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January 3, 2000
To: Michigan Municipal League, Michigan Township Association,
Counties, Cities, Townships and Villages
From: Richard L. Baldermann, CPA, CGFM
Administrator, Local Audit and Finance Division
Bureau of Local Government Services
RE: Public Employee Health Care Fund Investment Act
The "Public Employee Health Care Fund Investment Act" (Public Act 149 of 1999) became effective November 1, 1999. The Act permits the legislative body of a public corporation to establish a public employee health care fund. The purpose of the fund is for the accumulation and investment of funds to provide for the funding of health care benefits to retired employees of the public corporation and their beneficiaries.
The legislative body of a public corporation (a county, city, village, township, authority, district, board, or commission) may adopt a resolution establishing a public employee health care fund for the purpose of accumulating funds to provide for the funding of health care benefits to retirees and beneficiaries of the retiree of the public corporation. Money for the payment of health care benefits for retired employees of the public corporation may, at the discretion of the public corporation, be provided from this fund or any other fund or trust. The resolution must include all of the following:
(a) The designation of a person or persons who shall act as the fund's investment fiduciary.
(b) A restriction of withdrawals from the fund solely for the payment of health care benefits on behalf of qualified persons and the payment of the expenses of administration of the fund.
(c) The designation of who is a qualified person for purposes of payment of health care benefits from the fund.
(d) A determination of whether the fund will be established on an actuarial basis.
The investment fiduciary is required to invest the assets of the fund in accordance with an investment policy adopted by the governing body of a public corporation, and in compliance with Section 13 of the Public Employee Retirement System Investment Act, PA 314 of 1965, MCL 38.1133. The investment fiduciary is required to discharge his or her duties solely in the interest of the public corporation.
The public corporation may invest the fund's assets in the investment instruments and is subject to the limitations governing the investment of assets of public employee retirement systems under the Public Employee Retirement Systems Investment Act, PA 314 of 1965, MCL 38.1132 to 38.1140.
Further, the legislative body of a public corporation may, by resolution, allow a trust to invest the assets of the trust in accordance with the Public Employee Retirement System Investment Act, PA 314 of 1965, MCL 38.1132 to 38.1140. The resolution would require: (1) a statement of the authority under which the trust is established; and (2) approval to invest the assets of the trust in accordance with the Public Employee Retirement System Investment Act.
Finally, the Act requires that the investment fiduciary have an actuarial review of the fund or trust prepared at least every five years, with assets valued on a market related basis. It also requires the investment fiduciary to issue a summary annual report to the legislative body that established the fund.
Establishing Resolution--Designation of Investment Fiduciary
The public corporation treasurer is the custodian of all funds of the local unit. The treasurer may also be designated the investment fiduciary, however, the investment fiduciary may be a person or persons who exercises any discretionary authority or control in the investment of the fund's or trust's assets and renders investment advice to a fund or trust for a fee or other direct or indirect compensation. If the investment fiduciary as designated by the establishing resolution is not the unit's treasurer, an agreement must be entered and the financial information must be reported to the treasurer and recorded in the local unit's records.
Establishing Resolution--Actuarial Basis
The establishing resolution must indicate whether the fund is to be established on an actuarial basis. The Act does not require that the fund be on an actuarial basis, however, actuarial reports from the investment fiduciary are still required every five years.
Investment Policy
The investment fiduciary is required to invest the fund in accordance with an investment policy adopted by the local unit governing body. This investment policy may be a separate policy or the provisions for the Public Employee Health Care Fund may be included as a separate section in the investment policy required by MCL 129.91 (Investment of Surplus Funds of Political Subdivisions).
Accounting for the Fund
Fund number 736, Public Employee Health Care Fund must be used to account for the activity of the trust established under this Act.
If you have any questions, please call (517) 373-3227 or write:
Michigan Department of Treasury
Local Audit and Finance Division
P.O. Box 30728
Lansing, Michigan 48909-8228