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148748 - AFT Michigan v State of Michigan

AFT Michigan, et al.,
Mark H. Cousins
Michigan Education Association,
(Appeal from Ct of Appeals)
(Ct of Claims – Aquilina, R.)
State of Michigan,
Joshua O. Booth
State Treasurer, et al,


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 benefits.
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.