Frequently Asked Questions - Reporting

Reporting Requirements under Public Act 202 of 2017: Protecting Local Government Retirement and Benefits Act

Last updated on 11/8/2018

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Definitions and Who Must File

 

When did Public Act 202 of 2017 take effect?

Public Act 202 of 2017, the Protecting Local Government Retirement and Benefits Act (“the Act”), went into effect on December 20, 2017.

 

Are all local units of government required to report to the Michigan Department of Treasury (“Treasury”) under the Act?

No. The reporting required under the Act relates to retirement pension benefits and retirement health benefits of a local unit. Therefore, only local units of government that offer or provide such retirement benefits must report to Treasury.

 

How is the term “local units of government” defined under the Act?

The Act generally defines a local unit of government to mean a city, village, township, county, county road commission, metropolitan district or authority, municipal electric utility system, or a district, authority, commission, public body, or public body corporate created by one or more of these entities (e.g., a library district, housing commission, etc.).

 

How are retirement “systems” or “plans” defined in the Act?

The Act defines a “retirement system” to mean “a retirement system, trust, plan, or reserve fund that a local unit of government establishes, maintains, or participates in and that, by its express terms or as a result of surrounding circumstances, provides retirement pension benefits or retirement health benefits, or both. Retirement system does not include a state unit as that term is defined in section 2 of the public employee retirement benefit protection act, 2002 PA 100, MCL 38.1682.”

 

Are local units of government with retirement systems or plans administered by Municipal Employees’ Retirement System (MERS) subject to the reporting requirement of the Act?

Yes.

 

My entity receives a stand-alone audit and it is also included as a component unit of a larger government.  Is the entity required to file Form 5572?

If the entity is a discretely presented component unit of the larger government, the entity’s information should not be presented with the larger government and should be reported separately through its own report.  Blended component units, however, should be reported as part of the larger government.  
 

Are local units of government that only offer a defined contribution plan (i.e. 401k and/or 457 plan) required to file?

No.  The reporting required under the Act relates to retirement pension benefits and retirement health benefits as defined under the Act.

 

Reporting Requirements

 

What are the reporting requirements for local units of government under this Act?

Again, only local units of government that offer or provide retirement pension benefits and/or retirement health benefits must report to Treasury under this Act. Although there are several reporting requirements under the Act, the only reporting currently required is as follows:

For each retirement plan, the local unit of government must report:

  • The plan’s funded ratio (by specifying assets and liabilities)
  • The ARC (annual required contribution) - if it is a retiree health care plan
  • The ADC (actuarial determined contribution) - if it is a retirement pension plan
  • The local unit of government’s annual governmental fund revenues

Treasury will then use this data to determine if the local unit of government is in “underfunded status” (as described in Subsection 5(4) of the Act). This data is found in the local unit’s audited financial report or statement. The requirement to report the data is found under Section 5 of the Act.

 

What about the other reporting requirements specified in the Act?

Currently, Treasury is only collecting data necessary to determine underfunded status. The other reporting requirements (such as the “summary retiree health care report” described under Section 4 of the Act and any reporting using uniform assumptions established under Section 5 of the Act) will be required at a later date. Treasury will provide further information on this in the future.

 

How do local units of government report the required data to Treasury? 

Again, the only data currently required is that listed in the bullets above. Treasury has developed a report template entitled “Retirement System Annual Report” (Form No. 5572) that local units must complete and email to Treasury.

 

Where can I find the Retirement System Annual Report (Form No. 5572) template? 

The report template (Form No. 5572) was emailed to all subscribers of the following Treasury lists: “Local Government-Local Unit Officials” and the “Local Government-Accounting and Auditing Issues” on January 5, 2018. The subject line of the email was “Numbered Letter 2018-1: Local Government Retirement System Annual Report.” The report template can also be found by visiting Michigan.gov/LocalRetirementReporting.

