Higher Education, Human Resources, and Law

Michigan Supreme Court upholds teacher retirement rulings

April 9, 2015
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LANSING — The Michigan Supreme Court upheld yesterday a 2012 law requiring public school employees to pay more toward their pensions to avoid receiving less in retirement, and the justices also affirmed a similar provision that involves retiree health care benefits.

The 6-0 decision upheld earlier rulings by the Court of Appeals and the Court of Claims and dealt a blow to labor unions that sued to block the changes.

Under the law approved by Gov. Rick Snyder and the Republican-controlled Legislature, school workers hired before 1990 - who were paying nothing toward retirement - must contribute 4 percent of their salary to avoid seeing a reduction in their pension. Those hired from 1990 to June 2010 are paying 7 percent to keep their pension intact, up from before, when they paid 3 percent to 6.4 percent, depending on their salary and hire date.

Those hired since the middle of 2010 are in a hybrid pension/401(k)-type plan and are not affected by the pension changes.

School employees also must contribute 3 percent of their salary for retiree health care or opt out of health benefits in retirement. The law ended employer-provided health care for new hires, instead giving them a match of up to 2 percent in their 401(k), plus a lump sum upon retirement to pay for health insurance.

Justice Stephen Markman, writing for the court, rejected unions' contention that the law unconstitutionally impaired employment contracts between workers and their school districts and resulted in private property being taken without just compensation.

The increased salary deductions are not mandatory, and the employees were given a choice, he said.

"We do not believe that the state or federal Constitutions require Michigan taxpayers to fund the entire cost of a retirement benefit for a discrete group of public employees. The state is not generally constrained from modifying its own employee benefits programs to accommodate its fiscal needs," Markman wrote.

At the time the law was enacted, supporters said it would cut more than $15 billion from a $45 billion liability in the Michigan Public School Employees Retirement System, which has about 420,000 active members, retirees and beneficiaries from school districts, universities, community colleges and libraries. The law's defenders said the retirement system was on an unsustainable path and eating up larger percentages of school budgets.

David Hecker, president of the American Federation of Teachers Michigan, said school workers had been informed that their pension would be based a certain formula.

"This was repeated over the years in Office of Retirement Services publications. Now, the State of Michigan has changed the playing field in the middle of the game," he said in a statement. "Employees will have to pay more - a lot more - just to keep what they have always had, what the State had always told them they would receive."

Justice Richard Bernstein, who was not yet on the court when arguments were heard in October, did not participate in deciding the case.

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