Michigan Supreme Court upholds 2012 changes to school employees' pension, health care benefits

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LANSING, Michigan — The Michigan Supreme Court on Wednesday upheld a 2012 law requiring public school employees to pay more toward their pension to avoid receiving less in retirement, and the justices also affirmed a similar provision involving 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.

When the law was enacted, Republicans 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. "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."

Michigan Education Association General Counsel Mike Shoudy said the union remains hopeful that the high court will rule in favor of school employees' challenge to a 2010 law that first required them to contribute 3 percent of their salary to retiree health coverage. The Legislature passed the 2012 law after the appeals court declared the earlier law unconstitutional.

"School employees deserve respect from their elected leaders and fair compensation for the critically important services they perform. In our opinion, Public Act 300 degrades and devalues the work performed by these professionals," Shoudy said.

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


AFT Michigan v. State of Michigan: http://1.usa.gov/1GMpOp0


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