NewNumbered Letter 2018-3 requires local units with fiscal year ends of June 30, 2018 and after to calculate and include an actuarial determined contribution (ADC) in the required supplementary information section of the annual report. We do not have enough time to calculate and include an ADC into our June 30, 2018 year-end financial statements. What can we do?

The Department of Treasury recognizes that many local units have completed or are substantially complete with audits of annual financial statements at the time of releasing the Number Letter 2018-3. Treasury is not requiring the reissuance of audits that have been filed to date to include an ADC.  In addition, if an audit is close to being completed at the time of issuance of Numbered Letter 2018-3, that local unit may choose to not include ADC at this time.

While ADC is not required for June 30, 2018 year-ends, it is important to note this may affect the local unit’s evaluation of underfunded status. The updated Form 5572, Retirement System Annual Report allows local units to indicate if an ADC was calculated and included in the audited financial statements. If the local unit indicates an ADC is not included in the financial statements on the Form 5572, Retirement System Annual Report, the underfunded status will be determined on the funded ratio trigger criteria only.  If a primary local unit triggers underfunded status but subsequently obtained an ADC, and the ADC/Governmental Revenues is less than 10% for pension and less than 12% for OPEB, the local unit can provide ADC information as part of a waiver application.

As work begins on audits after June 30, 2018 fiscal year-ends, local units must calculate an ADC, and, in accordance with GASB Statement No. 75 when an ADC is calculated, include it in the required supplementary information section of their annual report. Failure to include an ADC for these audits may result in the rejection of the audit by the Department of Treasury.

NewMy local unit files their audited financial statements biennially and did not file an audit report this fiscal year, do we still need to file the annual Form 5572 Retirement System Annual Report?

Yes, as required by the Act, biennial filers are required to file their Form 5572 Retirement System Annual Report, annually. Biennial filers will continue to use their most recent audited financial statements and report the same information as the previous year submission.  
 

Due Dates

 

When is the report due?

Under the Act, Treasury is required to begin making determinations of “underfunded status” beginning January 1, 2018. In order to do this, local units of government should submit the Retirement System Annual Report using data from its fiscal year 2017 audited report. The Act specifies the report is due no later than six months after the end of the local unit of government’s fiscal year. Therefore, for local units with fiscal years ending January through June 2017, the report should be submitted by January 31, 2018. For local units with fiscal years ending after June 30, 2017, the report should be submitted within six months from the end of the local unit of government’s fiscal year.  

 

What about local units that only file biennially and did not file a fiscal year 2017 audited report?

These local units should use data from their fiscal year 2016 audited financial report or statement. The Retirement System Annual Report should be submitted by January 31, 2018.

 

Why are some reports due January 31, 2018?  This doesn’t allow much time to complete the report.   

This is a one-time only due date, needed in order to “catchup” so that Treasury can immediately begin making determinations of “underfunded status” as required under the statute. Moving forward, the report will be due no later than six months after the end of the local unit of government’s fiscal year.

It is important that Treasury make determinations of “underfunded status” in a timely manner. Section 6 of the Act allows for a local unit of government to apply for a waiver of an “underfunded status” determination. Before local units of government and Treasury can begin the waiver application process, “underfunded status” for fiscal year 2017 must be determined in a timely manner, resulting in the January 31 due date.

 

Filing Requirements

 

Where do I send the report?

The report must be submitted electronically. The local unit of government’s Chief Financial Officer (CFO), or their designee, should send a single email to LocalRetirementReporting@michigan.gov and attach the completed form. The subject line of the email should be in the following format: Retirement System Annual Report-2017, Local Unit (e.g. Retirement System Annual Report-2017, City of Lansing). Treasury will send a reply acknowledging receipt of the local official’s email.

Act 202 also requires the local unit of government to electronically submit the report to its governing body. 

 

Does this information need to be made available to the public?

The Act specifies that the local unit of government must post this information on its website or in a public place if the local unit does not have a website. Treasury is also required to post a summary report of this information on its website.

 

Does the local unit’s governing body need to approve the submission of the Retirement System Annual Report prior to submitting it to Treasury?

