2007 House Bill 4530 / Public Act 15

Balance budget with reduced school pension fund contribution

Introduced in the House

March 22, 2007

Introduced by Rep. Lee Gonzales (D-49)

To allow a one-time revision in the formula used by the school employee pension fund to determine how large an annual state contribution is required to cover part of the liability created by promising school employees a defined level of annual post-retirement pension benefits in the years ahead. One of the elements in actuarial liability projections is the value of equities (stocks) in the pension fund’s portfolio, and the usual practice in determining the required annual contribution is to use a five-year moving average of their value, to account for market fluctuations. The bill would allow a one-year average, which given a strong stock market in the past year, has the effect of reducing the state contribution by $190 million less than the true actuarially sound amount, under generally accepted accounting principles. Also, to allow a one-time only “interest only” pension contribution, which is $93 million less than the true actuarially sound amount. The bill is part of Gov. Granholm’s plan to close a gap between desired spending and expected revenues in Fiscal Year 2006-2007 (and this element has also been adopted in a Senate Republican plan to close the gap).

Referred to the Committee on Appropriations

March 27, 2007

Reported without amendment

Without amendment and with the recommendation that the bill pass.

April 17, 2007

Passed in the House 107 to 1 (details)

Received in the Senate

April 19, 2007

Referred to the Committee on Appropriations

May 15, 2007

Reported without amendment

With the recommendation that the bill pass.

May 22, 2007

Passed in the Senate 37 to 0 (details)

To allow a one-time revision in the formula used by the school employee pension fund to determine how large an annual state contribution is required to cover part of the liability created by promising school employees a defined level of annual post-retirement pension benefits in the years ahead. One of the elements in actuarial liability projections is the value of equities (stocks) in the pension fund’s portfolio, and the usual practice in determining the required annual contribution is to use a five-year moving average of their value, to account for market fluctuations. The bill would allow a one-year average, which given a strong stock market in the past year, has the effect of reducing the state contribution by $190 million less than the true actuarially sound amount, under generally accepted accounting principles. Also, to allow a one-time only “interest only” pension contribution, which is $93 million less than the true actuarially sound amount. The bill began as part of Gov. Granholm’s plan to close a gap between desired spending and expected revenues in Fiscal Year 2006-2007, and this element has also been adopted as part of a work-in-progress consensus plan to close part of the gap.

Signed by Gov. Jennifer Granholm

June 6, 2007