Lansing— The Michigan Court of Appeals has upheld the constitutionality of a 2012 law requiring public school employees to contribute more to their pensions to keep their benefits.
A three-judge panel concluded the law does not breach teacher union contracts or impair earned pension benefits, upholding a lower court’s ruling against the lawsuit brought by the American Federation of Teachers and Michigan Education Association labor unions.
The 2012 law required public school employees hired before 1990 to begin contributing 4 percent of their pay to the Michigan Public School Employees Retirement System. Those veteran employees previously contributed nothing to their pension plan.
Under the new law, pension contributions for school employees hired between 1990 and 2010 increased to 7 percent — from a range of 3 percent to 6.4 percent — to keep their pension benefits the same in retirement.
Employees who did not agree to the increased contributions had their pensions frozen, agreed to a lower pension calculation for future earned benefits or were transferred into a 401(k) defined contribution plan with an employer contribution capped at 4 percent.
Gov. Rick Snyder’s administration estimates the changes shaved off $15 billion from a $50 billion unfunded liability in the school employee pension plan. The law also capped employer contributions for retirement benefits at 24.46 percent of payroll in a legislative effort to rein in legacy costs for school districts.
The appeals court panel also sided with Snyder and the Legislature on a requirement that employees contribute 3 percent of their salary toward retirement health insurance or forgo future benefits. The law contained a clause that says teachers who don’t fully vest in the retiree health plan can get a refund on their contributions plus 1.5 percent interest at age 60.
AFT attorney Mark Cousens said the union determined the state will ultimately reap thousands of dollars in investment returns on school employee contributions that they’ll never be able to get back.
The AFT and MEA unions argued the retiree health insurance contribution is an unlawful seizure of their members’ property and unjustly enriches the state.
The appellate judges disagreed.
“There is no ‘taking’ under 2012 PA 300 because participation in the retiree health care system is now voluntary,” the court concluded in a majority opinion signed by appellate Judges Kirsten Frank Kelly and Henry William Saad.
Court of Appeals Judge Elizabeth L. Gleicher joined the majority in the ruling, but wrote a concurring opinion that concluded “that based on the challenges raised here, 2012 PA 300 passes constitutional muster.”
“Once again, Michigan educators have been let down by Michigan courts, which today upheld Gov. Snyder’s attempt to retroactively cut the pensions earned by hard-working school employees,” AFT-Michigan President David Hecker said in a statement.
The head of a conservative political organization hailed the Court of Appeals decision on Wednesday.
“This is the reform we need to protect the future for public school employees, taxpayers and our children. Thankfully the court did its job and upheld this important reform,” Michigan Freedom Fund President Greg McNeilly said in a statement.