No.

 

Source of Data

 

Where can the required data be found?

Each data point required is found in the most recent audited financial report or statement of the local unit of government:

Funded Ratios:

  • Funded ratios are primarily listed in the notes to the audited financial statements or the required supplementary information. The percentage listed in the audited statements should typically equal the percentage that is automatically calculated in the Retirement System Annual Report template based on the assets and liabilities entered by the local unit of government.
    • For retirement pension plans, this ratio is primarily included in the “Schedule of Changes in the Net Pension Liability and Related Ratios.” It is described as the “Plan Fiduciary Net Position as a percentage of the Total Pension Liability.” This ratio is simply the “Plan fiduciary net position, end of year” (assets), divided by the “Total pension liability, end of year” (liability).
    • For retirement health care (OPEB) plans, this ratio is primarily included in the “Schedule of OPEB Funding Progress and Employer Contributions” or within the notes to financial statements. It is typically described as the “Funded Ratio.” This ratio is simply the “Actuarial Value of Assets” (assets), divided by the “Actuarial Accrued Liability” (liability). Alternatively, some financial statements report the OPEB funded ratio in the same format as described above for retirement pension plans.

Actuarial Determined Contribution (ADC) or Annual Required Contribution (ARC):

  • The ADC and ARC amounts are primarily listed in the notes to the audited financial statements or the required supplementary information.
    • For retirement pension plans, the ADC is primarily included in the “Schedule of Contributions” within the required supplementary information. Simply enter the same ADC amount in the retirement system reporting template.
    • For retirement health care (OPEB), the ARC is primarily included in the “Other Postemployment Benefits” note within the notes to financial statements. Simply enter the same ARC amount in the retirement system reporting template.

Annual Governmental Fund Revenues:

  • The annual governmental fund revenue amount is primarily listed under financial statements within the “Statement of Revenues, Expenditures and Changes in Fund Balances – Governmental Funds.” This amount is primarily listed under the total revenue column and row at the top of this financial statement.
     

I have several divisions under the MERS pension, or similarly, I receive one summary document from MERS showing the status of our several departments (such as General, Police, DPW, Admin, Police Chief, New F/T Employees, etc.) Should I be listing each division or department separately on the Form 5572 or combine them under one system? 

You should report the data on Form 5572 as they are reported in your audited financial statements. More often than not, if you have several divisions or departments, your retirement divisions/departments (e.g. General, Police, DPW, Admin, etc.) are combined into one report of your MERS system in your audited financial statements. If, in your audited financial statements there are reports to equal the number of retirement systems operated by your local unit, then each would be reported separately on the Form 5572.


What if my local unit implemented GASB 75 early?

Treasury presumes that local governments followed GASB Statements No. 43 and 45 when they prepared their FY 2017 financial statements.  However, for the few local governments that implemented GASB Statement No. 75 early, please report information from the latest annual OPEB valuation report.

My local government started to transition to GASB 75 in our 2017 audited financial statements and both GASB 45 and GASB 75 amounts are reported for retiree healthcare. Which amounts should I report?

Form 5572 requires the healthcare system report the “Actuarial Value of Assets” and “Actuarial Accrued Liabilities”. These terms are consistent with GASB Statement No. 45. If both GASB 45 and 75 amounts are reported within the audited financial statements, please report the amounts as required by GASB 45.

What amount should be reported for Governmental Fund Revenue?

For primary local governments such as cities, villages, townships, and counties, Governmental Fund Revenues include revenues from the General, Special Revenue, Capital Projects, Debt Service, and Permanent funds.  Revenues must be reported on the modified accrual basis from the fund-based statements and not the government-wide based statements.  All other financing sources including, but not limited to, interfund transfers, bond proceeds, and sale of capital assets, must not be included in the calculation of revenues.

For local governments that are classified as special purpose governments, business-type non-primary local units, and discretely presented component units, they should include all operating, non-operating and capital contribution in the calculation of revenues regardless of fund type.
 

