ALBERTA STUDIER V MICHIGAN PUBLIC SCHL EMP RETIREMENT BD
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Michigan Supreme Court
Lansing, Michigan
Opinion
Chief Justice:
Justices:
Clifford W. Taylor
Michael F. Cavanagh
Elizabeth A. Weaver
Marilyn Kelly
Maura D. Corrigan
Robert P. Young, Jr.
Stephen J. Markman
FILED JUNE 28, 2005
ALBERTA STUDIER, PATRICIA M.
SANOCKI, MARY A. NICHOLS, LAVIVA
M. CABAY, MARY L. WOODRING, and
MILDRED E. WEDELL,
Plaintiffs-Appellants,
o. 125765
N
v
MICHIGAN PUBLIC SCHOOL EMPLOYEES'
RETIREMENT BOARD, MICHIGAN PUBLIC
SCHOOL EMPLOYEES' RETIREMENT SYSTEM,
DEPARTMENT OF MANAGEMENT AND BUDGET,
and TREASURER OF MICHIGAN,
Defendants-Appellees.
_________________________________/
ALBERTA STUDIER, PATRICIA M.
SANOCKI, MARY A. NICHOLS, LAVIVA
M. CABAY, MARY L. WOODRING, and
MILDRED E. WEDELL,
Plaintiffs-Appellees,
v
MICHIGAN PUBLIC SCHOOL EMLOYEES’
RETIREMENT BOARD, MICHIGAN PUBLIC
SCHOOL EMPLOYEES’ RETIREMENT SYSTEM,
DEPARTMENT OF MANAGEMENT AND BUDGET,
and TREASURER OF MICHIGAN,
Defendants-Appellants.
________________________________/
BEFORE THE ENTIRE BENCH
TAYLOR, C.J.
o. 125766
N
We granted leave in this case to consider two issues.
The first is whether health care benefits paid to public
school
retirees
constitute
“accrued
financial
benefits”
subject to protection from diminishment or impairment by
Const 1963, art 9, § 24.
We hold that they do not and,
accordingly, affirm the Court of Appeals determination on
issue.1
this
establishing
The
the
second
health
issue
care
is
whether
benefits,
the
MCL
statute
38.1391(1),
created a contract with the public school retirees that
could not be changed by a later legislature because to do
so would unconstitutionally impair an existing contractual
obligation in violation of US Const, art I, § 10 and Const
1963, art 1, § 10.
MCL
38.1391(1)
Legislature’s
thus,
there
The Court of Appeals determined that
established
subsequent
was
no
impairment of contract.
a
changes
contract,
were
that
the
insubstantial
and,
constitutionally
but
impermissible
The Court of Appeals erred on this
issue because MCL 38.1391(1) did not create a contract.
However, because the Court of Appeals reached the correct
result, we affirm its determination that the circuit court
properly entered summary disposition in defendants’ favor.
1
260 Mich App 460; 679 NW2d 88 (2004).
2
FACTUAL HISTORY AND PROCEDURAL POSTURE
I.
The Michigan Public School Employees’ Retirement Board
(board)
began
providing
a
health
care
plan
for
public
school retirees in 1975 pursuant to amendments made by 1974
PA 244 to the former Public School Employees Retirement
Act, 1945 PA 136, which was the predecessor of the current
Public School Employees Retirement Act, 1980 PA 300, MCL
38.1301 et seq.
have
been
Since that time, participants in the plan
required
to
pay
deductibles
and
copays
for
prescription drugs, and the amounts of the deductibles and
copays
have
gradually
increased
throughout
the
years
because of numerous amendments the board has made to the
plan
to
reflect
the
rising
costs
advances in medical technology.
of
health
care
and
The present case arises
from the two most recent amendments made to the plan by the
board.
2000,
The first amendment became effective on January 1,
and
retirees
increased
are
the
required
amount
to
pay.
of
the
The
deductibles
second
that
amendment
occurred on January 21, 2000, and increased the copays and
out-of-pocket maximums that retirees are required to pay
for prescription drugs.
The Court of Appeals succinctly
summarized those amendments as follows:
The
amendments
modified
the
plan’s
prescription drug copayment structure and out-ofpocket maximum for prescription drugs effective
April 1, 2000, and also implemented a formulary
effective January 1, 2001. A formulary is a
3
preferred list of drugs approved by the federal
Food and Drug Administration that is designed to
give preference to those competing drugs that
offer the greatest therapeutic benefit at the
most
favorable
cost.
Existing
maintenance
prescriptions
outside
the
formulary
were
grandfathered in and subject only to the standard
copayment of twenty percent of the drug's cost,
with a $ 4 minimum and a $ 20 maximum.
The prescription drug copayment was changed
to a twenty percent copay, with a $4 minimum and
$20 maximum for up to a one-month supply. The
copay
maximum
for
mail-order
prescription
copayment was set at $50 for a three-month
supply.
A $750 maximum out-of-pocket copay for
each calendar year was also established. [The
plan did not previously contain an annual out-ofpocket maximum.]
Under the formulary, eligible
persons pay an additional twenty percent of a new
nonformulary drug’s approved cost only when use
of the nonformulary drug is not preapproved by
the drug plan administrator.
The board also adopted a resolution to
increase health insurance deductibles from $145
for an individual to $165, and from $290 to $ 330
for a family, effective January 1, 2000. The
deductibles do not apply to prescription drugs.[2]
Plaintiffs, six public school retirees, filed suit for
declaratory and injunctive relief against the board, the
Michigan
Public
School
Employees’
Retirement
System
(MPSERS), the Michigan Department of Management and Budget,
and
the
Treasurer
of
the
state
of
Michigan.
Although
plaintiffs’ complaint contained three counts, only counts I
and II remain for our consideration.
Count I alleged that
the copay and deductible increases violate Const 1963, art
2
260 Mich App at 466-467.
4
9,
§
24,
which
financial
the
from
subdivision
prohibits
diminishing
or
benefits”
of
system it offers.
any
state
or
a
the
impairing
pension
plan
political
“accrued
or
retirement
Count II alleged that the copay and
deductible increases violate Const 1963, art 1, § 10 and US
Const, art I, § 10, both of which prohibit the enactment of
a law that impairs an existing contractual obligation.
Both
counts
sides
and
the
moved
for
summary
trial
court
pursuant to MCR 2.116(C)(10).
trial
court
rejected
disposition
granted
on
defendants’
these
motion
With respect to count I, the
plaintiffs’
claim
that
health
care
benefits are “accrued financial benefits” under Const 1963,
art 9, § 24, holding that the Court of Appeals and this
Court “‘have been squarely faced with the opportunity to
rule on this question and have declined to do so . . . .’”
260 Mich App at 462.
With respect to count II, the trial
court,
after
the
health
care
concluded
noting
plan
that
MCL
and
similarity
those
38.1391(1)
between
offered
does
by
the
other
establish
a
MPSERS
states,
contract
with the plaintiffs but that, because the proportions of
the total costs for deductibles and copays borne by the
plaintiffs were essentially unchanged, the impairment was
too insubstantial to create an impairment the law would
recognize.
5
Plaintiffs
affirmed
panel
the
held
appealed
trial
that
to
court’s
health
the
Court
ruling
care
of
Appeals,
entirely.
benefits
are
which
Thus,
not
the
“accrued
financial benefits” subject to protection by Const 1963,
art 9, § 24, and that the Legislature’s enactment of MCL
38.1391(1) created a contract, but the impairment was too
de minimis to be recognized.
Plaintiffs applied for leave to appeal to this Court,
seeking to challenge the Court of Appeals determinations
that
health
care
benefits
are
not
“accrued
financial
benefits” protected by Const 1963, art 9, § 24 and that the
deductible and copay increases implemented by the health
care plan amendments are not a substantial impairment of
plaintiffs’
benefits.
appeal,
contractual
right
to
receive
health
care
Defendants filed an application for leave to
seeking
conclusion
contractual
that
to
challenge
MCL
38.1391(1)
right.
We
the
vests
granted
Court
of
plaintiffs
both
Appeals
with
applications
a
and
ordered that they be submitted together.3
II.
