  system in accordance with section 414(u) of the internal revenue

22  code, 26 USC 414. This subsection applies to all qualified

23  military service on or after December 12, 1994. Effective January

24  1, 2007, in accordance with section 401(a)(37) of the internal

25  revenue code, 26 USC 401, if a member dies while performing

26  qualified military service, for purposes of determining any death

27  benefits payable under this act, the member shall be treated as

 1  having resumed and then terminated employment on account of

 2  death.

 3        Sec. 124. (1) "Plan document" means the document that

 4  contains the provisions and procedures of Tier 2 in conformity

 5  with this act and the internal revenue code.

 6        (2) "Qualified participant" means an individual who is a

 7  participant of Tier 2 and who is first employed and entered upon

 8  the payroll of his or her employer on or after July 1, 2010, and

 9  who also qualifies to be a member of Tier 1.was not employed by

10  any employer before July 1, 2010.

11        (3) "Refund beneficiary" means an individual nominated by a

12  qualified participant or a former qualified participant under

13  section 134 to receive a distribution of the participant's

14  accumulated balance in the manner prescribed in section 135.

15        (4) "State treasurer" means the treasurer of this state.

16        Sec. 131. (1) This section is subject to the vesting

17  requirements of section 132.

18        (2) Unless the a qualified participant as described in

19  section 124(2) who is also a member of Tier 1 affirmatively

20  elects not to contribute or elects to contribute a lesser amount,

21  the qualified participant who is also a member of Tier 1 shall

22  contribute 2% of his or her compensation to his or her Tier 2

23  account. The qualified participant's employer shall make a

24  contribution to the qualified participant's Tier 2 account in an

25  amount equal to 50% of the first 2% of compensation contribution

26  made contributed by the qualified participant under this

27  subsection.

 1        (3) A qualified participant as described in section 124(2)

 2  may make contributions in addition to contributions made under

 3  subsection (2) to his or her Tier 2 account as permitted by the

 4  department and the internal revenue code.

 5        (4) Upon the written determination of the director of the

 6  office of retirement services, an employee of an employer that is

 7  not a qualified participant as described in section 124(2) may

 8  elect to make contributions to a Tier 2 account as permitted by

 9  the department and the internal revenue code. An employee as

10  described in this subsection shall be treated as a qualified

11  participant under this article for the limited purposes of his or

12  her Tier 2 account.

13        (5) Upon the written determination of the director of the

14  office of retirement services, an employer may annually elect to

15  make additional matching contributions, including those in

16  addition to matching contributions made under subsection

17  subsections (2) and (6), to an employee's Tier 2 account as

18  permitted by the plan document and the internal revenue code.

19  Matching contributions under this subsection shall be made in

20  amounts equal to 50% of the contributions made by the employee

21  not to exceed the first 4% of contributions made in whole

22  percentages only, for any employee in addition to amounts that

23  are already matched under this section, if any.

24        (6) Except as otherwise provided in section 81d, unless a

25  qualified participant who is only a Tier 2 qualified participant

26  due to an election made under section 81d(1) affirmatively elects

27  not to contribute or elects to contribute a lesser amount, the

Senate Bill No. 1040 (H-3) as amended June 14, 2012

 1  qualified participant shall contribute 6% of his or her

 2  compensation to his or her Tier 2 account. The qualified

 3  participant's employer shall make a contribution to the qualified

 4  participant's Tier 2 account in an amount equal to 50% of the

 5  first 6% of compensation contributed by the qualified participant

 6  under this subsection.

 7        Sec. 131a. Tier 2 accounts are subject to the following

 8  terms and conditions:

 9        (a) On or before [August] 1, 2012, the retirement system shall

10  design an automatic enrollment feature that provides that unless

11  a qualified participant who makes contributions under this act

12  elects to contribute a lesser amount, the qualified participant

13  shall contribute the amount required to qualify for all eligible

14  matching contributions under this act. The retirement system

15  shall implement this automatic enrollment feature on or after

16  [August] 1, 2012, as determined by the retirement system.

17        (b) Employer matching contributions do not have to be made

18  to the same plan or account to which the elective employee

19  contributions were contributed as the basis for the matching

20  contributions.

21        (c) Elective employee contributions shall not be used as the

22  basis for more than an equivalent amount of employer matching

23  contributions or, in the case of matching contributions under

24  section 131(2) and (6), 50% of the employer matching

25  contributions.

26        (d) The retirement system shall design and implement a

27  method to determine the proper allocation of employer matching

 1  contributions based on elective employee contributions as

 2  provided in this section.

 3        (e) The retirement system within the department has the

 4  exclusive authority and responsibility to employ or contract with

 5  personnel and for services that the retirement system determines

 6  necessary for the proper administration of and investment of

 7  assets of Tier 2, including, but not limited to, managerial,

 8  professional, legal, clerical, technical, and administrative

 9  personnel or services.

10        Enacting section 1. Section 43d of the public school

11  employees retirement act of 1979, 1980 PA 300, MCL 38.1343d, is

12  repealed.

13        Enacting section 2. (1) If the office of retirement services

14  in the department of technology, management, and budget receives

15  notification from the United States internal revenue service that

16  any section or any portion of a section of this amendatory act

17  will cause the retirement system to be disqualified for tax

18  purposes under the internal revenue code, then the portion that

19  will cause the disqualification does not apply.

20        (2) The provisions of this amendatory act are severable. If

21  any part of this amendatory act is declared invalid or

22  unconstitutional, that declaration shall not affect the remaining

23  part of this amendatory act.