Our pension plan includes employees in our water and sewer department. Their pension cost is allocated to the water and sewer fund (which is an Enterprise Fund). When I report Governmental Fund Revenue, should I include any revenue received by the water and sewer fund?     

No.  Per Public Act 202 of 2017, section 3(g), general fund operating revenues for primary local governments do not include any fund of the local unit of government that the state treasurer determines based on applicable government accounting standards of the Governmental Accounting Standards Board is a proprietary, fiduciary, enterprise, or other restricted funds.   

Information Pertaining to “Underfunded Status”

 

What is the calculation used to determine “underfunded status” for primary units of government (cities, villages, townships, or counties)?

This can be found under Subsection (5)(4) of the Act and is summarized as follow:

For Retirement Pension Plans:  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 ADC is greater than 10% of total governmental fund revenues (ADC/Revenues > 10%).

For Retirement Health Care Plans (OPEB):  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 is greater than 12% of total governmental fund revenues (ARC/Revenues > 12%).

What is the calculation used to determine “underfunded status” for authorities, districts, and other local non-primary units of government?

This can be found under Subsection (5)(4) of the Act and is summarized below:

For Retirement Pension Plans:  A determination of “underfunded status” is made if the plan total assets are less than 60% of the plan total liabilities (assets/liabilities < 60%).

For Retirement Health Care Plans (OPEB):  A determination of “underfunded status” is made if the plan total assets are less than 40% of the plan total liabilities (assets/liabilities < 40%).

What if a local unit of government is given an “underfunded status” determination?  What happens next? 

If a local unit of government is notified by Treasury that they have been determined to be in underfunded status, the local unit of government may apply for a waiver under Section 6 of the Act. In doing so, the local unit of government’s administrative officer and governing body must approve a plan that demonstrates the underfunded status is being addressed. The waiver application is then submitted to Treasury.

 

Pertaining to the Waiver Process

 

My local unit of government received an e-mail from Treasury with a written notification that one of our retirement systems triggered a preliminary review of underfunded status.  The e-mail included a waiver application called Application for Waiver and Plan.  Is my local unit of government required to fill out this waiver application? 

No.  Submission of a waiver application is not required, it is at the discretion of the local unit. 

My local unit of government received notification of a preliminary review of underfunded status. Because we have not taken any prior actions to address our underfunded status, we are not submitting a waiver application. What happens next?

Treasury will provide a notification to your local unit of government detailing the determination of underfunded status. Within this notification Treasury will also request a corrective action plan. 

What happens after my local unit submits our waiver application to Treasury?

After receiving your Application for Waiver and Plan, Treasury will send a letter informing your local unit of government if the waiver is granted. If the waiver is not granted, Treasury will provide a notification detailing the reasons for denial. 

What happens if our application for waiver is denied?  

If a waiver is denied, Treasury will provide a notification to the local unit of government detailing the determination of underfunded status. Within this notification Treasury will also request a corrective action plan. 

 

My local unit has more than one retirement system, but not all of them triggered underfunded status. Do we need to apply for a waiver for each system?

No. You only need to complete a waiver application for retirement systems that have triggered a preliminary review of underfunded status. Again, whether you decide to submit a waiver application is up to your local unit.

How do I know which of our retirement systems are underfunded? 

To find the system(s) that are underfunded, please review the Form 5572 you submitted to Treasury. The Form 5572 will show the system(s) that trigger "underfunded status" as defined by P.A. 202 of 2017.

When filling out Form 5572, my local government used updated data from an actuarial report that was not in our most recent audited financial report. The notification letter from Treasury stated our Form 5572 was deficient even though I completed the form (using the more recent data).  Why did Treasury say our Form 5572 was deficient?

Treasury appreciates the attempt to provide updated data; however per the Act, Treasury is required to use data from your most recent audited financial statements for the Form 5572.

The instructions for the waiver application state that the waiver application must be approved by the local unit’s governing body before it is submitted to Treasury for review. Our governing body is not scheduled to meet before the due date of the waiver application.  Can I submit the waiver application without the approval of our governing body?