STANDARD OF REVIEW
This Court reviews de novo a trial court’s decision
regarding a motion for summary disposition.
Taxpayers of
Michigan Against Casinos v Michigan, 471 Mich 306, 317; 685
3
471 Mich 875 (2004).
6
NW2d 221 (2004).
This case also involves constitutional
issues, as well as issues of statutory construction.
issues are reviewed de novo by this Court.
These
Wayne Co v
Hathcock, 471 Mich 445, 455; 684 NW2d 765 (2004).
III.
ANALYSIS OF CONST 1963, ART
9, § 24
Const 1963, art 9, § 24 provides:
The accrued financial benefits of each
pension plan and retirement system of the state
and its political subdivisions shall be a
contractual obligation thereof which shall not be
diminished or impaired thereby.
Financial benefits arising on account of
service rendered in each fiscal year shall be
funded during that year and such funding shall
not be used for financing unfunded accrued
liabilities.
These two clauses unambiguously prohibit the state and
its political subdivisions from diminishing or impairing
“accrued
financial
benefits,”
“accrued
financial
benefits”
and
require
during
the
fiscal
which corresponding services are rendered.
we
are
called
upon
to
determine
what
them
to
fund
year
for
To apply this,
is
an
“accrued
financial benefit” and, in particular, whether health care
benefits are such a benefit.
This
health
Court
care
has
benefits
twice
fall
considered
the
within
ambit
the
financial benefits” protected by art 9, § 24.
issue
of
whether
“accrued
In the first
instance, Musselman v Governor, 448 Mich 503; 533 NW2d 237
7
(1995) (Musselman I), six members of this Court4 considered
a constitutional challenge to the state’s failure to fund
retirement health care benefits being earned by nonretired
public school employees during the 1990-1991 school year.
In
determining
whether
the
state’s
failure
to
do
so
violated the “prefunding” requirement of the second clause
of
art
9,
§
24,
a
four-member
majority
of
this
Court
determined that health care benefits are, indeed, included
within
the
term
primarily
on
delegates
who
“accrued
statements
financial
by
supported
some
art
9,
benefits.”
of
the
§
24
Focusing
constitutional
that
they
were
concerned about the future ability of governmental entities
to pay retirement benefits if the entities did not set
aside
funding
to
do
so
during
each
year
of
a
public
employee’s service,5 the majority reasoned that “because the
purpose of the provision is to prevent governmental units
from amassing bills for pension payments that they do not
have
money
to
pay,
we
hold
that
the
term
‘financial
benefits’ must include retirement health care benefits.”
Musselman
4
I,
supra
at
513.
Justice
Justice Weaver did not participate.
5
Riley,
joined
by
448 Mich at 503.
Musselman I, supra at 512-513, quoting 1 Official
Record, Constitutional Convention 1961, p 772 (delegate
Stafseth); Musselman I, supra at 512 n 5, quoting 1
Official Record, Constitutional Convention 1961, p 771
(delegate Van Dusen).
8
Justice
Levin,
majority’s
dissented
analysis
from
primarily
this
on
portion
of
the
basis
of
her
the
conclusion that the term “financial” is commonly understood
to
connote
monetary
“financial
benefits”
benefits.
obligations
does
and,
not
thus,
encompass
the
term
health
care
Id. at 525-532.
This Court subsequently granted rehearing in Musselman
v
Governor
(On
Rehearing),
450
Mich
574;
545
NW2d
346
(1996) (Musselman II), and the prior majority lost a vote
because Justice Brickley stated that he no longer believed
that interpretation of art 9, § 24 was necessary to resolve
the case.
Musselman II, supra at 576-577.
Justice Weaver,
now participating, joined Justice Riley’s dissent on the
issue and also wrote separately, saying that the electorate
could
not
benefits”
have
to
intended
include
the
health
phrase
care
“accrued
benefits
financial
because
the
pension and retirement systems in place at the time art 9,
§ 24 was adopted consisted only of monthly stipends.
at
579-580.
Justice
Weaver
further
concluded
Id.
that
statements by constitutional convention delegates show that
they had employed the phrase “accrued financial benefits”
for the specific purpose of limiting the contractual right
of public school employees under art 9, § 24 to deferred
compensation embodied in a pension plan.
Musselman II,
supra
Constitutional
at
580,
quoting
1
Official
9
Record,
Convention
1961,
pp
771,
773-774
(delegate
Van
Dusen).
Thus, with six justices splitting three to three on the
issue,
the
included
question
within
the
whether
phrase
health
“accrued
remained unresolved by this Court.
Court
of
Appeals
in
the
present
care
benefits
financial
are
benefits”
However, as did the
case,6
we
agree
with
Justices Riley, Weaver, and Levin that they are not.
As Justice Riley correctly pointed out in her dissent
in
Musselman
I,
the
majority
“misse[d]
the
mark”
by
focusing on the history behind art 9, § 24 and the intent
of the constitutional convention delegates in proposing it,
rather than on the interpretation that the people would
have given the provision when they adopted it.
I, supra at 526.
standard
to
be
Musselman
Indeed, we recently stated the correct
applied
when
interpreting
constitutional
provisions in Hathcock, supra at 468:
The primary objective in interpreting a
constitutional provision is to determine the
text’s original meaning to the ratifiers, the
people, at the time of ratification. [People v
Nutt, 469 Mich 565, 573; 677 NW2d 1 (2004).]
This rule of “common understanding” has been
described by Justice COOLEY in this way:
“A constitution is made for the people and
by the people. The interpretation that should be
given it is that which reasonable minds, the
great mass of the people themselves, would give
it. ‘For as the Constitution does not derive its
6
260 Mich App at 473.
10
force from the convention which framed, but from
the people who ratified it, the intent to be
arrived at is that of the people, and it is not
to be supposed that they have looked for any dark
or abstruse meaning in the words employed, but
rather that they have accepted them in the sense
most obvious to the common understanding, and
ratified the instrument in the belief that that
was
the
sense
designed
to
be
conveyed.’”
[Traverse City School Dist v Attorney General,
384 Mich 390, 405; 185 NW2d 9 (1971) (emphasis in
original),
quoting
1
Cooley,
Constitutional
Limitations (6th ed), p 81.]
In short, the primary objective of constitutional
interpretation is to realize the intent of the
people by whom and for whom the constitution was
ratified.
In
intent
order
of
the
to
reach
people
the
objective
when
of
ratifying
discerning
a
the
constitutional
provision, we apply the plain meaning of each term used
therein at the time of ratification unless technical, legal
terms were employed.
Phillips v Mirac, Inc, 470 Mich 415,
422;
(2004).
685
NW2d
“benefits”
is
174
modified
“accrued.”
Because
legal
that
terms
meaning
by
those
by
these
would
In
the
in
been
the
case,
words
adjectives
have
learned
this
“financial”
are
not
ascribed
law
the
at
a
the
term
and
technical,
particular
time
the
Constitution was ratified,7 we discern the intent of the
people in ratifying art 9, § 24 by according the adjectives
7
Id. at 425.
11
their
plain
and
ordinary
meanings
at
the
time
of
ratification.8
We first note that, despite specifically stating that
the
threshold
issue
in
determining
whether
health
care
benefits were subject to the prefunding requirement of the
second clause of art 9, § 24 is whether they constitute
“accrued
financial
benefits”
within
the
meaning
of
the
first clause of art 9, § 24,9 the majority in Musselman I
did not address the term “accrued.”
1963
Constitution
commonly
defined
was
as
ratified,
“to
At the time that our
the
increase,
term
grow,”
“accrue”
“to
come
was
into
existence as an enforceable claim; vest as a right,” “to
come by way of increase or addition: arise as a growth or
result,” “to be periodically accumulated in the process of
time
whether
as
an
collect, accumulate,”
(1961),
arise
in
increase
or
a
decrease,”
“gather,
Webster’s Third New Int’l Dictionary
p 13, or “to happen or result as a natural growth;
due
course;
come
or
8
fall
as
an
addition
or
It seems apparent, but to foreclose confusion that
the dissent may engender, that the 2004 view of the
Governmental Accounting Standards Board (GASB) that the
dissent relies on to define terms is entirely irrelevant to
what ratifiers in 1963 would have understood. Furthermore,
the passage quoted from the GASB by the dissent does not
even purport to define any of these terms but merely
directs how to handle the accounting fringe benefits
entail.
