Reporting Requirements

 Where can I find the Retirement System Annual Report (Form 5572) template? 

The Retirement System Annual Report (Form 5572) template can be found by clicking the “Forms and Instructions” button on our website, Michigan.gov/LocalRetirementReporting, and selecting the correct fiscal year for which you are looking to file.

What are the reporting requirements for local governments under this Act?

Only local governments that offer or provide defined benefit retirement pension benefits and/or defined benefit retirement health benefits must report to Treasury under this Act. Although there are several reporting requirements under the Act, underfunded status is determined using the following:

For each retirement plan, the local government must report:

• The plan’s funded ratio (by specifying assets and liabilities);
• The ADC (actuarially determined contribution);
• The local government’s annual governmental fund revenues;
• Health care premium payments and payment of normal costs for employees hired after June 30, 2019.

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

  For Fiscal Year 2019, uniform assumptions and additional summary reporting will be required per the Act.

• Beginning in fiscal year 2019, selected PA 202 and PA 530 summary reporting have been combined on the Retirement System Annual Report (Form 5572);
• Actuarial valuations received after December 31, 2018 should include Treasury’s uniform assumptions. Local governments should include those uniform assumptions on their Retirement System Annual Report (Form 5572). All local governments need to report uniform assumptions no later than the fiscal year 2020 Form 5572. 

 What about the other reporting requirements specified in the Act?

Beginning in fiscal year 2019, Treasury has streamlined the retirement system reporting by merging the Retirement System Annual Report (Form 5572) with the summary pension report, which was required under Public Act 530 of 2016 (PA 530). This eliminates the PA 530 report that was previously required. Additionally, fundamental data for summary retiree health care reporting is now requested on the Form 5572, as required by the Act.

The majority of the additional reporting requirements can be found in your local government’s most recent actuarial funding valuation, however, you should check with your auditor and/or actuary for further guidance.

Regarding uniform assumptions, as general guidance, actuarial valuations issued after December 31, 2018 should include the data required for Treasury’s uniform assumption reporting. Therefore, if your audited financial statements utilize a valuation issued after December 31, 2018, uniform assumptions must be reported. Uniform assumptions must be reported on your Form 5572 no later than fiscal year 2020. Please review the implementation section within Treasury’s “Selection of the Uniform Assumptions” memo for further guidance on how and when to report data using uniform assumptions.

Additional reporting requirements under the Act will be implemented at a later date.

What are the Uniform Assumptions and how are local governments supposed to use them?

The Act 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 governments are using the uniform assumptions for financial reporting purposes, they will be required to report two sets of funded ratios and actuarially determined contributions within their Retirement System Annual Report (Form 5572). Treasury has updated the fiscal year 2019 Form 5572 to receive this information.

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

Numbered Letter 2018-3 requires local governments with fiscal year ends of June 30, 2018 and after to calculate an actuarially determined contribution (ADC) in their Retirement System Annual Report (Form 5572). What does this mean for my local government?

The Act states that a local government shall be determined to be underfunded if the following apply:

• The actuarial accrued liability of a retirement health system of the local government is less than 40% funded according to the most recent annual report;
• AND if the local government is a city, village, township, or county, the annual required contribution (ARC) for all of the retirement health systems of the local government is greater than 12% of the local government’s annual general fund operating revenues, based on the most recent year.

The Act defines ARC as “the sum of the normal cost payment and annual amortization payment for past services to fund the unfunded actuarial accrued liability (UAAL)”. In the Governmental Accounting Standards Board Statement No. 75, ARC was replaced with ADC, and Numbered Letter 2018-3 indicates that the ADC be calculated in accordance with the Act’s definition of ARC, as the normal cost payment plus the amortized portion of the UAAL.

Local governments must calculate an ADC, and in accordance with GASB Statement No. 75, include it in the required supplementary information section of their annual report.

Failure to submit an ADC may affect the local government’s evaluation of underfunded status. The updated Form 5572 allows local governments to indicate if an ADC was calculated and included in the audited financial statements. If the local government indicates an ADC is not included in the financial statements on the Form 5572 the underfunded status will be determined on the funded ratio trigger criteria alone. If a primary local government triggers underfunded status but subsequently obtained an ADC, and the ADC/governmental revenues are less than 10% for pension and less than 12% for OPEB, the local government can provide ADC information as part of a waiver application.

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 governments that provide a defined retirement health benefit must pay the normal cost for employees first hired after June 30, 2018. Beginning in fiscal year 2019, failure to pay normal cost will result in a 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 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.

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

These contributions should be placed in an IRS Section 115 qualified trust, or equivalent arrangement that meets the following criteria:

1. Contributions from employers and non-employer contributing entities to the OPEB plan and earnings on those contributions are irrevocable;
2. OPEB plan assets are dedicated to providing other post-employment benefits (OPEB) to plan members in accordance with the benefit terms;
3. OPEB plan assets are legally protected from the creditors of employers, non-employer contributing entities, the OPEB plan administrator, and plan members.

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

Yes.             

Does the Act have any requirements regarding my actuary or the valuation process?

Yes. Section 4 of the Act requires local governments 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.

Additionally, at least every 8 years, local governments shall do one of the following:

• Have a peer actuarial audit conducted by an actuary that is not the plan actuary;
• Replace the plan actuary.