Michigan Supreme Court: Return $554M to current and ex-school employees

Posted at 2:52 PM, Dec 20, 2017
and last updated 2017-12-20 14:52:46-05

The Michigan Supreme Court on Wednesday ordered the state to return $554 million to nearly 275,000 school employees and retirees who saw a portion of their pay illegally deducted for retiree health care for about two years, ending a lengthy legal battle that stretched across two governorships.

The court, in a 6-0 ruling , said the 2010 law signed by Democratic Gov. Jennifer Granholm and defended by Republican Gov. Rick Snyder violated the contract clauses of the federal and state constitutions. The decision affirmed a 2016 judgment by the state appeals court.

"I cannot imagine a better pre-holiday gift to Michigan's school employees than getting their hard-earned money returned to them," Paula Herbart, president of the Michigan Education Association, said in a statement. It was among a number of unions that sued on behalf of K-12 and community college workers to challenge the 3 percent deductions.

Because the money has been held in escrow, the refunds — including interest — will not affect the state budget, said Snyder, who replaced the faulty 2010 law with a 2012 law that has survived court challenges and who had come under criticism for trying to keep the funds despite lower court rulings.

"We will not need to raise new revenue or remove funding from other priorities to refund the money that was collected for retirement health care," he said in a statement.

His office said the Michigan Office of Retirement Services is diligently working to refund the money to school districts.

"Michigan's school employees have waited eight long years to get their hard-earned money returned to them — no further delay is necessary," AFT Michigan President David Hecker said in a statement.

The improper deductions were made from July 2010 until September 2012. Someone making $50,000 a year at the time is due to receive approximately $3,000, plus interest.

The justices said the 2010 law "substantially impaired" the plaintiffs' employment contracts by involuntarily reducing their wages, "and the state failed to demonstrate that this measure was reasonable and necessary to further a legitimate public purpose." State attorneys had urged the court to not second-guess lawmakers' decision, saying the Michigan Constitution does not explicitly prohibit requiring school workers to pay a portion of retiree health costs.

In 2015, the high court upheld the 2012 law, which required public school employees to pay more toward their pension to avoid receiving less in retirement and made them either contribute 3 percent of their salary for retiree health care or opt out of the benefit. The law also ended employer-provided health coverage for new hires, instead giving them a match in their 401(k) plus a lump sum upon retirement to pay for health insurance.

Justice Elizabeth Clement, who was Snyder's chief legal counsel before he appointed her to the court last month, did not participate in Wednesday's ruling.