On December 20, 2017, Michigan Governor Rick Snyder signed into law Public Act (PA) 202 of 2017 (SB 686), Protecting Local Government Retirement and Benefits Act. The Act establishes reporting requirements that are applicable to all local Michigan governments that offer or provide defined benefit pension and/or defined benefit other postemployment benefits (OPEB) plans. Some of the provisions of the Act include, but are not limited to:
- Requiring uniform reporting to the Michigan Department of Treasury (Treasury), including a summary retiree health care report;
- Requiring the Treasury to determine “underfunded” status of a local unit of government (LUG). (For retirement health systems, if less than 40% funded and the annual required contribution (ARC) for all the retirement health systems is greater than 12% of the LUG’s annual general fund revenues for the most recent fiscal year. For retirement pension systems, if less than 60% funded and the ARC for all retirement pension systems is greater than 10% of the LUG’s annual general fund revenues for the most recent fiscal year.) The Treasury may waive the determination of underfunded status if the system is in the process of addressing the funded level;
- Creating a Municipal Stability Board with the Treasury that underfunded LUGs are to submit a corrective action plan;
- Creating a list of various options for a corrective action plan; and
- Requiring both a LUG and the Treasury to post a summary of the LUG’s reports and data online.
On January 5, 2018, the Treasury released the initial reporting requirements under PA 202 in Numbered Letter 2018-1. The Treasury requires that LUGs must complete Form 5572, referred to as the “Retirement System Annual Report.” Currently, the Treasury is only collecting data to determine if a LUG is in “underfunded status.” Other reporting requirements (i.e., “summary retiree health care report”) will be required at a later date. For each retirement plan, the LUG must report:
- The plan’s funded ratio (by specifying assets and liabilities);
- For a retiree health care plan, the ARC;
- For a retirement pension plan, the actuarial determined contribution (ADC); and
- The annual governmental fund revenues.
In accordance with the Act, pension and retiree health care reports for retirement systems shall be electronically filed with the Treasury no later than six months after the end of the LUG’s fiscal year. For those that have already filed 2017 audited financial statements with the Treasury (or a biennial filer) with fiscal years ending on or before June 30, 2017, Form 5572 is due by January 31, 2018.
All LUGs that have a retirement pension system or retirement health system must file their reports for their individual plan(s). All local units must submit their most recent audited financial statement to the Treasury, prior to (or concurrently with) the submission of the retirement system annual report. Failure to report by the due date may result in an underfunded determination in accordance with PA 202. LUGs are advised to review reporting requirements with legal counsel or the Treasury to ensure compliance with State requirements.
PA 202 became effective on December 20, 2017 and is available here.
Further information is available on the Michigan Department of Treasury website here.