9
Musselman I, supra at 510.
12
increment,” “to become a present and enforceable right or
demand,” Random House American College Dictionary (1964), p
9.
Thus, according to these definitions, the ratifiers of
our Constitution would have commonly understood “accrued”
benefits to be benefits of the type that increase or grow
over time—such as a pension payment or retirement allowance
that increases in amount along with the number of years of
service a public school employee has completed.10
care
benefits,
Simply
stated,
however,
they
are
not
not
are
benefits
of
accrued.
Health
this
Under
sort.
MCL
38.1390(1),11 which the plaintiffs in this case rely on,
neither the amount of health care benefits a public school
employee
receives
nor
the
amount
of
the
premium,
subscription, or membership fee that MPSERS pays increases
in relation to the number of years of service the retiree
has performed.
That
benefits
art
that
9,
§
24
increase
only
or
grow
protects
over
those
time
is
financial
not
only
supported but, indeed, confirmed by the interaction between
10
See, e.g., MCL 38.1384.
11
MCL 38.1391(1) provides that “[t]he retirement system
shall pay the entire monthly premium or membership or
subscription fee for hospital, medical-surgical, and sick
care benefits for the benefit of a retirant or retirement
allowance beneficiary who elects coverage in the plan
authorized by the retirement board and the department.”
13
the
first
and
Specifically,
second
the
first
clauses
clause
of
that
provision.
contractually
binds
the
state and its political subdivisions to pay for retired
public
employees’
Thereafter,
state
and
the
“accrued
second
its
financial
clause
political
seeks
benefits
to
subdivisions
.
ensure
will
.
.
that
be
.”
the
able
to
fulfill this contractual obligation by requiring them to
set aside funding each year for those “[f]inancial benefits
arising on account of service rendered in each fiscal year
. . . .”
Thus, because the second clause only requires the
state and its political subdivision to set aside funding
for
“[f]inancial
benefits
arising
on
account
of
service
rendered in each fiscal year” to fulfill their contractual
obligation of paying for “accrued financial benefits,” it
reasonably
consist
follows
only
of
that
those
“accrued”
“[f]inancial
financial
benefits
benefits
arising
on
account of service rendered in each fiscal year . . . .”12
Moreover,
health
“financial” benefits.
care
benefits
At the time
12
do
not
qualify
as
Const 1963, art 9, § 24
The dissent claims that we are not defining words
with any reference to context.
This is not the case.
Indeed, we are as committed to that interpretive tool as
the dissent claims to be, and this opinion bears witness to
that.
The difference between us, however, is that we are
endeavoring to place words in the context of other words
while the dissent places words in the context of something
far more vague, apparently nothing more than its own sense
of the preferred result.
14
was ratified, the term “financial” was commonly defined as
“pertaining
to
monetary
receipts
and
expenditures;
pertaining or relating to money matters; pecuniary,” Random
House,
supra,
financiers,”
p
453,
Webster’s,
or
“relating
supra,
p
851,
to
or
“finance”
and
finance
was
commonly defined as “pecuniary resources, as of . . . an
individual;
Webster’s,
revenues,”
supra.
Random
“Pecuniary,”
House,
in
supra;
turn,
accord
was
commonly
defined as “consisting of or given or extracted in money,”
or “of or pertaining to money.”
Random House, supra, p
892; accord Webster’s, supra, p 1663.
ratifiers
of
understood
our
Constitution
“financial”
benefits
benefits
that
consist
benefits
of
nonmonetary
a
of
Accordingly, the
would
to
include
monetary
nature
have
only
payments,
such
as
commonly
those
and
health
not
care
benefits.
We
further
point
out
that,
even
if
the
phrase
“accrued financial benefits” were ambiguous and, thus, it
would
be
statements
permissible
of
or
delegates
necessary
during
to
the
consult
the
constitutional
convention debates, the majority’s approach in doing so
in Musselman I was fundamentally flawed.
although
this
constitutional
Court
has
convention
continually
debates
Specifically,
recognized
are
relevant
that
to
determining the meaning of a particular provision, Lapeer
15
Co Clerk v Lapeer Circuit Court, 469 Mich 146, 156; 665
NW2d 452 (2003); People v Nash, 418 Mich 196, 209; 341
NW2d 439 (1983) (opinion by Brickley, J.), we take this
opportunity to clarify that, when necessary, the proper
objective in consulting constitutional convention debates
is not to discern the intent of the framers in proposing
or supporting a specific provision, but to determine the
intent of the ratifiers in adopting the provision, Nutt,
supra at 574.13
We highlighted this distinction in Univ
of Michigan Regents v Michigan, 395 Mich 52, 59-60; 235
NW2d 1 (1975), in which we stated:
The debates must be placed in perspective.
They are individual expressions of concepts as
the speakers perceive them (or make an effort to
explain
them).
Although
they
are
sometimes
illuminating, affording a sense of direction,
they are not decisive as to the intent of the
general convention (or of the people) in adopting
the measures.
Therefore, we will turn to the committee
debates only in the absence of guidance in the
constitutional language . . . or when we find in
the debates a recurring thread of explanation
binding together the whole of a constitutional
concept.
Bearing this principle in mind, the primary focus of
the majority in Musselman I should not have been on the
intentions of the delegates in supporting art 9, § 24 but,
13
“Constitutional Convention debates and the Address to
the People are certainly relevant as aids in determining
the intent of the ratifiers.” (Emphasis added.)
16
rather, on any statements they may have made that would
have shed light on why they chose to employ the particular
terms
they
discerning
used
what
in
the
drafting
common
the
provision
understanding
of
to
aid
those
in
terms
would have been when the provision was ratified by the
people.14
In this regard, it is important to note that the
majority in Musselman I did, in fact, locate such evidence
but chose to disregard it, stating:
The only explicit elaboration on the term
“accrued financial benefits” was this remark by
delegate Van Dusen:
“The words ‘accrued financial benefits’ were
used designedly, so that the contractual right of
the employee would be limited to the deferred
compensation embodied in any pension plan, and
that we hope to avoid thereby a proliferation of
litigation
by
individual
participants
in
retirement systems talking about the general
benefits structure, or something other than his
specific right to receive benefits.”
Unfortunately, he addresses which rights are
contractual, and thus enforceable at law under
the first clause of Const 1963, art 9, § 24—a
question distinct from what must be prefunded
14
See, generally, Beech Grove Investment Co v Civil
Rights Comm, 380 Mich 405, 425-428; 157 NW2d 213 (1968), in
which this Court examined, among other things, the
statements of delegates to the constitutional convention
and the Address to the People in order to discern the
meaning of the term “civil rights” as used in Const 1963,
art 5, § 29, but, in doing so, expressly recognized that
“it is the Constitution, not the debates, that was finally
submitted to the people.
While the debates may assist in
an interpretation of the Constitution, neither they nor
even the Address to the People is controlling.”
Beech
Grove, supra at 427.
17
under the second clause. [Musselman I, supra at
510
n
8,
quoting
1
Official
Record,
Constitutional Convention 1961, pp 773-774.]
This
relevant
words
statement
to
discerning
“accrued”
constitutional
conclusion
by
and
delegate
the
that
common
“financial”
convention
the
Van
and,
ratifiers
Dusen
is
directly
understanding
at
the
indeed,
would
of
the
of
the
reinforces
our
time
have
commonly
understood the phrase “accrued financial benefits” to be
one
of
limitation
that
would
restrict
the
scope
of
protection provided by art 9, § 24 to monetary payments for
past services.
The Musselman I majority’s stated reason
for disregarding this statement, that delegate Van Dusen
was stating why that phrase was used in the first clause of
art 9, § 24, and not why it was used in the second clause,
is illogical.
that
the
Stated simply, there is no reason to believe
ratifiers
would
have
interpreted
the
phrase
“accrued financial benefits” any differently when reading
the second clause than they would have when reading the
first.