No. The governing body’s approval of the waiver application is required by the Act.  Proof of approval by the governing body must be included in your local unit’s application.

Are there two different waiver application forms?

Yes, Form 5583 is for Defined Benefit Pension Retirement Systems and Form 5584 is for Retirement Health Benefit Systems.

What information should be provided in the waiver application?

The local unit must complete Form 5583 for Defined Benefit Pension Retirement or Form 5584 for Retirement Health Benefit Systems.  Within the form are detailed instructions about the information that is required to be included in your waiver application.

NewIs there any information that should NOT be included with our waiver application?

Yes, information that identifies specific individuals associated with the retirement systems in the waiver application should be redacted. This includes, but is not limited to, plan participant names, dates of birth, social security numbers, etc…

Pertaining to the Corrective Action Plan (CAP) Process

My local unit of government received an e-mail from Treasury with a written notification that one or more of our waivers were denied.  The e-mail included a corrective action plan form.  Is my local unit of government required to fill out this corrective action plan form?

Every underfunded local government needs to create a corrective action plan for each underfunded system.  Form 5597 for Retirement Health Benefit Systems and Form 5598 for Defined Benefit Pension Retirement Systems provides detailed instructions, including suggested actions, for your corrective action plan.

To verify which systems are underfunded, please visit Treasury’s local retirement summary./p>

My local unit of government received an e-mail from Treasury with a written notification that one or more of our waivers were denied.  The e-mail included a corrective action plan form.  When is my corrective action plan due? 

The completed corrective action plan is due back to the Department of Treasury (Treasury) within 180 days of the email notification via email to LocalRetirementReporting@Michigan.gov. The subject line of the email should be in the following format: Corrective Action Plan-2017, Local Unit Name (e.g. Corrective Action Plan-2017, City of Lansing).

My local unit has more than one retirement system, but not all of them triggered underfunded status. Do we need to submit a corrective action plan for each system?

No. You only need to complete a corrective action plan for retirement systems that have triggered a preliminary review of underfunded status and do not have an approved waiver.  

My local unit of government’s waiver was denied, can we use the information from our waiver in our corrective action plan?

Yes, any prior actions taken by your local unit of government may be and is encouraged to be included in your corrective action plan.

What happens after my local unit emails our corrective action plan to Treasury?

After receiving your corrective action plan, Treasury will provide the corrective action plan to the Municipal Stability Board (the Board) for their review. The Board will accept the corrective action plan submission at their next scheduled meeting. The Board shall then approve or reject the corrective action plan within 45 days from the date of the meeting.

Does my local unit’s governing body need to approve the corrective action plan prior to it being submitted to the Municipal Stability Board?

Yes, as required by PA 202 of 2017 Section 10(1), the governing body of the local unit of government must approve the corrective action plan before submission to the board.

The Municipal Stability Board approved my corrective action plan. What are the next steps?

The local unit of government has up to 180 days after the approval of a corrective action plan to begin to implement the plan to address its underfunded status. The Board shall monitor each underfunded local unit of government's compliance with the Act and any corrective action plan.

The Municipal Stability Board denied my corrective action plan. What are the next steps?

If the Municipal Stability Board (the Board) votes to deny a corrective action plan that has been submitted, the Board shall within 15 days provide a notification and report to the local unit of government detailing the reasons for the disapproval of the corrective action plan. The local unit of government has 60 days from the date of the notification to address the reasons for denial and resubmit a corrective action plan for approval.

Are there two different corrective action plan forms?

Yes, Form 5597 is for Retirement Health Benefit Systems and Form 5598 is for Defined Benefit Pension Retirement Systems

What information should be provided in the corrective action plan?

The local unit of government is responsible for determining the components of the corrective action plan, however, Form 5597 for Retirement Health Benefit Systems and Form 5598 for Defined Benefit Pension Retirement Systems provide detailed instructions, including suggested actions, for your corrective action plan.  

