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Michigan Supreme Court upholds 2011 pension reforms

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In a 4-3 ruling in Lansing, Michigan, on Wednesday, state Supreme Court justices said pension reforms made by the 2011 amendment to the State Employees Retirement Act were constitutional, overturning the decision of a state court of appeals.

Plaintiffs, led by the Michigan Coalition of State Employee Unions, challenged the 2011 SERA amendment, arguing that because civil service employee costs were increased and accumulation of future benefits reduced, the law “unconstitutionally infringes the exclusive constitutional powers of the Michigan Civil Service Commission to manage and oversee the civil service system,” according to the Supreme Court’s written opinion.

Justices noted in the opinion that the commission “has never formally opposed or attempted to repudiate the application” of SERA or the 2011 amendment to state-classified civil service employees.

Further, the majority of justices did not agree with plaintiffs’ arguments that SERA retirement benefits are “rates of compensation” or “conditions of employment” and therefore are within the “exclusive and plenary authority” of the commission and not subject to change by the Legislature.

Justices concluded in their opinion that ratifiers of the 1963 state constitution did not understand that “rates of compensation” included “fringe benefits such as pensions; rather the common understanding at the time was that it included only wages and salaries.”

Reactions to the decision were mixed.

“The court’s opinion that pension benefits should not be considered as compensation is hard to accept,” given that mainstream public opinion would classify them as such, said John DeTizio, director of labor relations for the Michigan Association of Governmental Employees.

On a brighter note, Mr. DeTizio said: “While state workers probably don’t realize it now, the beauty of the recent decision is that their pension (benefit) clearly is constitutionally protected.”

Michigan Gov. Rick Snyder’s office was pleased by the ruling.

“The Supreme Court … affirmed pension reforms made in 2011 that protect post-retirement promises made to our state employees by restructuring retiree benefits and reducing the state’s long-term retiree health-care liabilities by more than $5 billion. The changes gave pension members a choice and were an instrumental part of the reforms that have improved Michigan’s fiscal stability long into the future,” said Dave Murray, the governor’s deputy press secretary, in an emailed statement.

Neither Sam Ignot, a spokesman for the Michigan Coalition of State Employee Unions, nor Greg Bowers, a spokesman for American Federation of State, County and Municipal Employees Council 25, responded to requests for comment.

Christine Williamson writes for Pensions & Investments, a sister publication of Business Insurance.