Indeed, it would be unreasonable to assume, in the
circumstance where they were drafted together and presented
to the ratifiers at the same time, that there was any other
intent.
In discussing this concept, Justice Cooley stated,
“[a]s a general thing, it is to be supposed that the same
word is used in the same sense wherever it occurs in a
18
constitution.”
1 Cooley, Constitutional Limitations (8th
ed), p 135.15
Thus, in summary, we hold that health care benefits
are not protected by Const 1963, art 9, § 24 because they
neither
qualify
as
“accrued”
benefits
benefits as those terms were commonly
nor
“financial”
understood at the
time of the Constitution’s ratification and, thus, are not
“accrued financial benefits.”
IV. ANALYSIS OF CONST 1963, ART 1, § 10 AND US CONST,
ART I, § 10
The
plaintiffs
here
assert
that,
by
enacting
MCL
38.1391(1), the Legislature created a contractual right by
public school retirees to receive health care benefits and,
further, that this contractual right could not be altered
15
See, also, Lockwood v Comm’r of Revenue, 357 Mich
517, 536-537; 98 NW2d 753 (1959) (Carr, J., dissenting):
It is incredible that the legislature in
submitting to popular vote the proposed amendment
[of Const 1908, art 10, § 23] at the general
election in 1954, or that the people in voting
thereon, intended that the term “sales tax” as
used in the clauses of said amendment providing
for the apportionment of sales tax funds in the
manner stated therein, and in inhibiting the
legislature from increasing the sales tax above
3%, intended to use the term in question with
different meanings. In other words, it must be
assumed that the designation was used in the
proviso imposing limitation on the power of the
legislature with reference to the increase in the
sales tax with exactly the same meaning as
clearly intended in the so-called diversion
clauses. [Emphasis added.]
19
or abolished by successive legislatures without violating
Const 1963, art 1, § 1016 and US Const, art I, § 10,17 both
of which prohibit the state from enacting any law that
impairs existing contractual obligations.
We disagree.
MCL 38.1391(1) provides:
The retirement system[18] shall pay the entire
monthly premium or membership or subscription fee
for hospital, medical-surgical, and sick care
benefits for the benefit of a retirant or
retirement
allowance
beneficiary
who
elects
coverage in the plan authorized by the retirement
board and the department.[19]
The Court of Appeals determined that this statute does
create for plaintiffs a contractual right to receive health
care benefits, but that the copay and deductible increases
implemented by the board do not amount to a substantial
impairment of that contractual right.
that
MCL
contractual
38.1391(1)
right
to
does
not
receive
However, we conclude
create
health
for
care
retirees
benefits
a
and,
16
“No bill of attainder, ex post facto law or law
impairing the obligation of contract shall be enacted.”
17
“No State shall . . . pass any Bill of Attainder, ex
post facto Law, or Law impairing the Obligation of
Contracts, or grant any Title of Nobility.”
18
“Retirement
38.1307(8).
system”
refers
19
to
the
MPSERS.
MCL
“Department” refers to the Department of Management
and Budget. MCL 38.1304(4).
20
therefore, reverse the Court of Appeals determination on
that point.
Of
primary
importance
to
the
viability
of
our
republican system of government is the ability of elected
representatives to act on behalf of the people through the
exercise
of
legislation.
their
power
Therefore,
to
a
enact,
fundamental
amend,
or
principle
repeal
of
the
jurisprudence of both the United States and this state is
that one legislature cannot bind the power of a successive
legislature.20
We recently reiterated this principle at
length in LeRoux v Secretary of State, 465 Mich 594, 615616; 640 NW2d 849 (2002), quoting Atlas v Wayne Co Bd of
Auditors, 281 Mich 596, 599; 275 NW 507 (1937):
“The act of one legislative body does not
tie the hands of future legislatures.
Cooper,
Wells & Co v City of St Joseph, 232 Mich 255 [205
NW 86 (1925)].
The power to amend and repeal
legislation as well as to enact it is vested in
the legislature, and the legislature cannot
restrict or limit its right to exercise the power
of legislation by prescribing modes of procedure
for the repeal or amendment of statutes; nor may
one legislature restrict or limit the power of
its successors . . . . [Additionally,] [o]ne
legislature cannot enact irrepealable legislation
or limit or restrict its own power, or the power
of its successors, as to the repeal of statutes;
20
United States v Winstar Corp, 518 US 839, 873; 116 S
Ct 2432; 135 L Ed 2d 964 (1996) (opinion by Souter, J.);
Community-Service Broadcasting of Mid-America, Inc v Fed
Communications Comm, 192 US App DC 448, 459; 593 F2d 1102
(1978); Mirac, supra at 430; Ballard v Ypsilanti Twp, 457
Mich 564, 569; 577 NW2d 890 (1998).
21
and an act of one legislature is not binding on,
and
does
not
tie
the
hands
of,
future
legislatures.”
Although this venerable principle that a legislative
body may not bind its successors can be limited in some
circumstances
because
of
constitutional
its
prohibitions
tension
against
the
with
impairment
the
of
contracts, thus enabling one legislature to contractually
bind another, Winstar, supra at 872-874, such surrenders of
legislative power are subject to strict limitations that
have
developed
prerogatives
necessary
of
in
order
state
corollary
of
to
protect
governments,
these
id.
the
at
limitations
sovereign
874-875.
that
has
A
been
developed by the United States Supreme Court, and followed
by this Court, is the strong presumption that statutes do
not create contractual rights.
Nat’l R Passenger Corp v
Atchison, Topeka & Santa Fe R Co, 470 US 451, 465-466; 105
S Ct 1441; 84 L Ed 2d 432 (1985); In re Certified Question
(Fun ‘N Sun RV, Inc v Michigan),
527 NW2d 468 (1994).
447 Mich 765, 777-778;
This presumption, and its relation to
the protection of the sovereign powers of a legislature,
was succinctly described by the United States Supreme Court
in Nat’l R, supra at 465-466:
For many decades, this Court has maintained
that absent some clear indication that the
legislature intends to bind itself contractually,
the presumption is that “a law is not intended to
create private contractual or vested rights but
22
merely declares a policy to be pursued until the
legislature shall ordain otherwise.” Dodge v.
Board of Education, 302 U.S. 74, 79 [58 S Ct 98;
82 L Ed 57] (1937).
See also Rector of Christ
Church v. County of Philadelphia, 24 How. 300,
302 [65 US 300; 16 L Ed 602] (1861) (“Such an
interpretation is not to be favored”). This wellestablished
presumption
is
grounded
in
the
elementary
proposition
that
the
principal
function of a legislature is not to make
contracts, but to make laws that establish the
policy of the state. Indiana ex rel. Anderson v.
Brand, 303 U.S. 95, 104-105 [58 S Ct 443; 82 L Ed
685] (1938). Policies, unlike contracts, are
inherently subject to revision and repeal, and to
construe laws as contracts when the obligation is
not clearly and unequivocally expressed would be
to limit drastically the essential powers of a
legislative
body.
Indeed,
“‘[t]he
continued
existence of a government would be of no great
value, if by implications and presumptions, it
was
disarmed
of
the
powers
necessary
to
accomplish the ends of its creation.’”
Keefe v.
Clark, 322 U.S. 393, 397 [64 S Ct 1072; 88 L Ed
1346] (1944) (quoting Charles River Bridge v.
Warren Bridge, 11 Pet. 420, 548 [36 US 420; 9 L
Ed 773] (1837)). Thus, the party asserting the
creation of a contract must overcome this wellfounded presumption, Dodge, supra, at 79, and we
proceed cautiously both in identifying a contract
within the language of a regulatory statute and
in defining the contours of any contractual
obligation.
The
first
step
in
this
cautious
procession
is
to
examine the statutory language itself. Nat’l R, supra at
466.
In
contract,
order
the
for
a
statutory
statute
to
language
form
the
“must
be
basis
‘plain
of
a
and
susceptible of no other reasonable construction’ than that
the Legislature intended to be bound to a contract.”
In re
Certified Question, supra at 778, quoting Stanislaus Co v
San Joaquin & King’s River Canal & Irrigation Co, 192 US
23
201,
208;
statutory
24
S
Ct
241;
language
48
L
“‘provides
Ed
406
for
the
(1904).
