SB-1360, As Passed House, December 5, 2012

SENATE BILL No. 1360

November 8, 2012, Introduced by Senator KAHN and referred to the Committee on Appropriations.

A bill to amend 1980 PA 300, entitled

"The public school employees retirement act of 1979,"

by amending sections 8, 59, 84b, and 91a (MCL 38.1308, 38.1359,

38.1384b, and 38.1391a), section 8 as amended and sections 59, 84b,

and 91a as added by 2012 PA 300.

THE PEOPLE OF THE STATE OF MICHIGAN ENACT:

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

public school employee or creditable under this act.

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

annum determined by the retirement board.

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

state employee in the classified or unclassified service under the

state employees' retirement act, 1943 PA 240, MCL 38.1 to 38.69.

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

is engaged in teaching, who is engaged in administering and

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

reporting unit.

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

under this act.

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

under section 457 of the internal revenue code, 26 USC 457, for

elective employee contributions and the state of Michigan 401(k)

plan established under section 401(k) of the internal revenue code,

26 USC 401, for employer contributions.

(7) "Transition date" means the first day of the pay period

that begins on or after ~~December 1, 2012~~ February 1, 2013 for the

applicable member. The retirement system shall determine a method

of determining service credit, compensation, and any applicable

contributions for purposes of implementing provisions of this act

that refer to the transition date.

(8) "Transitional public employment program" means

participation in public service employment programs in the areas of

environmental quality, health care, education, public safety, crime

prevention and control, prison rehabilitation, transportation,

recreation, maintenance of parks, streets, and other public

facilities, solid waste removal, pollution control, housing and

neighborhood improvements, rural development, conservation,

beautification, veterans' outreach, and other fields of human

betterment and community improvement as part of a program of

comprehensive manpower services authorized, undertaken, and

financed under the comprehensive employment and training act of

1973, former Public Law 93-203, 87 Stat. 839.

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

member to make an election with the retirement system to continue

to receive credit for any future service and compensation on and

after the transition date, for purposes of a calculation of a

retirement allowance under section 84b. As part of the election

under this subsection, the retirement system shall permit the

qualified member to make a designation that the contributions

prescribed in section 43g shall be paid only until the member's

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

attainment date designation under this subsection shall make the

contributions prescribed in section 43g only until the member's

attainment date and shall make the contributions prescribed in

section 43a on and after his or her attainment date. A qualified

member who makes the election and the attainment date designation

under this subsection shall continue to receive credit for any

future service accrued and compensation earned after his or her

attainment date for the purpose of the calculation of a retirement

allowance under section 84b. A qualified member who makes the

election under this subsection and who does not make the attainment

date designation or rescinds the attainment date designation under

this subsection shall make the contributions prescribed in section

43g until termination of employment. A qualified member who makes

the election under this subsection and who does not make the

attainment date designation under this subsection shall receive

credit for any future service accrued and compensation earned for

the purpose of the calculation of a retirement allowance under

section 84b.

(2) The retirement system shall permit each qualified member

to make an alternative election described in this subsection with

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

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

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

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

alternative election described in this subsection is considered to

have made the alternative election described in subdivision (a). A

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

designation under subsection (1) shall be permitted to make 1 of

the following alternative elections:

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

compensation on and after the transition date, for the purpose of

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

qualified member who makes or is considered to have made the

alternative election in this subdivision shall continue to make the

employee contributions as provided in section 43a and shall not

make the employee contributions described in section 43g.

(b) To freeze all service and compensation to that member as

of the day before the transition date for the purpose of the

calculation of a retirement allowance under section 84b and,

beginning on the transition date, to be eligible for the employer

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

84b. Beginning on the transition date, a qualified member who makes

the alternative election in this subdivision shall not make the

Senate Bill No. 1360 as amended November 29, 2012

employee contributions described in section 43a or 43g.

