Bill Summary – FastDemocracy

SENATE BILL NO. 497
     September 14, 2023, Introduced by Senator ALBERT and referred to the Committee on Labor.
          A bill to amend 1943 PA 240, entitled
    "State employees' retirement act,"
    by amending sections 55, 58, 63, 63a, and 69 (MCL 38.55, 38.58,
63, 38.63a, and 38.69), section 55 as amended and section 63a as
    added by 2011 PA 264, sections 58 and 63 as added by 1996 PA 487,
    and section 69 as amended by 2002 PA 99.
                     THE PEOPLE OF THE STATE OF MICHIGAN ENACT:
       Sec. 55. (1) "Plan document" means the document that contains
 the provisions and procedures of Tier 2 in conformity with this act
 and the internal revenue code.
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        (2) "Qualified participant" means an individual who is a
 participant of Tier 2 and who meets 1 of the following
 requirements:
        (a) Is first employed and entered upon on the payroll of his
 or her the individual's employer on or after March 31, 30, 1997,
 and who before March 31, 1997 would have been eligible to be a
 member of Tier 1.
        (b) Elects to terminate membership in Tier 1 and elects to
 participate in Tier 2 in the manner prescribed in section 50.
        (c) Is an adjutant general or an assistant adjutant general
 under the Michigan military act, 1967 PA 150, MCL 32.501 to 32.851,
 and who is first employed as an adjutant general or assistant
 adjutant general on or after January 1, 2011.December 31, 2010.
        (d) Was a member who did not make the election under section
 50a.
        (e) Was a member who made the election under section 50a(1)
 and the designation under section 50a(2) and who has attained 30
 years of credited service or who has terminated employment and has
 been reemployed by this state.
        (f) Was a member as described in section 50a(6), (7), or (8).
        (3) "Refund beneficiary" means an individual nominated by a
 qualified participant or a former qualified participant under
 section 66 to receive a distribution of the participant's
 accumulated balance in the manner prescribed in section 67.
        (4) "State treasurer" means the treasurer of this state.
        (5) "Tax-deferred account" means an account or accounts of
 existing deferred compensation plans or plans established by the
 retirement system, for which the retirement system has the
 authority to determine the membership, eligibility, terms,
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 conditions, and other administrative and operational features. Tax-
 deferred account does not include a health reimbursement account
 for purposes other than complying with the contribution limits
 described in section 68b(12).
       (6) Except as otherwise provided in this subsection, "year of
 service" means each period during which a qualified participant is
 employed by the employer and is credited with 2,080 hours of
 service. The Tier 2 plan administrator and the plan document may
 provide for a lesser number of annual hours and a maximum number of
 hours per pay period for any classification of employees. ,
 provided that no However, a participant shall must not receive
 credit for more than 1 year of service for any 12-month period of
 employment. Beginning January 1, 2003, full service credit shall
 must also be given to a participant for furlough hours, for
 required 1-day layoffs, for required and designated temporary
 layoffs, for a year in which a participant temporarily leaves
 employment to enter active military duty and then dies during that
 active military duty, and for participation in the banked leave
 time program. In the event If a terminated participant is
 reemployed, such individual shall retain the participant retains
 credit for all full and partial years of service completed prior to
 such before the reemployment, for purposes of determining his or
 her the participant's vesting percentage in any employer
 contributions made pursuant to under section 63(2), and (3), and
 (5), as applicable, after his or her reemployment.
       Sec. 58. (1) Each qualified participant, former qualified
 participant, and refund beneficiary shall direct the investment of
 the individual's accumulated employer and employee contributions
 and earnings to 1 or more investment choices within available
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 categories of investment provided by the state treasurer.
 investment board. The limitations on the percentage of total assets
 for investments provided in Act No. 314 of the Public Acts of 1965,
 being sections 38.1132 to 38.1140i of the Michigan Compiled Laws,
 the public employee retirement system investment act, 1965 PA 314,
 MCL 38.1132 to 38.1141, do not apply to Tier 2.
       (2) In addition to the categories of investments provided by
 the investment board under subsection (1), the retirement system
 shall offer access to 1 or more fixed annuity options and may offer
 access to 1 or more variable annuity options provided by an annuity
 provider selected under this subsection. While a qualified
 participant is employed by the employer, the annuity options
 offered under this subsection must allow a qualified participant
 the ability to purchase a fixed rate annuity and an annuity with a
 guaranteed lifetime income option and may allow a qualified
 participant the ability to purchase a variable rate annuity.
