Michigan to Appeal Ruling on School Retiree Health Care Costs

The state will appeal a ruling that declared unconstitutional a 3 percent deduction from school employee pay to support post-retirement health care.
by | September 5, 2012

The state will appeal a ruling that declared unconstitutional a 3% deduction from school employee pay to support post-retirement health care, Gov. Rick Snyder said Tuesday.

Snyder announced the appeal to the Michigan Supreme Court after signing a bill that will mean higher costs for most of Michigan's nearly 475,000 public school employees and retirees. Snyder says the new law protects the pension plan for the long term.

In a 2-1 opinion in August, the Michigan Court of Appeals said a 2010 law that cut 3% from the pay of school employees impaired contracts and took private property without compensation or due process.

The ruling could result in refunds of about $508 million being held in escrow.

However, "we will be appealing," Snyder said.

The governor said the bill he signed Tuesday strengthens the state's legal position because it makes it clear the money will pay future retirement health care costs. It also gives school employees an opt-out under which they would instead move to a 401(k) type plan for post-retirement health care, he said.

The new law is expected to cut about $15 billion from the Michigan Public School Employees Retirement System's roughly $45 billion in unfunded liabilities. It gives many school employees the option of making larger pension contributions or receiving reduced pensions, and requires most employees to pay 20% of the cost of their health insurance.

The plan also eliminates retiree health care coverage for school employees hired after Aug. 1, moving them to a 401(k)-style health care account.

It calls for a study to examine the costs and benefits of closing to new employees the school retirement system -- a hybrid system that combines elements of defined benefit and defined contribution pension systems -- and moving to a defined contribution plan.

The law requires retirees younger than 65 as of Jan. 1 to pay 20% of their health care premiums, up from 10%. Older employees won't face that requirement, but an administration official confirmed Tuesday that they also will face higher costs.

Today, plan members on Medicare pay a monthly Medicare premium but pay no premiums for health coverage under the school retirement system, said Kurt Weiss, a spokesman for the Department of Technology, Management and Budget. Starting Jan. 1, Medicare-eligible retirees will pay 10% for their own premium in addition to their monthly Medicare premium, he said.

"It's a good day for students and teachers and administrators in Michigan," said Senate Appropriations Committee chairman Sen. Roger Kahn, R-Saginaw, who authored the bill.

David Hecker, president of the Michigan arm of the American Federation of Teachers, said a restraining order was issued Tuesday by Ingham County Circuit Judge Rosemarie Aquilina blocking implementation of the new law.

(c)2012 the Detroit Free Press


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