If
execution
the
of
a
written contract on behalf of the state the case for an
obligation binding upon the state is clear.’”
Nat’l R,
supra at 466, quoting Dodge, supra at 78 (emphasis supplied
in Nat’l R).
But, “absent ‘an adequate expression of an
actual intent’ of the State to bind itself,” courts should
not construe laws declaring a scheme of public regulation
as also creating private contracts to which the state is a
party.
Nat’l R, supra
at 466-467, quoting
Wisconsin &
Michigan R Co v Powers, 191 US 379, 386-387; 24 S Ct 107;
48
L
Ed
229(1903).
contractual
language,
interpreting
statutes
In
addition
some
to
the
federal
involving
absence
courts,
public-employee
of
when
pension
benefit plans, have expressed even greater reluctance to
infer a contractual obligation where a legislature has not
explicitly precluded amendment of a plan.
Nat’l Ed Ass’n-
Rhode Island v Retirement Bd of the Rhode Island Employees’
Retirement
System,
172
F3d
22,
27
(CA
1,
1999).
This
reluctance stems not only from the caution against finding
an implied surrender of legislative power, but also from
the
realization
utilize
that
that
power
compensation schedules.
legislatures
to
modify
Id.
frequently
benefit
need
programs
to
and
Further, this reluctance is
grounded in the realization that “it is easy enough for a
24
statute
explicitly
to
authorize
a
contract
or
to
say
explicitly that the benefits are contractual promises, or
that any changes will not apply to a specific class of
beneficiaries (e.g., those who have retired).”
28
(citations
omitted).
In
the
area
Id. at 27of
worker’s
compensation, this Court has also followed this principle
and stated that, as a general rule, a statute will not be
held
to
have
Legislature
created
did
legislation.’”
not
contractual
covenant
rights
“if
‘the
to
amend
the
not
In re Certified Question, supra at 778,
quoting Franks v White Pine Copper Div, 422 Mich 636, 654;
375 NW2d 715 (1985).
of
such
clear
and
Finally, in addition to the absence
unequivocal
statutory
language,
the
circumstances of a statute’s passage may “belie an intent
to contract away governmental powers.”
Nat’l R, supra at
468.
The plaintiffs in this case have failed to overcome
the strong presumption that the Legislature did not intend
to
surrender
contractual
its
legislative
agreement
to
powers
provide
by
entering
retirement
into
health
a
care
benefits to public school employees when it enacted MCL
38.1391(1).
the
statute,
Nowhere in MCL 38.1391(1), or in the rest of
did
the
Legislature
provide
for
a
written
contract on behalf of the state of Michigan or even use
25
terms typically associated with contractual relationships,21
such as “contract,” “covenant,” or “vested rights.”22
the
Legislature
intended
to
surrender
its
Had
legislative
powers through the creation of contractual rights, it would
have expressly done so by employing such terms.
its
plain
language,
the
statute
merely
shows
Indeed, by
a
policy
decision by the Legislature that the retirement system pay
“the entire monthly premium or membership or subscription
fee” for the listed health care benefits on behalf of a
retired public school employee who chooses to participate
in whatever plan the board and the Department of Management
and Budget authorize.
21
However, nowhere in the statute did
Nat’l R, supra at 467.
22
It is clear that the Legislature can use such
nomenclature when it wishes to.
For instance, when
enacting 1982 PA 259, which requires the state treasurer to
pay the principal of and interest on all state obligations,
the Legislature provided in MCL 12.64: “This act shall be
deemed a contract with the holders from time to time of
obligations of this state.” (Emphasis added.)
Similarly,
when enacting the State Housing Development Authority Act,
1966 PA 346, the Legislature provided in MCL 125.1434: “The
state pledges and agrees with the holders of any notes or
bonds issued under this act, that the state will not limit
or alter the rights vested in the authority to fulfill the
terms of any agreements made with the holders thereof, or
in any way impair the rights and remedies of the holders
until the notes or bonds, together with the interest
thereon, with interest on any unpaid installments of
interest, and all costs and expenses in connection with any
action or proceeding by or on behalf of such holders, are
fully met and discharged. The authority is authorized to
include this pledge and agreement of the state in any
agreement with the holders of such notes or bonds.”
(Emphasis added.)
26
the Legislature require the board and the department to
authorize a particular plan containing a specific monthly
premium, membership, or subscription fee or, alternatively,
explicitly
amending
nowhere
preclude
whatever
in
the
the
plan
board
did
the
department
authorize.23
they
statute
and
the
from
Additionally,
Legislature
require
the
board and the department to authorize a plan containing
specified deductibles and copays.
In fact, nowhere in the
statute did the Legislature even mention deductibles and
copays.
Further,
nowhere
in
the
statute
did
the
Legislature covenant that it would not amend the statute to
remove or diminish the obligation of the MPSERS to
pay the
monthly premium, membership, or subscription fee; nor did
it covenant that any changes to the plan by the board and
the
department,
or
amendments
to
the
statute
by
the
Legislature, would apply only to a specific class or group
of public school retirees.24
Again, had the Legislature
intended to surrender its power to make such changes, it
would have done so explicitly.
Although we need not do so because of the absence of
clear
and
unequivocal
language
showing
an
intent
to
23
Nat’l Ed Ass’n-Rhode Island, supra at 27.
24
Id. at 27-28; In re Certified Question, supra at 778.
27
contract, we note that the circumstances surrounding the
Legislature’s enactment of MCL 38.1391(1) provide further
evidence that the Legislature did not intend to contract
away its legislative powers.25
As was discussed by the
Court of Appeals, initially the Legislature required the
MPSERS to pay a portion of the premium for health care
benefits for public school retirees through the enactment
of the predecessor of MCL 38.1391, former MCL 38.325b of
the Public School Employees Retirement Act, 1945 PA 136,
and subsequent legislatures have exercised their powers to
amend the statute many times throughout the years to change
the
type
of
plans
that
the
board
could
authorize,
the
criteria for the beneficiaries on whose behalf the MPSERS
could
pay
the
premiums
for
various
benefits,
and
the
amounts of those premiums that the MPSERS was required to
pay.26
Thus, there is no indication that the Legislature
that enacted MCL 38.1391(1) in 1980 intended to do anything
beyond what its predecessors had done—set forth a policy to
be pursued until one of its successor legislatures ordained
a new policy.27
Additionally, as was also analyzed by the
Court of Appeals, the health care plan itself has been
25
Nat’l R, supra at 468.
26
260 Mich App at 463-465.
27
Nat’l R, supra at 466.
28
amended and modified by the MPSERS numerous times since
1975, not only to increase the benefits available but also
to increase the amounts of the copays and deductibles that
participants were required to pay.28
In their appeal to
this Court, plaintiffs have not only conceded that these
statutory amendments and changes to the plan have occurred,
but also expressly conceded during oral argument that the
Legislature and the board have the authority to make such
changes.
they
Thus,
plaintiffs
themselves,
have
taken,
have
effectively
38.1391(1)
merely
established
a
by
the
recognized
legislative
positions
that
policy
MCL
that
could be changed by a successor legislature rather than
providing for a surrender of such legislative power through
the creation of a contractual relationship.
28
The
Court
of
Appeals,
260
Mich
App
at
465-466,
stated:
The MPSERS provides a health care plan for
retirees. Cost-sharing features have been a part
of the health plan since its inception in 1975.
The individual and family deductible component of
the health care plan has gradually increased from
1982 to 1999, beginning with a deductible of $50
for each person and $100 for each family in 1982,
and gradually rising to a deductible of $145 for
each person and $290 for each family in 1999.
Cost sharing for the prescription drug program
also had gradual increases, ranging from a copay
of ten percent in 1975 to a copay of $4 for
generic drugs and $8 for brand name drugs in 1997
through March 31, 2000. There is no dispute that
the MPSERS health care plan also gradually
increased the benefits available under the plan.
29
We
further
note
that,
as
part
of
the
1979
Public
School Employees Retirement Act, in which MCL 38.1391(1) is
included,
the
Legislature
also
enacted
MCL
38.1303a(1),
which defines “compensation” for public school employees as
“the remuneration earned by a member for service performed
as
a
public
school
employee.”