(3) The retirement system shall determine a method of

accepting qualified member elections, designations, and alternative

elections under this section. The retirement system shall accept

elections, designations, and alternative elections under this

section from qualified members during an election period that

begins on September 4, 2012 and ends at 5 p.m. eastern <<~~daylight~~

STANDARD>>

time on ~~October 26, 2012.~~ January 9, 2013. A qualified member may

rescind an election, designation, or alternative election before

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

alternative election made by a qualified member and not rescinded

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

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

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

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

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

the following:

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

and compensation for purposes of a calculation of a retirement

allowance as prescribed in section 84, beginning 12 midnight on the

day before the transition date.

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

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

date for purposes of a calculation of a retirement allowance.

under section 84 that is based only on credited service and

compensation allowed under section 84b(1) and (2). This subdivision

does not affect an individual's right to health insurance coverage

provided under section 91 or credit for service provided under

section 84b(7).

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

election under subsection (1) and who makes the alternative

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

election period under this section is subject to all of the

following:

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

and compensation for purposes of a calculation of a retirement

allowance as prescribed in section 84, beginning 12 midnight on the

day before the transition date.

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

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

date for purposes of a calculation of a retirement allowance and

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

account.

under section 84 that is based only on credited service and

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

does not affect an individual's right to health insurance coverage

provided under section 91 or credit for service provided under

section 84b(7).

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

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

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

election period under this section is subject to all of the

following:

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

and compensation for purposes of a calculation of a retirement

allowance as prescribed in section 84, beginning 12 midnight on the

member's attainment date.

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

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

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

under section 84 that is based only on credited service and

compensation allowed under section 84b(5) and (6). This subdivision

does not affect a person's right to health insurance coverage

provided under section 91 or credit for service provided under

section 84b(7).

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

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

nonvested member on September 3, 2012, and who is reemployed on or

after September 4, 2012 shall be treated in the same manner as a

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

section 84b for any future service and compensation.

(8) Any member who is reemployed on or after September 4, 2012

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

alternative election or is considered to have made an alternative

election under this section shall be treated as retaining that

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

of reemployment.

(9) As used in this section:

Senate Bill No. 1360 as amended November 29, 2012

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

84b.

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

following requirements:

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

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

ending September 3, 2012 or was on an approved professional

services or military leave of absence on September 3, 2012.

Sec. 84b. (1) Beginning ~~December 1, 2012,~~ February 1, 2013,

the calculation of a retirement allowance under this act for a

member who did not make the election under section 59(1) and who

made or is considered to have made the alternative election under

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

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

compensation as provided in section 84:

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

accrued to that member before the transition date.

(b) Service credit that was purchased before <<~~December 1, 2012~~

FEBRUARY 1, 2013>>.

pursuant to this act that was in effect as of <<~~November 30, 2012~~

FEBRUARY 1, 2013>>.

(d) Credit for years of service under sections 73 and 108(10).

(2) Beginning ~~December 1, 2012,~~ February 1, 2013, the

calculation of a retirement allowance under this act for a member

described in subsection (1) shall also include the following items

of credited service, as applicable, multiplied by 1.25% of final

average compensation:

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

Senate Bill No. 1360 as amended November 29, 2012

accrued to that member on and after the transition date.

(b) Service credit that was purchased on and after <<~~December 1,~~

~~2012~~ FEBRUARY 1, 2013>>, except as provided in subsection (1)(c).

(3) Beginning ~~December 1, 2012,~~ February 1, 2013, the

calculation of a retirement allowance under this act for a member

who did not make the election under section 59(1) and who made the

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

following items of credited service, as applicable, multiplied by

1.5% of final average compensation as provided in section 84:

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

accrued to that member before the transition date.

(b) Service credit that was purchased before ~~December 1, 2012.~~

February 1, 2013.

pursuant to this act that was in effect as of ~~November 30, 2012.~~

January 31, 2013.

(d) Credit for years of service under sections 73 and 108(10).

(4) Beginning ~~December 1, 2012,~~ February 1, 2013, the

calculation of a retirement allowance under this act for a member

described in subsection (3) shall not include any year or fraction

of a year of service performed by that member on and after the

transition date or any service credit that is purchased by that

member after ~~December 1, 2012,~~ February 1, 2013, except as provided

in subsection (3)(c). Beginning with the first payroll date after

the transition date, and ending upon the member's termination of

service, the employer of a member described in subsection (3) shall

contribute 4% of the member's compensation as defined in section

122(2) to the member's Tier 2 account. A member is vested in

employer contributions made under this subsection according to the

vesting provisions under section 132. A member shall be credited

with years of service accrued under Tier 1 as of the transition

date for purposes of meeting the applicable vesting requirements.