 Subject to subsections (4) and (6), the investment board shall
 select 2 or more annuity providers based on a competitive proposal
 process. Subject to subsections (4) and (6), the investment board
 shall contract with 2 or more annuity providers to provide the
 annuity options under this subsection. Subject to subsection (6),
 the investment board shall select and contract with an annuity
 provider that meets all of the following conditions, as determined
 by the investment board:
       (a) The annuity provider and its subsidiaries and affiliates
 have the appropriate financial strength and stability. In
 determining the financial strength and stability under this
 subdivision, the investment board shall obtain written
 representation from the annuity provider of all of the following:
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       (i) That the annuity provider is an authorized insurer as that
 term is defined in section 108 of the insurance code of 1956, 1956
 PA 218, MCL 500.108.
       (ii) That all of the following apply to the annuity provider,
 at the time of selection and for each of the preceding 7 years:
       (A) The annuity provider operates under a certificate of
 authority from the insurance commissioner of its domiciliary state
 that has not been revoked or suspended.
       (B) The annuity provider has filed audited financial
 statements in accordance with the laws of its domiciliary state
 under applicable statutory accounting principles.
       (C) The annuity provider maintains and has maintained reserves
 that satisfy the statutory requirements of each state where the
 annuity provider does business.
       (D) The annuity provider is not operating under an order of
 rehabilitation or liquidation.
       (iii) That the annuity provider undergoes, at least every 5
 years, a financial examination, within the meaning of the law of
 its domiciliary state, by the insurance commissioner of the
 domiciliary state or representative, designee, or other party
 approved by the insurance commissioner of the domiciliary state.
       (iv) That the annuity provider will notify the retirement
 system of any change in circumstances occurring after the
 representations made in subparagraphs (i), (ii), and (iii) that would
 preclude the annuity provider from making the representations at
 the time the annuity provider issues the annuity.
       (v) That the annuity provider meets at least 2 of the
 following conditions:
       (A) The annuity provider has a claims-paying ability rating of
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 no less than "A2" insurer financial strength rating from Moody's
 rating services.
       (B) The annuity provider has a claims-paying ability rating of
 no less than "A" insurer financial strength rating from Standard &
 Poor's rating services.
       (C) The annuity provider has a claims-paying ability rating of
 no less than "A" insurer financial strength rating from Fitch
 Ratings.
       (D) The annuity provider has a claims-paying ability rating of
 no less than "A" insurer financial strength rating from AM Best
 rating services.
       (b) The annuity provider is able to provide contracted rights
 and benefits to a qualified participant.
       (c) The annuity provider is experienced in paying lifetime
 retirement income through annuities offered to public employee
 defined contribution retirement plans.
       (d) The annuity provider offers annuity options that meet all
 of the following conditions:
       (i) The annuity options are suitable for qualified
 participants, former qualified participants, and refund
 beneficiaries.
       (ii) The contract terms and income benefits are clearly stated,
 based on reasonable assumptions.
       (iii) The annuity options offer a range of lifetime income
 options.
       (iv) If the annuity is a variable annuity, the annuity offers a
 fixed account option along with its variable options.
       (v) The costs, including fees and commissions, of the annuity
 options in relation to the benefits and product features of the
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 annuity option are reasonable.
       (vi) The administrative services to be provided under the
 annuity option are appropriate. At a minimum, the administrative
 services must include periodic reports to the investment board
 about all of the following:
       (A) The number of annuitants.
       (B) The types of annuities provided.
       (C) Any other information that the investment board may
 require.
       (e) The annuity provider is able to offer objective and
 participant-specific education and tools that help participants
 understand the appropriate use of annuities as a long-term
 retirement savings vehicle.
       (3) The office of retirement services shall verify the
 information in a report submitted under subsection (2)(d). A report
 submitted under subsection (2)(d) must be published on the office
 of retirement services' website.
       (4) After the competitive proposal process under subsection
 (2) is complete, the investment board may select and contract with
 only 1 annuity provider to provide annuity options to qualified
 participants under subsection (2) if either of the following
 applies:
       (a) The investment board determines that selecting more than 1
 annuity provider is not in the interests of qualified participants.
