Under 2012 PA 300, members of the Michigan Public School
Employees’ Retirement System are asked to make a choice in terms of their
future pension benefits:
(1) Members of the “Basic Plan,” who
historically contributed nothing to their pensions, would now be expected to
contribute 4% of their compensation to their pensions. Those individuals hired
between January 1990 and July 2010 and those former Basic Plan members who
transferred into the Member Investment Plan (MIP) would increase their
contribution to 7%. Members who opted into the Basic Plan and MIP Plan would
maintain the current 1.5% pension multiplier.
(2) Members could maintain current
contribution rates, freeze existing benefits at the 1.5% multiplier, and
receive a 1.25% pension multiplier for future years of service.
(3) Members could freeze existing
pension benefits and move into a defined contribution, 401(k)-style, plan with
a flat 4% employer contribution for future service. Additionally, under MCL
38.1343e and MCL 38.1391a members were asked to opt in or out of retiree
healthcare benefits; members could either contribute 3% of their compensation
to receive the future benefit, or they could choose to receive no retiree
healthcare benefits at retirement. MCL 38.1391a(8) further provided that a
member who opted into the retiree healthcare program, but ultimately did not
meet the eligibility requirements (e.g., because of a failure to work the
requisite number of years) would be refunded his or her contribution starting
at age 60 over a period of 60 months.
In two separate actions, the plaintiff unions filed
complaints alleging: breach of contract and diminishment of contract,
unconstitutional diminishment of their members’ accrued financial benefits,
denial of substantive due process, and unjust enrichment to the state. The
Court of Claims consolidated the two cases and considered the parties’
competing motions for summary disposition.
The Court of Claims rejected the plaintiffs’ claims and ruled that 2012
PA 300 does not violate the plaintiffs’ rights.
The plaintiffs then appealed to the Court of Appeals, challenging four separate provisions of
2012 PA 300: (1) MCL 38.1343e, which requires a 3% contribution toward retiree
healthcare; (2) MCL 38.1343g, which requires a 4% contribution to the pension
plan for a member to remain in the Basic Plan; (3) MCL 38.1384b, which reduces
the multiplier used in calculating pension benefits for those individuals who
opt out of making the contributions required under MCL 38.1343g; and (4) MCL
38.1391a(8), which provides the mechanism for refunding contributions to
individuals who opt into the retiree healthcare plan but ultimately fail to
qualify to receive those benefits. The Court of Appeals affirmed the Court of
Claims in a published opinion.
In the Court of Appeals, the plaintiffs argued that various
State publications, explaining what retirement rights a vested employee would
receive, and prior legislation concerning the Michigan Public School Employees’
Retirement System established a contractual right that was impaired by 2012 PA
300. The Court of Appeals ruled that the
documents relied on by the plaintiffs did not create an enforceable contractual
right. The panel also held that the
plaintiffs’ argument that the prior legislation created a contractual right was
rejected in Studier v Michigan Pub School
Employees’ Retirement Bd, 472 Mich 642 (2005). For these reasons, the appeals court ruled
that the plaintiffs failed to show that 2012 PA 300 unconstitutionally impaired
their existing contractual obligations to pension and retiree healthcare
The Court of Appeals further ruled that the plaintiffs
failed to establish any other constitutional violation. While the state constitution protects the
“accrued financial benefits of each pension plan and retirement system of the
state,” Const 1963, art 9, § 24, and provides that such benefits shall not be
“diminished or impaired,” this provision protects only vested benefits, the
panel held. Article 9, § 24 does not
protect future benefits. Because 2012 PA
300 “does nothing to impact or impair members’ vested pension benefits,” the
plaintiffs’ constitutional challenge failed.
With regard to retiree healthcare benefits, the Court of Appeals noted
that employee contributions under 2012 PA 300 are voluntary. “A member may now choose to either continue
to participate in the retiree healthcare program and contribute 3% of his or
her salary to do so, or the member may simply opt out of the program
altogether.” For similar reasons, the
Court of Appeals held that the provisions of 2012 PA 300 did not violate the
plaintiffs’ substantive due process rights and did not amount to an
unconstitutional taking of the plaintiffs’ property.
The plaintiffs filed an application for leave to appeal to
the Supreme Court. In an order dated
May 21, 2014, the Supreme Court granted the application.