(5) Beginning ~~December 1, 2012,~~ February 1, 2013, the

calculation of a retirement allowance under this act for a member

who makes the election and attainment date designation under

section 59(1) shall include only the following items of credited

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

compensation as provided in section 84:

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

accrued to that member on or before the attainment date.

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

attainment date.

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

(d) Credit for years of service under sections 73 and 108(10).

(6) Beginning ~~December 1, 2012,~~ February 1, 2013, the

calculation of a retirement allowance under this act for a member

described in subsection (5) shall also include the following items

of credited service, as applicable, multiplied by 1.25% of final

average compensation:

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

accrued to that member on and after the attainment date.

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

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

(7) Beginning on the transition date, a member described in

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

service credit as necessary for the purpose of vesting in a

retirement allowance and to determine when a retirement allowance

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

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

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

treated as a member for all purposes, except as otherwise provided

in section 59(8) and except for the limitations on credited service

and calculation of a retirement allowance as provided in

subsections (1) through (6).

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

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

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

shall include all items of credited service accrued to that member,

regardless of when the service credit was accrued, which shall be

multiplied by 1.5% of final average compensation as provided in

section 84.

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

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

credited service.

Sec. 91a. (1) An individual who first became a member or

qualified participant on or after September 4, 2012 or who made the

election under subsection (5) shall not receive any health

insurance coverage premium from the retirement system for any

benefits under section 91 or as a result of benefits provided under

section 86, 87, or 89. In lieu of any of these benefits that might

have been paid by the retirement system, a member's or qualified

participant's employer shall make a matching contribution up to 2%

of the member's or qualified participant's compensation to Tier 2

for each member who first became a member or qualified participant

on or after September 4, 2012 or who made the election under

subsection (5). A matching contribution under this subsection shall

not be used as the basis for a loan from an 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) An individual who first became a member or qualified

participant on or after September 4, 2012 or who made the election

under subsection (5) may make a contribution up to 2% of the

member's or qualified participant's compensation to a Tier 2

account. A member or qualified participant described in this

subsection may make additional contributions to his or her Tier 2

account as permitted by the department and the internal revenue

code.

(3) Except as otherwise provided in this subsection, a member

or qualified participant is vested in contributions made to his or

her Tier 2 account under subsections (1) and (2) according to the

vesting provisions under section 132. A member who is eligible for

the payment of health insurance coverage premiums by the retirement

system as a result of benefits provided under section 90 is not

vested in any employer contributions under subsection (1) and

forfeits the employer contributions and earnings on those

contributions.

(4) The contributions described in this section shall begin

with the first payroll date after the member or qualified

participant is employed or on or after the transition date for a

member who makes the election under subsection (5) and end upon his

or her termination of employment.

(5) Except as otherwise provided in this section, beginning

September 4, 2012 and ending at 5 p.m. eastern ~~daylight~~ standard

time on ~~October 26, 2012,~~ January 9, 2013, the retirement system

shall permit each qualified member to make an election to opt out

of health insurance coverage premiums that would have been paid by

the retirement system under section 91 and opt into the Tier 2

account provisions of this section effective on the transition

date. A qualified member who makes the election under this

subsection shall cease accruing years of service credit for

purposes of calculating a portion of the health insurance coverage

premiums that would have been paid by the retirement system under

section 91 as if that section continued to apply.

(6) A qualified member who does not make the election under

subsection (5) continues to be eligible for the payment of health

insurance coverage premiums by the retirement system under section

91 and is not eligible for the Tier 2 account provisions of this

section. An individual who is not a qualified member, who is a

former member on September 3, 2012, and who is reemployed by an

employer on or after September 4, 2012 shall be treated in the same

manner as a member described in this subsection who did not make

the election under subsection (5).