Thus,
by
enacting
this
statute, the Legislature recognized that an implied-in-law
contractual
relationship
can
arise
system and public school employees.
school
employee
“compensation”
can
by
become
first
between
the
school
Specifically, a public
contractually
performing
entitled
services.
to
However,
payment of health care premiums by the MPSERS under MCL
38.1391(1)
is
not
among
Legislature
specifically
employee’s
the
“compensation”
(h).
set
list
forth
in
MCL
of
as
items
being
that
part
38.1303a(2)(a)
the
of
an
through
Additionally, and more importantly, MCL 38.1303a(3)
expressly
lists
definition
of
items
that
compensation
are
and
not
included
includes,
within
among
the
other
things, “[p]ayments for hospitalization insurance and life
insurance premiums,”29 and “[o]ther fringe benefits paid by
and
from
the
employees.”30
funds
of
employers
of
public
school
This causes us to conclude that surely the
29
MCL 38.1303a(3)(c) (emphasis added).
30
MCL 38.1303a(3)(d).
30
Legislature would not specifically exclude the payment of
health care benefits from the list of items that a public
school
employee
could,
potentially,
become
contractually
entitled to by having performed services but, at the same
time, intend to vest plaintiffs with a contractual right to
receive such benefits through the simultaneous enactment of
MCL 38.1391(1).
to
understand
Accordingly, it seems evident that the way
these
enactments
is
that
the
Legislature
intended for payment of health care benefits by the MPSERS
under MCL 38.1391(1) to simply be a “fringe benefit” to
which
public
school
employees
would
never
have
a
contractual entitlement.31
Thus,
because
the
plain
language
of
MCL
38.1391(1)
does not clearly indicate that the Legislature intended to
surrender
its
legislative
powers
through
the
statute’s
enactment, we hold that MCL 38.1391(1) does not create for
public school employees a contractual right to health care
31
This fact not only belies plaintiffs’ claim that MCL
38.1391(1) shows a legislative intent to vest public school
retirees with a contractual right to health care benefits,
but also renders erroneous the Court of Appeals statement
that “[h]ealth insurance is part of an employee’s benefit
package
and
the
whole
package
is
an
element
of
consideration that the state contracts to tender in
exchange for services rendered by the employee.” 260 Mich
App at 476. Indeed, MCL 38.1303a makes clear that payment
of health care benefits by the MPSERS is not an element of
the consideration that the state contracts to tender as
remuneration for a public school employee’s services.
31
benefits.
We
therefore
reverse
conclusion to the contrary.
the
Court
of
Appeals
However, because the Court of
Appeals ultimately reached the correct result, we affirm
its ultimate conclusion to uphold the circuit court’s entry
of summary disposition in favor of defendants.32
V.
RESPONSE TO THE DISSENT
We would be remiss if we failed to point out that the
ad hoc analysis employed by the dissent to determine that
public
school
retirees
possess
a
contractual
right
to
health care benefits, rendering the Legislature powerless
to alter or do away with them, is particularly disturbing
and, taken to its logical conclusion, would undermine this
state’s
constitutionally
guaranteed
republican
system
of
government.
The
most
treasured
civic
possession
citizen is the right to self-government.
of
an
American
It is the central
pillar and animating force of our constitutions.
Thus, US
Const, art IV, § 4 provides that “[t]he United States shall
guarantee to every State in this Union a Republican Form of
Government . . . .”
The Michigan Constitution, Const 1963,
art 1, § 1 states similarly that “[a]ll political power is
32
Having concluded that MCL 38.1391(1) does not create
a contract, we need not address plaintiffs’ argument
challenging the Court of Appeals determination that the
copay and deductible increases do not operate as a
substantial impairment of a contractual relationship.
32
inherent in the people,” and the importance the founding
generation gave to this can be seen by its reiteration
repeatedly in the documents preceding, coinciding with, and
following the adoption of the United States Constitution in
1789.
Thus, Congress provided in the Northwest Ordinance
that the constitutions and governments of the states to be
formed in the territory, of which states Michigan is one,
“shall be republican . . . .”
art V.
Northwest Ordinance of 1787,
This requirement was carried forward by Congress
when it severed Michigan from the Northwest Territory in
1800 and made it part of the Indiana Territory, 2 US Stat,
Ch XLI, § 2, and again in 1805 when it likewise severed
Michigan
from
the
Indiana
Territory
and
established
the
Michigan Territory, 2 US Stat, Ch V, § 2, by requiring both
times that the government established in those territories
was to be “in all respects similar” to that provided in the
Northwest Ordinance of 1787.
What
this
means
concretely
is
that
what
one
legislature has done, pursuant to the majority sentiment at
that
time,
a
later
legislature
majority can modify or undo.
responding
to
the
then
Deprived of this right, self-
government is not just hollow, it is nonexistent.
Yet, as the United States Supreme Court has held and
we have discussed in this opinion, when the Legislature
enters
into
a
contract,
a
subsequent
33
legislature
cannot
repudiate that contract.
It seems obvious that to read
what is a contract too broadly swallows the right of the
people to change the course of their governance.
the
tension
that
we
have
attempted
to
This is
address
and
thoroughly analyze, whereas the dissent has just blithely
assumed that any benefit once conferred is a contract and
cannot be altered.
This is an ill-considered notion that
in cases yet to be seen, but surely to be seen if this were
to become the majority position, means that, for example,
general assistance welfare benefits could not be altered,
Medicaid would be frozen in its first enacted form, and, in
short, any financial benefit would be unalterable.
This is not and surely cannot be our law.
Yet, the
dissent claims that the recipients of the benefits will be
surprised
it
surprised
that
Legislature.
is
not.
benefit
On
the
Will
they?
battles
contrary,
are
No
one
fought
those
who
should
out
in
could
be
the
claim
legitimate surprise would be our citizens who, were there
two more votes on this Court to join the dissent and make
it a majority, would have lost, in the fog of a baffling
contract analysis, the right to change the course of their
government.
Indeed, that would be more than surprising, it
would be revolutionary.
34
VI.
CONCLUSION
We hold that health care benefits are not “accrued
financial benefits” and, thus, are not protected by Const
1963, art 9, § 24.
Appeals
on
Legislature
this
did
Accordingly, we affirm the Court of
issue.
not
We
intend
further
to
create
hold
a
that
the
contractual
relationship with public school employees by enacting MCL
38.1391(1) and, thus, payment of health care benefits by
the MPSERS is not a contractual right subject to protection
by Const 1963, art 1, § 10 and US Const, art I, § 10.
We
therefore
on
reverse
this issue.
the
Court
of
Appeals
determination
However, because the Court of Appeals reached
the correct result, we affirm its determination that the
circuit
court
properly
entered
summary
disposition
defendants’ favor.
Clifford W. Taylor
Maura D. Corrigan
Robert P. Young, Jr.
Stephen J. Markman
35
in
S T A T E
O F
M I C H I G A N
SUPREME COURT
ALBERTA STUDIER, PATRICIA M.
SANOCKI, MARY A. NICHOLS, LAVIVA
M. CABAY, MARY L. WOODRING, and
MILDRED E. WEDELL,
Plaintiffs-Appellants,
v
No. 125765
MICHIGAN PUBLIC SCHOOL EMPLOYEES'
RETIREMENT BOARD, MICHIGAN PUBLIC
SCHOOL EMPLOYEES' RETIREMENT SYSTEM,
DEPARTMENT OF MANAGEMENT AND BUDGET,
and TREASURER OF MICHIGAN,
Defendants-Appellees.
_________________________________/
ALBERTA STUDIER, PATRICIA M.
SANOCKI, MARY A. NICHOLS, LAVIVA
M. CABAY, MARY L. WOODRING, and
MILDRED E. WEDELL,
Plaintiffs-Appellees,
V
No. 125766
MICHIGAN PUBLIC SCHOOL EMLOYEES’
RETIREMENT BOARD, MICHIGAN PUBLIC
SCHOOL EMPLOYEES’ RETIREMENT SYSTEM,
DEPARTMENT OF MANAGEMENT AND BUDGET,
and TREASURER OF MICHIGAN,
Defendants-Appellants.
