Thorny teacher pension case returns to Court of Appeals

LANSING – The Michigan Supreme Court has sent back to the Court of Appeals a pension case affecting the possible repayment to Michigan teachers and other school employees of a $552.7-million escrow fund held by the state.

Last week’s order by the Michigan Supreme Court is the latest development in a protracted court case involving union challenges to a 2010 state law that required school employees to contribute 3% of their pay toward retiree health benefits.

It means a final resolution of the case is likely at least several months away.

About 275,000 current and former school employees who had the 3% payments involuntarily deducted from their checks between 2010 and 2012 hope a final resolution of the case is imminent. They also hope it will result in the return of the money, which is now held in an escrow fund that holds enough to pay each of them a check of more than $2,000 — though the actual amounts would vary, with some receiving considerably more and others considerably less.

The state also could still argue the money deducted from paychecks under the 2010 law can legally be used to bolster school employee retirement funds to reduce long-term unfunded liabilities.

In August 2012, the Michigan Court of Appeals declared unconstitutional the 2010 law that was used to collect the money, saying in a 2-1 decision that it violated state and federal constitutional protections related to impairing contracts, taking of property without compensation, and due process.

The state appealed that ruling to the Michigan Supreme Court. But at the same time, the Legislature passed a replacement law in 2012 that was designed, in part, to address the constitutional shortcomings of the 2010 law. Notably, unlike the 2010 law, the 2012 law gave school employees the option of making higher retirement contributions or having their benefits cut.

The 2012 law also addressed more than just retiree health care. For instance, it required certain school employees — mostly ones hired before 1990 — to pay 4% toward their pension plans or face reduced benefits.

The American Federation of Teachers and the Michigan Education Association also challenged the 2012 law; that case also made its way to the Michigan Supreme Court.

In April of this year, the Michigan Supreme Court upheld the 2012 law as constitutional. In its 6-0 ruling, it said it had been sitting on the case involving the 2010 law until the challenge to the 2012 law was resolved.

That ruling stirred hopes that the Michigan Supreme Court would soon resolve the case involving the 2010 law, and the money held in escrow would be returned.

But instead of resolving the case involving the 2010 law itself, the Michigan Supreme Court on June 30 sent that case back to the same Michigan Court of Appeals three-judge panel that declared the 2010 law unconstitutional.

The Michigan Supreme Court order vacated the 2012 order of the Michigan Court of Appeals and asked the appeals court to reconsider the case in light of the Supreme Court’s recent ruling that upheld the 2012 law.

“On remand, the Court of Appeals shall consider what issues presented in these cases have been superseded by the enactment of (the 2012 law, Public Act 300 of 2012) and this court’s decision upholding that act, and it shall only address any outstanding issues the parties may raise regarding (the 2010 law, Public Act 75 of 2010) that were not superseded or otherwise rendered moot by that enactment and decision.”

The case will be heard by the same appeals court panel that issued the 2012 ruling. Judges Douglas Shapiro and Jane Beckering ruled the 2010 law unconstitutional. Judge Henry William Saad issued a dissenting opinion.

Mark Cousens, general counsel to the American Federation of Teachers of Michigan, said the unions will argue the courts’ upholding of the 2012 law does not change the fact that the 2010 law was unconstitutional, and money in the escrow fund should be returned.

“We certainly will assert that a refund is due everyone who either opted out of the system before Jan. 9, 2013, or who retired or died before that date,” Cousens said. “Those deductions are unquestionably involuntary.”

The Attorney General’s Office, which represents the state defendants in the case, did not immediately respond to an e-mail seeking comment.

The fund continues to grow based on a small rate of interest it is earning. As of the end of May, the balance in the escrow fund was $552.7 million, said Kurt Weiss, a spokesman for the Department of Technology, Management and Budget.

Contact Paul Egan: 517-372-8660 or pegan@freepress.com. Follow him on Twitter @paulegan4.