LAYERED AMORT., OTHER CHANGES H.B. 4263 (S-1), 4265 (S-3) & 4266 (S-1):
SUMMARY OF BILL
REPORTED FROM COMMITTEE
House Bill 4263 (Substitute S-1 as reported)
House Bill 4265 (Substitute S-3 as reported)
House Bill 4266 (Substitute S-1 as reported)
Sponsor: Representative Brad Paquette (H.B. 4263)
Representative Ann Bollin (H.B. 4265)
Representative Tommy Brann (H.B. 4266)
House Committee: Appropriations
Senate Committee: Appropriations
CONTENT
House Bills 4263 (S-1), 4265 (S-3), and House Bill 4266 (S-1), would amend the Public School Employees' Retirement Act, the Judges Retirement Act, and the State Police Retirement Act, respectively, to do the following:
-- Require the retirement systems to use layered amortization for new actuarial losses and use level dollar amortization to pay the layered amortization.
-- Reduce the time period over which payments resulting from reconciliation must be made.
-- Require that mortality tables be the most appropriate for the characteristics of the retirement systems' populations.
-- Codify the current assumed rates of return and discount rates into statute.
-- Eliminate retiree health care premium coverage for judges newly hired on or after December 11, 2022, and offer existing members the ability to monetize existing health care premium coverage and change to a health care savings plan.
House Bill (HB) 4263 (S-1): Public School Employees' Retirement Act
The bill would require the retirement system to use layered amortization, beginning in fiscal year (FY) 2024-25 for open plans and, for closed plans, beginning in FY 2029-30. "Layered amortization" would mean a fixed and closed period that separately layers the different components of unfunded actuarial accrued liabilities (UAAL) to be amortized over a fixed period, not to exceed 10 years for a closed plan and 15 years for an open plan, as additional unfunded accrued liabilities emerge. The bill would require that the amortization period for layered amortization use a level dollar amortization method (rather than a level percentage of payroll method).
In addition, beginning with FY 2021-22, the bill would require shortfalls or overages in actual contributions compared to actuarially determined contributions (i.e., the process of reconciliation) to be paid over three years instead of five years (the current requirement). The bill also would require the Retirement Board and Department of Technology, Management, and Budget to adopt the most current mortality tables that were most appropriate for characteristics of the population in the system.
Finally, the bill would codify assumed rates of return on investments for the pension plan of not more than 6% and for retiree health benefits of not more than 6%. Under current law,
statutory rates of return range between 6.0-8.0% for pension plans, although the retirement system adopted a dedicated gains policy that uses investment gains in excess of assumed gains to 'buy down' the assumed rates of return. The percentages listed in the bill as maximums are what the Michigan Public School Employees' Retirement System (MPSERS) currently assumes for pension and retiree health care.
House Bills 4265 (S-3) & 4266 (S-1): Judges & State Police
The other bills in the package propose similar changes for the Judges Retirement System (JRS) and the State Police Retirement System as are proposed for the School Employees under HB 4263 (S-1), with differences noted below. (The State Employees' Retirement System would see similar changes under HB 4264.)
In HB 4265 (S-3) (Judges), the maximum assumed rate of return on pension investments would be 6.0%, and for retiree health care, the rate would be 6.0%. As with H