________________________________/
WEAVER, J. (concurring).
I concur in the majority conclusion and reasoning that
the
Legislature
did
not
intend
to
create
a
contractual
right subject to Const 1963, art 1, § 10 and US Const, art
I,
§
10
when
it
provided
for
payment
of
health
care
benefits to public school employees through the enactment
of MCL 38.1391(1).
Regarding whether health care benefits paid to public
school
Const
retirees
1963,
are
art
9,
“accrued
financial
§
concur
24,
I
conclusion that they are not.
benefits”
with
the
under
majority
I agree with the majority
that “the ratifiers of our Constitution would have commonly
understood
‘financial’
benefits
benefits
that
consist
benefits
of
nonmonetary
benefits.”
a
of
Ante at 15.
to
include
monetary
nature
only
payments,
such
as
those
and
health
not
care
As noted by Justice Riley in her
partial concurrence and partial dissent regarding art 9, §
24 in Musselman v Governor, 448 Mich 503, 526; 533 NW2d 237
(1995) (Musselman I), “when interpreting the language of
the constitution, unambiguous terms are given their plain
meaning.”
Justice Riley concluded that the “normal usage
of the word ‘financial’ connotes money and ‘money’ connotes
some form of hard currency that can be ‘spent.’”
527.
When the Court granted rehearing in
Id. at
Musselman, I
concurred with Justice Riley’s Musselman I analysis of the
common
understanding
of
the
term
“accrued
financial
benefits” and I continue to agree with her analysis today.
In Musselman v Governor (On Rehearing), 450 Mich 574; 545
2
NW2d 346 (1996)(Musselman II), I wrote further to note that
Justice Riley’s conclusion was supported by the fact that
health care benefits did not exist when the people ratified
the
1963
Michigan
Constitution.
Because
health
care
benefits did not exist at that time, the people would not
have anticipated that the pension and retirement systems
established by Const 1963, art 9, § 24 included health care
benefits.
Mussleman II at 579.
Elizabeth A. Weaver
3
S T A T E
O F
M I C H I G A N
SUPREME COURT
ALBERTA STUDIER, PATRICIA M.
SANOCKI, MARY A. NICHOLS, LAVIVA
M. CABAY, MARY L. WOODRING, and
MILDRED E. WEDELL,
Plaintiffs-Appellants,
v
No. 125765
MICHIGAN PUBLIC SCHOOL EMPLOYEES'
RETIREMENT BOARD, MICHIGAN PUBLIC
SCHOOL EMPLOYEES' RETIREMENT SYSTEM,
DEPARTMENT OF MANAGEMENT AND BUDGET,
AND TREASURER OF MICHIGAN,
Defendants-Appellees.
_______________________________/
ALBERTA STUDIER, PATRICIA M.
SANOCKI, MARY A. NICHOLS, LAVIVA
M. CABAY, MARY L. WOODRING, and
MILDRED E. WEDELL,
Plaintiffs-Appellants,
v
No. 125766
MICHIGAN PUBLIC SCHOOL EMPLOYEES'
RETIREMENT BOARD, MICHIGAN PUBLIC
SCHOOL EMPLOYEES' RETIREMENT SYSTEM,
DEPARTMENT OF MANAGEMENT AND BUDGET,
AND TREASURER OF MICHIGAN,
Defendants-Appellees.
_______________________________/
CAVANAGH, J. (dissenting).
I believe that retirement health care benefits earned
by public school employees constitute “accrued financial
benefits” that are protected by our Michigan Constitution
from diminishment or impairment.
I also believe that the
statute that provides retirement health care benefits for
public school employees, MCL 38.1391, creates a contract
with public school employees and retirees that cannot be
substantially
impaired.
Because
there
are
significant
questions about the accuracy of the record used by the
lower
courts
indeed
occurred,
Accordingly,
position
to
I
that
determine
I
if
would
substantial
remand
respectfully
public
a
dissent
school
for
further
from
employees
impairment
the
and
review.
majority’s
retirees
are
without protection from the prospect that their retirement
health care benefits may be drastically decreased or even
eliminated.
I. HEALTH CARE BENEFITS ARE “ACCRUED FINANCIAL BENEFITS”
WITHIN THE MEANING OF MICHIGAN’S CONSTITUTION
Const 1963, art 9, § 24 provides the following:
The accrued financial benefits of each
pension plan and retirement system of the state
and its political subdivisions shall be a
contractual obligation thereof which shall not be
diminished or impaired thereby.
Financial benefits arising on account of
service rendered in each fiscal year shall be
funded during that year and such funding shall
not be used for financing unfunded accrued
liabilities.
2
Whether health care benefits are “accrued financial
benefits”
has
Musselman
v
(1995)
already
been
Governor,
(Musselman
448
I),
addressed
Mich
and
503,
by
this
510;
Musselman
Court
NW2d
533
v
in
237
Governor
(On
Rehearing), 450 Mich 574; 545 NW2d 346 (1996) (Musselman
II).
In Musselman I, this Court examined whether health
care benefits are indeed “financial” benefits.
We held
that because the purpose of the constitutional provision is
to
prevent
payments,
the
state
including
from
health
amassing
care
bills
benefits,
for
for
pension
which
the
state does not have the money to pay, the term “financial
benefits” includes retirement health care benefits.
Reflecting on the analysis in Musselman I, I fail to
see its flaws.
This Court reasonably concluded that the
goal of the constitutional provision is to ensure that the
state can pay for the commitments it has made.
Regardless
of whether the commitment is for a straightforward monthly
cash allowance to a retiree or for payment of health care
benefits for a retiree, the state must still pay for its
obligations.
If
the
state
has
failed
to
set
aside
an
appropriate amount of money, the situation is still the
same, meaning the state still has a financial consequence.
I
people
believe
gave
this
the
interpretation
constitutional
is
the
provision
one
when
that
the
it
was
adopted because it best reflects the common understanding
3
of
the
people.
See
Soap
&
Detergent
Ass’n
v
Natural
Resources Comm, 415 Mich 728, 745; 330 NW2d 346 (1982).
The most reasonable interpretation of the phrase “accrued
financial benefits” includes health care benefits.
Health
care benefits are given in lieu of additional compensation
to public school employees.
A health care benefit is a
financial benefit because it clearly costs the state money
and has an economic value to the employee.
Notably, our
Constitution was not written to include every conceivable
aspect of a pension plan.
It was certainly not beyond the
understanding of the ratifiers that health care benefits,
which
cost
the
state
retirement benefit.
money,
would
be
offered
as
a
As such, these benefits would need to
be protected, just as monthly cash allowances to retirees
must be protected.
As we stated in Musselman I, supra at 516 n 12, “Many
delegates to the 1961 Constitutional Convention perceived
as
unfair
the
rule
that
pensions
granted
by
public
authorities were not contractual obligations, but rather
gratuitous allowances that could be revoked at will.”
See,
e.g., 1 Official Record, Constitutional Convention 1961, pp
770-774.
It
should
not
come
as
a
surprise
that
the
ratifiers would believe this to be true about health care
benefits that mean as much, if not more, to many retirees.
4
Moreover, even if the ratifiers did not imagine every
conceivable pension plan benefit that would be offered, the
“idea behind formulating a general rule, as opposed to a
set
of
specific
commands,
is
that
a
rule
governs
possibilities that could not have been anticipated at the
time.”
Musselman I, supra at 514.1
provision
was
meant
retirement
systems;
it
to
is
address
The constitutional
all
entirely
public
employee
reasonable
that
the
ratifiers would not be aware of every possible retirement
benefit being offered to every public employee.
See, e.g.,
1 Official Record, Constitutional Convention 1961, p 771.
In response to a question whether the state could increase
benefits and whether an increase in benefits would be a
gratuity or an obligation that the state must fulfill, a
constitutional
convention
delegate
responded
as
follows:
“Certainly there’s nothing here to prohibit the employer
from increasing the benefit structure.”
Id. at 774.
