Tuesday, September 25, 2018

Legislative

Quick Links:
Public Act 202 of 2017
Public Act 530
Public Act 152
Pension Reform Updates

MERS is an independent, professional retirement services company operating on a not-for-profit basis. Partnering with municipalities and their employees all across the state, offering customized, sustainable retirement solutions. We listen to our members and understand the fiscal challenges municipalities are facing, as well as the legislative issues affecting the state, and the state of retirement today.

This section of our site is designed to be a resource for some key issues affecting our municipal partners. Please check back for further updates and resources as they become available.

 

 

PA 202 of 2017 Local Government Retirement System Annual Report

Overview of PA 202 of 2017

In 2017, the Protecting Local Government Retirement and Benefits Act (Public Act 202 of 2017) was signed into law in Michigan. The legislation implemented recommendations from the Responsible Retirement Reform Task Force on addressing unfunded pension and retiree health care liabilities (OPEB) of local governments in Michigan. If your local unit of government does not offer a defined benefit retirement or retiree health plan, or only offers a defined contribution plan, such as a 401(a) or 457(b) plan, no action is required under the law.

This act incorporates four stages for local units to use in addressing their fiscal health and the security of retirement benefits for retired municipal employees:

Overview of the Four Stages

Stage 1: Transparency, Through Reporting Requirements

Increased Information
The new law requires local units of government to submit a Retirement System Annual Report (form 5572) and related system funding information in addition to the annual actuarial valuation report information required under Public Act 530 of 2016 for retirement systems.

At this time, the Michigan Department of Treasury (Treasury) is only requesting limited funding information to assist in determining the underfunded status of local units of government (Numbered Letter 2018-1).

When to File Form 5572

Timeline - Year 1

Timeline - Going Forward
Going forward, the Retirement System Annual Report must be submitted no later than six months after the end of your fiscal year.

It is important to note that the current data requested can be located in your local government's most recent financial report. As a reminder of how Net Pension Liability is calculated, please see our resource page here.

In the future, we expect more detailed information to be collected including pension and health care summary data and actuarial assumption reporting information.

Increased Transparency
Treasury and local units of government are required to post on their respective websites a summary of local units' reports, the funded status, the waiver status, and approved corrective action plans. At this time Treasury has not issued a deadline for completion of these requirements; MERS will provide guidance as soon as it is available.

Treasury's website can be found here.

Actuarial Due Diligence
Beginning July 1, 2018, local units are required to conduct an actuarial experience study at least every five years, with a peer actuarial audit or rotation of actuaries at least every eight years. For MERS customers, this due diligence is already conducted on your behalf and as part of the overall administration of your plan in MERS. Please visit our website for more information on the Experience Study, as well as view the Actuarial Policy.

A local unit of government that is eligible to use a specified alternative measurement method under Governmental Accounting Standards Board standards is exempt from the requirements.

Funding Requirements
As of July 1, 2018, in addition to meeting the current constitutional and statutory requirements for funding pension plans, going forward, all local governments should begin to fund normal costs for employees first hired after June 30, 2018 and any retiree premiums that are due for retiree health plans.

MERS currently has over 300 local governments that utilize our Section 115 Governmental Integral Part Trust. This qualified medical trust provides cost-effective diversified investment options. For more information on MERS Retiree Health Funding Vehicle, click here.

Stage 2: Identify Potential Problems

A critical stage of this process is identifying where problems exist. Each year, the state treasurer shall determine the underfunded status of each local unit of government using the following criteria:

  1. Pension Funding Level:
    For primary units of government (cities, villages, townships, or counties), a determination of "underfunded status" is made if the plan total assets are less than 60% of the plan total liabilities (assets/liabilities < 60%) and the actuarially determined contribution (ADC) is greater than 10% of total governmental fund revenues (ADC/Revenues > 10%).
     
    For authorities, districts, and other local non-primary units of governments, a determination of "underfunded status" is made if the plan total assets are less than 60% of the plan total liabilities (assets/liabilities < 60%).
     
  2. OPEB Funding Level:
    For primary units of government (cities, villages, townships, or counties), a determination of "underfunded status" is made if the plan total assets are less than 40% of the plan total liabilities (assets/liabilities < 40%) and the annual required contribution (ARC) is greater than 12% of total governmental fund revenues (ARC/Revenues > 12%).
     
    For authorities, districts, and other local non-primary units of governments, a determination of "underfunded status" is made if the plan total assets are less than 40% of the plan total liabilities (assets/liabilities < 40%).

Treasury will also monitor and address cases in which local units of government:

  1. Do not submit required funding reports.
  2. Fail to fund OPEB normal costs for employees first hired after June 30, 2018 and any retiree premiums that are due.

For 2018, Treasury has begun sending out letters to those local units of government that met the triggers outlined above, for fiscal years ending prior to June 30.

Stage 3: Review For Fiscal Health (Waiver Process)

If the local unit is under preliminary review for being in underfunded status as outlined in Stage 2, but already has a plan in place for how they will continue to fund their plan over time, they may file an application for waiver to Treasury within 45 days of notification of underfunded status.