Where can I find the Municipal Stability Board’s meeting schedule?

The Municipal Stability Board’s meeting schedule can be accessed at Michigan.Gov/MunicipalStabilityBoard.

Is there a way to contact the Michigan Department of Treasury about my waiver application denial or my corrective action plan?

Yes, if you would like to discuss your underfunded status, please schedule an appointment using the Local Retirement Calendar. A staff member will contact you at your scheduled time.

New Where can I find the last versions of the CAP template?

The CAP templates (Form 5597, Application for Retirement Health Care Systems Corrective Action Plan and Form 5598, Application for Defined Benefit Pension Retirement Systems Corrective Action Plan) were updated in August of 2018 to help local units of government comply with the MSB’s CAP approval criteria.  Treasury recommends local units complete their CAP(s) utilizing these forms. The forms can be found at: Michigan.gov/LocalRetirementReporting.

New I am required to file a corrective action plan.  Do I still need to complete the Form 5572, Retirement System Annual Report Template?

Yes, the Department of Treasury must evaluate each local government’s retirement system on an annual basis as required by Public Act 202.  Form 5572, Retirement System Annual Report Template must be completed six months after your fiscal year end.

New My corrective action plan has been approved by the MSB.  Do I need to post this to my local unit’s website?

Yes, as required by section 5 of the Act, local governments must post its CAP on its website, or in a public place if it does not have a website.

NewThere is not enough room in the form’s input box to describe modern plan design changes, plan funding, or other considerations. Can I include an attachment that allows for more space?

Yes, if your local unit of government has additional actions that you have taken or plan on taking that do not fit in the form, please enter “see attachment” and label that attachment accordingly.

NewIs there any information that should NOT be included with our corrective action plan?

Yes, information that identifies specific individuals associated with the retirement systems in the corrective action plan process should be redacted. This includes, but is not limited to, plan participant names, dates of birth, social security numbers, etc…

Upcoming Public Act 202 Reporting Requirements

New My retiree healthcare system is open to new employees.  Do I need to pay normal cost on these employees?

Yes, as required by Section 4 of the Act, local units of government that  provide a retirement health benefit must pay the normal cost for employees first hired after June 30, 2018.  Failure to pay normal cost may result in the determination of underfunded status.

Normal cost is defined by the Act as the annual service cost of retirement benefits as they are earned during the active employment of employees of the local unit of government in the applicable fiscal year, using an individual entry-age normal and level percent of pay actuarial cost method.  Treasury recommends contacting your actuary to help determine normal cost.

New Where must I put the payment of normal cost for new employees first hired after June 30th, 2018?

These contributions should be placed in a qualified trust or equivalent arrangement, where assets are legally protected from the creditors of the local government, the plan administrator, and where the contributions are also legally protected from the creditors of the plan members.

New Does Public Act 202 have any new requirements regarding my actuary or the valuation process?

Yes, section 4 of the Act requires local units of government that have more than 100 members in a retirement plan(s) to have an actuarial experience study conducted by the plan actuary for each retirement system every five years.

NewUnder section 4 of the Act, the local unit of government must pay any retiree premiums that are due for retirants in the retirement system.  My local unit of government has a qualified healthcare trust that makes these payments to an insurance provider.  Do these payments satisfy this requirement?

Yes.

NewWhat are the Uniform Assumptions and how are local units of government supposed to use them?

Public Act 202 requires the State Treasurer to annually establish uniform actuarial assumptions for retirement systems that include, but are not limited to, investment returns, salary increase rates, mortality tables, discount rates, and healthcare inflation. These uniform assumptions will allow the citizens of Michigan to compare local retirement systems on a standard basis.

Unless local units are using the uniform assumptions for financial reporting purposes, they will be required to report two sets of funded ratios and actuarially determined contribution within their annual Form 5572 Retirement System Annual Report. Treasury will update the Form 5572, Retirement System Annual Report to receive this information in calendar year 2019.

Please see the Treasurer’s memo at Uniform Assumptions for more information.