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Blogs | January 16, 2014
2 minute read

Amendment to public school employees’ future healthcare and retirement benefits was constitutional

The Legislature’s alteration of future healthcare and retirement benefit plans of public school employees for future services did not violate the Michigan or United States Constitutions.  In AFT Michigan v State of Michigan, the Court of Appeals examined the Legislature’s amendment to the Public School Employees Retirement Act (MCL 38.1301 et seq.), which decreased the multiplier for certain future retiree benefits and required retirees to choose either to contribute 3% of their compensation to receive future healthcare benefits, or opt-out and receive no retiree healthcare benefits at retirement.

The Court reasoned that the amendment did not unconstitutionally impair an existing contractual obligation to pension and retiree healthcare benefits because neither the employee handbooks that described the benefits nor the Retirement Act created an enforceable contract.  The handbooks were merely advisory and they included disclaimer language stating that the Retirement Act controlled if there was a conflict between the two.  The Retirement Act itself did not create a contract because one legislature cannot bind the power of a successive legislature.  Further, if a legislature intends to be contractually bound it must use clear terms such as “contract,” “covenant,” or “vested rights.”  That language was not present in the Retirement Act.  Additionally, section 24 of the Michigan Constitution only protects pension benefits that have already accrued, not future benefits.  Here, the amendment did not impact vested pension benefits because the new multiplier was only applied to services rendered after December 2012.  Additionally, healthcare benefits are not “accrued financial benefits” subject to protection from diminishment by the constitution because the ratifiers of the constitution would not have considered nonmonetary benefits such as healthcare to be “financial.” 

The Court also concluded that the amendment to the Retirement Act did not violate due process because the healthcare contributions are voluntary (members have the choice to opt-out) and the amendment reasonably relates to the legitimate governmental purpose of maintaining healthcare benefits for retirees while easing financial pressures on public schools.