To assist you in completing a waiver, MERS has put together a Waiver Completion Guide for where you can find the various cost-reducing strategies and impacts you have, or may consider, implementing. Please contact your Regional Manager for additional information.

This plan must be approved by the local unit's administrative officer and governing body, to ensure support. The state treasurer shall issue a waiver of the determination of underfunded status for a local unit of government if it is determined that the underfunded status is adequately being addressed by the local unit of government.

If a waiver is not requested or is requested but not approved, Treasury will confirm that a problem exists and the local unit moves to Stage 4.

Stage 4: Develop a Corrective Action Plan

An underfunded local unit of government as identified under Stage 3 shall develop and submit for approval to a newly created Municipal Stability Board (MSB) a Corrective Action Plan (CAP). The local unit of government shall determine the components of the CAP and may be based on the MSB list of best practices. The MSB will consist of three members appointed by the Governor. This board will be comprised of appointed members representing state and local officials, as well as employee/ retiree representative(s).

Process

  • A local unit of government that is in underfunded status shall submit a CAP to the board within 180 days after the determination of underfunded status is made.
  • The MSB may extend the 180-day deadline by up to an additional 45 days if the local unit of government submits a reasonable draft of a CAP and requests an extension.
  • The MSB shall review and vote on the approval of a CAP within 45 days after it is submitted.
  • If the MSB votes to disapprove a CAP, the board shall provide notification to the local unit of government detailing the reasons for the disapproval within 15 days.
  • The local unit of government has 60 days from the date of the notification to address the reasons for disapproval and resubmit a CAP.

The local unit of government has up to 180 days after the approval of a CAP to begin implementation of the approved action(s).

PA 202 of 2017 - January 11, 2018 update

The Michigan Department of Treasury recently sent out reporting guidance (Numbered Letter 2018-1) concerning the local government retirement system annual report and implementation of Public Act 202 of 2017.
This is the initial data collection effort and requires all local units of government that have a defined benefit retirement plan or defined benefit retiree health care (OPEB) plan to file a Retirement System Annual Report (Form 5572). If your local unit of government does not offer a defined benefit retirement or retiree health plan, or only offers a defined contribution plan, such as a 401(a) or 457(b) plan, no action is required.

The following information has been published by Treasury and can assist you in your compliance efforts.

If your 2017 audited financial statements have already been filed with Treasury (or you are a biennial filer) and your fiscal year ended on or before June 30, 2017, your Form 5572 is due by January 31, 2018. For local units with fiscal years ending after June 30, 2017, your Form 5572 is due no later than six months after the end of your fiscal year.

It is important to note that the current data requested can be located in your local government's most recent financial report. As a reminder of how Net Pension Liability is calculated, please see our resource page here.

At this time, the Department of Treasury is only requesting limited information to assist in determining the underfunded status of local units of government. In the future, we expect more detailed information to be collected including retirement and health care summary data and actuarial assumption reporting information. We are continuing to work with the Department of Treasury to determine what timeframe and additional information will be collected in order to best assist you in complying with future data requests.

 

Overview of PA 530

The Public Employee Retirement System Investment Act requires local governments to submit certain information to the Department of Treasury. According to guidance from Treasury, local governments have 30 days from the receipt of their Annual Actuarial Valuation to email this information to treas_LAFD@michigan.gov. Annual Actuarial Valuations will be sent to municipalities from MERS by the end of June.

To assist our customers with the new reporting requirements we have created the following guide to provide information for the Retirement System, and to guide you to where you can find your plan specific information. It is important to note that MERS does not have any of the required OPEB information.

Print-friendly version - PA 530 2017.

PA 530 2016.

Overview of PA-152, and Road Commission Best Practice Bills


 

  • Overview of PA 51—Road Commissions Best Practices Bill
    The Road Commissions Best Practice Bill affects any municipality that receives funding from Act 51 Transportation Funds. This law requires a municipality to choose between complying with an employee compensation plan — which mirrors the fiscal year 2013 EVIP/CIP employee compensation criteria requirements OR compliance with PA 152.
    View PA 51 information
     
  • Overview of 2011 PA 152
    In 2011, the State of Michigan passed Public Act 152, which requires that local units of government place a hard cap on their health care, institute an 80/20 cost sharing arrangement or opt out with 2/3 vote of the governing body.
    View PA 152 information
     
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Disclaimer
The information contained in this Web site is being made available as a public service. The information is not intended to constitute legal or investment advice, or to replace official versions of that information. Benefit Estimates or Service Credit Purchase estimates requested through this Web site are not official descriptions of any benefits, and do not represent a promise by MERS to provide any benefit(s) to any person(s). No one can detrimentally rely upon the information provided in, or requested through this Web site. MERS reserves the right to correct any errors, and presents this information without warranties, express or implied, regarding the information?s accuracy, timeliness or completeness. If you believe the information is inaccurate, out-of-date, or incomplete, or if you have problems accessing or reading the information, please call MERS at 800.767.MERS (6377).