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HB 5986

Retirement: state employees; naming a special needs trust as beneficiary; allow. Amends sec. 31 of 1943 PA 240 (MCL 38.31).

2023-2024 Regular Session Introduced by Erin Byrnes and 2 co-sponsors

Allows retirement benefits to be paid directly into a qualifying special needs trust (SNT) to protect means-tested public benefits for disabled beneficiaries under 65.

REFERRED TO COMMITTEE ON GOVERNMENT OPERATIONS
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Bill Summary · HB 5986

Summary — HB 5986 (State Employees’ Retirement Act amendment)

Status: Passed House (12/11/2024) with immediate effect; referred to Committee on Government Operations (01/22/2025); public hearings scheduled Feb 2025. Sponsor: Rep. Kara Hope.

Purpose

To allow a State Employees’ Retirement System benefit that would otherwise be paid to an individual retirement allowance beneficiary to instead be paid directly into a “special needs trust” (SNT) established for a disabled person under age 65, in order to preserve the beneficiary’s eligibility for public benefits (e.g., Medicaid).

Key provisions

  • Amends section 31 of the State Employees’ Retirement Act (MCL 38.31).
  • Adds a new payment option (Option D): if the designated retirement allowance beneficiary is a beneficiary of a trust established under 42 U.S.C. §1396p(d)(4)(A) or (C) (commonly called a special needs trust), the retirement system may pay the beneficiary’s retirement allowance directly to that trust.
  • Payment to the trust may be made on:
    • written direction from the retirant (the person who elected the reduced allowance) while alive, or
    • after the retirant’s death, by the retirement allowance beneficiary or, if the beneficiary is a minor or incapacitated, by the beneficiary’s legal representative.
  • Updates beneficiary definitions to explicitly allow a qualifying trust to be named as a retirement allowance beneficiary (in addition to listed relatives: spouse, siblings, parent, child, grandchild).
  • Retains existing rules about making/changing payment option elections (generally must be made before— but not after—the effective date of retirement) and the timing of benefit payments (beginning the first day of the month following the retirant’s death).

Who is affected

  • State employees / deferred members who participate in the State Employees’ Retirement System and who choose a reduced retirement allowance naming a beneficiary.
  • Retirement allowance beneficiaries who are disabled under age 65 and are or would be beneficiaries of an SNT—this bill enables continuation of income into the SNT without jeopardizing public benefit eligibility.
  • Retirement board administrative practice (to accept written directions and pay benefits to qualifying trusts).

Fiscal and legal notes

  • House Fiscal Agency: no direct fiscal impact on retirement systems.
  • The trusts referenced are governed by federal Medicaid rules at 42 U.S.C. §1396p(d)(4)(A) and (C).
  • HB 5986 was part of a package of companion bills (HBs 5985–5989) making similar changes across various public retirement systems; HB 5989 would also repeal a related legislative findings section in a separate act.

Support / testimony

Support was voiced by: State Bar of Michigan Elder Law & Disability Rights Section; Michigan Association of Public Employee Retirement Systems; Michigan Bankers Association (for HB 5986 and others); Michigan State Employee Retirees Association; and legal practitioners.

Procedural timeline (selected)

  • Introduced: 9/26/2024
  • Substitute (H‑2) adopted and passed House with immediate effect: 12/11/2024 (Yeas 91, Nays 18)
  • Referred to Committee on Government Operations: 12/18/2024
  • Public hearings scheduled: Feb 2025

This change enables an administrative mechanism to route survivor benefit payments into federally authorized special needs trusts to protect beneficiaries’ means‑tested public benefits.

Compiled from official sources — confirm details with the bill’s official record.

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