Supreme Court yet to rule on legality of ‘retirement tax’ for school employees

It’s not yet known when — or if — MEA members will receive refunds of a “retirement tax” imposed upon them by the state Legislature.

Teachers and education support professionals across Michigan are waiting anxiously for the state Supreme Court to take action on a lawsuit brought by MEA challenging the 2010 law, which requires school employees to pay an additional 3 percent tax for retiree health insurance.

Passed by the Legislature in May 2010, Public Act 75 of 2010 required that all school employees pay an extra 3 percent of their compensation into a fund for retiree health insurance — with no guarantee that the benefits will be available to them upon retirement.

On June 11, 2010, five MEA members filed a lawsuit, McMillan v. Michigan Public School Employees Retirement System, alleging that Public Act 75 violated school employees’ federal and state constitutional rights by impairing the contract formed when the Michigan Public School Employees Retirement System was set up in 1980.

In a ruling issued April 1, 2011, Court of Claims Judge James Giddings ordered the retirement taxes collected from school employees be placed into an interest-bearing escrow fund until the matter could be fully settled by the courts. 

Giddings agreed with the MEA members, ruling that extracting 3 percent of school employees’ wages “in the absence of any vested or contractual right to retiree health care benefits constitutes a taking for public use in violation” of the state and federal constitutions.

Gov. Rick Snyder’s administration appealed Giddings’ ruling, but on Aug. 16, 2012, the Michigan Court of Appeals affirmed the lower court’s decision. 

The Snyder administration then asked the Michigan Supreme Court to hear the case, which it has yet to do. The Supreme Court could accept the case and proceed with briefings and oral arguments, or issue its own decision without further proceedings.

The state Court of Appeals ruled Aug. 14 that a 2011 law forcing state employees to contribute 4 percent of their pay to a defined benefit plan or be forced into a defined contribution plan is unconstitutional. That ruling, however, only applies to state employees, not school employees.