(7) The retirement system shall calculate an amount to be

credited to a Tier 2 account for each member who makes the election

under subsection (5). The amount described in this subsection shall

be an amount equal to the contributions made by the member under

section 43e. A member who makes the election under subsection (5)

shall cease making contributions under section 43e as determined by

the retirement system, but no later than the first payroll date

after the transition date. The amount calculated under this

subsection shall be deposited as an employer contribution into the

member's Tier 2 account as determined by the retirement system, but

no later than the first payroll date after ~~February~~ March 1, 2013.

A member is immediately 100% vested in amounts deposited to his or

her Tier 2 account under this subsection.

(8) A member or former member who does not make the election

under subsection (5), who is 60 years of age or older, who does not

qualify for the payment of health insurance coverage premiums by

the retirement system under section 91, and who files an

application with the retirement system on or after termination of

employment shall receive a separate retirement allowance as

calculated under this subsection. Except as otherwise provided

under this subsection, the separate retirement allowance under this

subsection shall be paid for 60 months and shall be equal to 1/60

of the amount equal to the contributions made by the member under

section 43e. The retirement system may pay out de minimus amounts

as a lump sum as determined by the retirement system and as

permitted by the internal revenue code. A member receiving a

separate retirement allowance under this subsection shall not

subsequently receive the payment of health insurance coverage

premiums by the retirement system under section 91. A member who

dies before qualifying for the payment of health insurance coverage

premiums by the retirement system under section 91 shall have a

separate retirement allowance as provided in this subsection paid

to the member's beneficiary upon application to the retirement

system. A member who qualifies for the payment of health insurance

coverage premiums by the retirement system under section 91 but who

dies before the payment of health insurance coverage premiums by

the retirement system in an amount equal to or greater than the

amounts contributed under section 43e shall have a separate

retirement allowance as provided in this 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 the difference between the health insurance coverage premiums

paid by the retirement system under section 91 and contributions

made by the member under section 43e. The amount of the separate

retirement allowance as determined under this subsection shall be

increased in a manner as determined by the retirement system by a

percentage equal to 1.5% multiplied by the total number of years

that member made contributions under section 43e.

(9) A member or former member who has a break in service and

is reemployed retains the same election that the member made under

this section before the break in service. If the member made the

election under subsection (5), the member shall continue to receive

the Tier 2 account contributions as provided in subsections (1) and

(2). If the member did not make the election under subsection (5),

the member shall continue to make the contributions as provided

under section 43e and is subject to subsection (8), if applicable.

(10) In lieu of any other health insurance coverage premium

that might have been paid by the retirement system under section

91, a credit to a health reimbursement account within the trust

created under the public employee retirement health care funding

act, 2010 PA 77, MCL 38.2731 to 38.2747, shall be made by the

retirement system in the amounts and to the members or qualified

participants as follows:

(a) Two thousand dollars to an individual who first became a

member or qualified participant on or after September 4, 2012, who

is 60 years of age or older, and who has at least 10 years of

service at his or her first termination of employment.

(b) One thousand dollars to an individual who first became a

member or qualified participant on or after ~~september~~ September 4,

2012, who is less than 60 years of age, and who has at least 10

years of service at his or her first termination of employment.

(11) The retirement system shall determine a method to

implement subsections (5) to (10), including a method for crediting

the amounts in those subsections to comply with any restrictions

imposed by the internal revenue code. Notwithstanding any provision

of this act to the contrary, the Tier 2 plan provisions of this

section shall be implemented by the department as soon as feasible

but not later than January 1, 2013.

(12) Subsections (5) to (10) do not apply to a member who is

eligible for the payment of health insurance coverage premiums by

the retirement system as a result of benefits provided under

section 90.

(13) On or before July 1, 2017, the retirement system shall

provide a report to the chairs of the house and senate

appropriations committees that provides the projected impact of

subsection (10) as it applies to members first employed and entered

upon the payroll of reporting units on or after July 1, 2017 with

regard to the annual required contribution as used by the

governmental accounting standards board and for purposes of the

annual financial statements prepared under section 28(1).

(14) As used in this section:

(a) "Compensation" means that term as defined in section

122(2).

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

following requirements:

(i) He or she first became a member before September 4, 2012.

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

ending September 3, 2012 or was on an approved professional

services or military leave of absence on September 3, 2012.