       (b) Only 1 annuity provider meets the conditions under
 subsection (2).
       (5) If the investment board selects only 1 annuity provider to
 provide annuity options under subsection (2) as provided in
 subsection (4), the investment board shall notify the speaker of
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 the house of representatives, the minority leader of the house of
 representatives, the senate majority leader, and the senate
 minority leader within 30 days after selecting and contracting with
 an annuity provider of the reasons for selecting only 1 annuity
 provider.
       (6) If, after the competitive proposal process under
 subsection (2) is complete, the investment board determines that no
 annuity provider meets the conditions under subsection (2), both of
 the following apply:
       (a) The investment board shall not select an annuity provider
 under subsection (2).
       (b) The office of retirement services shall issue a new
 competitive proposal process under subsection (2) within 60 days
 after the investment board makes its determination described in
 this subsection.
       (7) As used in this section, "investment board" means the
 state of Michigan investment board within the department of
 treasury created under Executive Reorganization Order No. 2018-5,
 MCL 38.1176.
       Sec. 63. (1) This section is subject to the vesting
 requirements of section 64.
       (2) A qualified participant's employer shall contribute to the
 qualified participant's account in Tier 2 an amount equal to 4% of
 the qualified participant's compensation.
       (3) A qualified participant may periodically elect to
 contribute up to 3% of his or her the qualified participant's
 compensation to his or her the qualified participant's Tier 2
 account. The qualified participant's employer shall make an
 additional contribution to the qualified participant's Tier 2
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 account in an amount equal to the contribution made by the
 qualified participant under this subsection. This subsection does
 not apply to an eligible position qualified participant,
 conservation officer qualified participant, or state police
 qualified participant.
       (4) A qualified participant may make contributions in addition
 to contributions made under subsection (3) or (5), as applicable,
 to his or her the qualified participant's Tier 2 account as
 permitted by the state treasurer and the internal revenue code. The
 qualified participant's employer shall not match contributions made
 by the qualified participant under this subsection.
       (5) For an eligible position qualified participant,
 conservation officer qualified participant, or state police
 qualified participant, the qualified participant may elect to
 contribute to the qualified participant's Tier 2 account as
 follows:
       (a) If the qualified participant has less than 3 years of
 service, up to 6% of the qualified participant's compensation. The
 qualified participant's employer shall make an additional
 contribution to the qualified participant's Tier 2 account in an
 amount equal to the contribution made by the qualified participant
 under this subdivision.
       (b) If the qualified participant has 3 years or more but less
 than 5 years of service, up to 8% of the qualified participant's
 compensation. The qualified participant's employer shall make an
 additional contribution to the qualified participant's Tier 2
 account in an amount equal to the contribution made by the
 qualified participant under this subdivision.
       (c) If the qualified participant has 5 years or more of
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 service, up to 10% of the qualified participant's compensation. The
 qualified participant's employer shall make an additional
 contribution to the qualified participant's Tier 2 account in an
 amount equal to the contribution made by the qualified participant
 under this subdivision.
       (6) As used in this section:
       (a) "Conservation officer" means that term as defined in
 section 1b.
       (b) "Conservation officer qualified participant" means a
 qualified participant who is a conservation officer, other than a
 conservation officer described in section 48.
       (c) "Eligible position" means a position in the classified
 civil service with a classification of any of the following:
       (i) A position described in section 45(a)(i) or (iv).
       (ii) Corrections resident representative.
       (iii) Corrections transportation officer.
       (iv) Special alternative incarceration officer.
       (d) "Eligible position qualified participant" means a
 qualified participant who is employed in an eligible position.
       (e) "State police qualified participant" means a qualified
 participant who is a state police motor carrier or Michigan state
 police properties securities officer.
       Sec. 63a. Tier 2 and tax-deferred accounts are subject to the
 following terms and conditions:
       (a) On or before April 1, 2012, the The retirement system
 shall design an automatic enrollment feature that provides that
 unless a qualified participant who makes contributions under
 section 63(3) or (5), as applicable, or who is described in section
 68b(2) elects to contribute a lesser amount, the qualified
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 participant shall contribute the amount required to qualify for all
 eligible matching contributions under this act. The retirement
 system shall implement this automatic enrollment feature on or
 after April 1,