The following opinion is presented on-line for informational use only and does not replace the official version. (Mich Dept of Attorney General Web Site - www.ag.state.mi.us)



STATE OF MICHIGAN

FRANK J. KELLEY, ATTORNEY GENERAL


Opinion No. 5462

March 21, 1979

SCHOOLS & SCHOOL DISTRICTS:

Deferred compensation plan

OFFICERS & EMPLOYEES:

Deferred compensation plan of a school district

RETIREMENT & PENSIONS:

Investment of funds of public employee retirement systems or plans

1965 PA 314, which regulates the investment of public retirement funds, does apply to a deferred compensation plan of a local school district.

1965 PA 314, Sec. 7a(1) does not limit the investments of deferred compensation plans in annuity contracts in the general accounts of life insurance companies to 10% of the assets of such plans. Under 1965 PA 314, Sec. 7a(2), a deferred compensation plan may invest any amount in annuity contracts in the general account of a single life insurance company which does not exceed the lesser of 5% of the insurer's assets or 50% of its capital and surplus.

Honorable John S. Mowat, Jr.

State Senator

The Capitol

Lansing, Michigan

You have requested my opinion on two questions which may be stated as follows:

1. Does 1965 PA 314, MCLA 38.1121 et seq; MSA 3.981(101) et seq, apply to a deferred compensation plan with assets in excess of $250,000 of a local school district?

2. If 1965 PA 314, supra, applies to such plan, does Sec. 7a(1) of the Act limit the amount which the plan may invest in annuity contracts in the general accounts of life insurance companies to 10% of the plan's assets and does Sec. 7a(2) limit the amount which the plan may invest in annuity contracts of any one life insurance company to the lesser of 5% of the plan's assets or 50% of the capital and surplus of the insurer?

Responding to your first question, OAG, 1975-1976, No 4995, p 674, 676 (November 9, 1976), held that 1965 PA 314, supra, does apply to a deferred compensation plan of a local school district with assets in excess of $250,000.00.

Turning to the second question, 1965 PA 314, supra, authorizes the investment of funds of public employee retirement systems or plans created and established by the state or any political subdivision. OAG, No 4995, supra, held that deferred compensation programs were sufficiently similar to retirement plans to come within the purview of this statute. (a1)

As originally enacted, 1965 PA 314, supra, did not authorize the investment of funds in annuity contracts of life insurance companies. 1965 PA 314, supra, was amended, however, by 1968 PA 279, which added a Sec. 7a to the Act which read as follows:

'Investments may also be made in annuity investment contracts or participations in the general or any separate mortgage, bond or other special investment account or accounts of any life insurance company or companies authorized to do business in this state, but not to exceed 10% of the assets of the public employee retirement system.' (emphasis added)

Section 7a was subsequently amended by 1976 PA 128 to read as follows:

'(1) Investments may also be made in annuity investment contracts or participations in a separate mortgage, bond, or other special investment account or accounts of a life insurance company authorized to do business in this state, but not to exceed 10% of the assets of the public employee retirement system.

'(2) Investments may also be made in annuity investment contracts or participations in the general account of a life insurer authorized to do business in this state under Act No. 218 of the Public Acts of 1956, as amended, being sections 500.100 to 500.8302 of the Michigan Compiled Laws, but the total amount of assets of any 1 retirement system invested in any 1 insurer shall not exceed 5% of the assets or 50% of the capital and surplus of the insurer, whichever is lesser.' (emphasis added)

As originally added by 1968 PA 279, Sec. 7a limited the total investment of a retirement plan in annuity investment contracts in the general or special accounts of life insurance companies to 10% of the plan's assets. As amended by 1976 PA 128, however, the 10% limitation applies only to annuity investment contracts in separate accounts. Annuity investment contracts in the general account of a life insurer are governed exclusively by Sec. 7a(2), to which the 10% limitation does not apply. Thus, the only limitation on investments under Sec. 7a(2) is that the total amount invested by any one plan in any one insurer may not exceed the lesser of 5% of the assets of the insurer or 50% of the insurer's capital and surplus.

Section 7a was further amended by 1978 PA 267, which added a subsection (3) relating to investments in credit unions. However, this amendment does not affect either of the subsections involved herein.

It is, therefore, my opinion, in answer to your second question, that 1965 PA 314, supra, Sec. 7a(1) does not limit the investments of deferred compensation plans in annuity contracts in the general accounts of life insurance companies to 10% of the assets of such plans. Under 1965 PA 314, supra Sec. 7a(2), a deferred compensation plan may invest any amount in annuity contracts in the general account of a single life insurance company which does not exceed the lesser of 5% of the insurer's assets or 50% of its capital and surplus.

Frank J. Kelley

Attorney General

(a1.) OAG, 1977-1978, No. 5314 (June 15, 1978) held that a board of education of a local school district has no authority to provide retirement benefits financed by board of education appropriations and/or state funds beyond those benefits established by the statutory public school employees' retirement system. Deferred compensation plans, however, are funded entirely by monies which participating employees would otherwise be entitled to receive as present compensation and do not constitute supplemental retirement benefits within the meaning of that opinion.