“Once
the employee, by working pursuant to an understanding that
1
We believe that this constitution must be a
forward looking document; that it must take
cognizance of the problem; that it must spell out
for the future the manner in which these funds
should be managed, so that our children will not,
50 years hence, suffer from the fact that we
failed to put in enough money to take care of the
benefits attendant upon the service currently
performed by public employees.
[1 Official
Record, Constitutional Convention 1961, p 771.]
5
this
is
the
benefit
structure
presently
provided,
has
worked in reliance thereon, he has the contractual right to
those benefits which may not be diminished or impaired.”
Id.
The constitutional principle declared is that accrued
financial benefits, including health care benefits, will be
protected
for
retirees.
Simply,
“once
an
employee
has
performed the service in reliance upon the then prescribed
level of benefits, the employee has the contractual right
to receive those benefits under the terms of the statute or
ordinance prescribing the plan.”
Id. at 771.
In attempting to define the term “accrued financial
benefits,” the majority cites numerous definitions for the
word “accrue,” and I do not quarrel with those definitions.2
Indeed,
increase,
as
the
grow”
majority
states,
and
come
“to
into
enforceable claim; vest as a right.”
2
“accrue”
means
existence
as
“to
an
Ante at 12 (citation
While I do not quarrel with the definitions used, I
must note that the majority yet again insists on relying
solely on dictionary definitions to the illogical exclusion
of context.
“There is no more irritating fellow than the
man who tries to settle an argument about communism, or
justice, or liberty, by quoting from Webster.” Pflug, ed,
The Ways of Language (New York:
The Odyssey Press, Inc,
1967), ch 4, How to Read a Dictionary, p 62.
While
dictionary definitions are certainly useful, they must be
examined in context.
See also Hayakawa, Language in
Thought and Action (New York:
Harcourt, Brace and Co,
1949), ch 4, p 62 (“Interpretation must be based,
therefore, on the totality of contexts.”).
6
and internal quotation marks omitted).
However, I disagree
with the majority’s assertion that the ratifiers of our
Constitution would have commonly understood “accrued” to
mean that an individual’s benefits must increase or grow
over time.
The majority seems to believe that to be an
accrued financial benefit, an employee’s retirement health
care benefits must gradually increase on the basis of the
number of years that the person is employed, yet this is
not accurate.
The term “accrued financial benefits” was
used to denote benefits that were contractual obligations
on the part of the state.
The term “accrued financial
benefits” was meant to include benefits that an employee
had worked in reliance on and continued to work in reliance
on.
This is in contrast to the term “financial benefits,”
which was used in the second clause of the constitutional
provision to denote a system in which the benefits earned
for the year were funded annually.
Because the second
clause only specifically dealt with how to fund benefits
earned in a given year, retirement systems would eventually
need to address the funding for benefits that had been
earned in prior years but had not been properly funded.
1
Official Record, Constitutional Convention 1961, pp 773774.3
3
The constitutional provision does two things:
(continued…)
7
When
commitment
a
public
and
is
school
then
employee
entitled
to
has
fulfilled
receive
health
his
care
benefits once he retires, the employee has an enforceable
claim to receive the benefits upon retirement.
“Accrued”
does not mean that the amount of benefits the employee will
receive during retirement must grow in conjunction with the
employee’s years of service.
For an employee to have an
accrued financial benefit, he must fulfill the obligations
set forth by the state.
For plaintiffs, all the events
that are necessary for them to receive their benefits have
come into existence.
Simply, plaintiffs went to work and
did their jobs for the required number of years.
As our
Constitution states, accrued financial benefits “shall be a
contractual
obligation
thereof
which
shall
not
(…continued)
[I]n the first paragraph, it provides that
the relationship between the employing unit and
the employee shall be a contractual relationship
so that the municipality may not change the
relationship at its will. The benefits that have
accrued up to a given time are contractual and
must be carried out by the municipality or by the
state.
The second paragraph provides that each
year the system shall pay in enough money to fund
the liability arising in that year. It does not
require that the system catch up with all of its
past liability, which would be an impossibility
in connection with some of the state systems, but
it does require that they shall not go any
further
behind.
[2
Official
Record,
Constitutional Convention 1961, p 2659.]
8
be
diminished or impaired thereby.”
Const 1963, art 9, § 24.
Once an employee has fulfilled his obligation, the state
must
fulfill
its
obligation
and
be
prepared
to
pay
retirement health care benefits when necessary.
Additionally,
benefits”
were
even
viewed
if
as
the
a
term
term
“accrued
more
financial
commonly
used
by
accountants and actuaries than by laypersons, its meaning
would still encompass retirement health care benefits.
stated
by
the
Governmental
Accounting
Standards
As
Board
(GASB), cash payments and other retirement benefits, such
as
health
care
benefits,
“are
conceptually
similar
transactions-both involve deferred compensation offered in
exchange for current services—and should be accounted for
in
a
similar
way.”
Governmental
Accounting
Standards
Board, Accounting and Financial Reporting by Employers for
Postemployment Benefits Other Than Pensions, Statement No.
45, June 2004, p 73 (emphasis added).4
As noted by the
majority, “‘“[t]he words ‘accrued financial benefits’ were
used
designedly,
employee
would
be
so
that
limited
the
to
4
contractual
the
deferred
right
of
the
compensation
The GASB also states that retirement health care
benefits, like monthly cash allowances, arise “from an
exchange of salaries and benefits for employee services
rendered and constitute[] part of the compensation for
those services.”
Id. at 1.
Retirement benefits “are an
exchange of promised benefits for employee services.”
Id.
at 77.
9
embodied in any pension plan . . . .”’”
Ante at 17,
quoting Musselman I, supra at 510 n 8, quoting 1 Official
Record,
Constitutional
(emphasis added).
the
term
1961,
pp
773-774
By any standard employed, the meaning of
“accrued
retirement
Convention
health
financial
care
benefits”
benefits
for
encompasses
public
school
employees.
II. HEALTH CARE BENEFITS ARE CONTRACTUAL OBLIGATIONS
The United States Constitution provides in relevant
part, “No State shall . . . pass any Bill of Attainder, ex
post
facto
Contracts
Law,
.
or
Law
.
.”
US
.
impairing
Const,
the
art
I,
Obligation
of
§
1.
10,
cl
Michigan’s Constitution provides, “No bill of attainder, ex
post facto law or law impairing the obligation of contract
shall be enacted.”
Const 1963, art 1, § 10.
Information about retirement health care benefits for
Michigan’s
38.1391.
public
MCL
school
employees
38.1391(1)
states
is
set
that
forth
the
in
MCL
state
is
responsible for paying the monthly premiums for plaintiffs’
health care benefits.5
In Musselman I, supra at 516, this
Court stated that the obligation to pay retirement health
5
MCL 38.1391(1) provides, “The retirement system shall
pay
the
entire
monthly
premium
or
membership
or
subscription fee for hospital, medical-surgical, and sick
care benefits for the benefit of a retirant or retirement
allowance beneficiary who elects coverage in the plan
authorized by the retirement board and the department.”
10
care benefits “is a contractual right arising from the fact
that employees have worked in reliance on the statutory
promise that the board will pay earned health care benefits
of
any
member
receiving
Musselman
I,
supra
conceded
“that
at
a
retirement
519
n
retirement
19,
allowance.”
In
defendants
even
benefits
are
the
health
care
contractual benefits subject to Const 1963, art 1, § 10.”
Further,
“the
defendants
conceded
that
these
statutes
create a right to receive health benefits that may not be
impaired.”
The
Musselman I, supra at 505 n 1.
statute’s
intent
is
clear-in
exchange
for
receiving years of an employee’s services, the state will
pay
for
retirement
unconditional
health
guarantee
is
care
what
benefits.
many
This
public
school
employees and retirees have relied on throughout the years,
and the state has benefited from that reliance.
As stated
at the constitutional convention, “[T]here is no question
that
when
an
employee
today
takes
employment
with
a
governmental unit, he does so with the idea that there is a
pension plan or retirement system involved.”
Record,
Constitutional
Convention
1961,
p
1 Official
773.
The
majority’s position now allows the state to choose, at its
whim, not to fulfill its obligation under the contract even
though
employees
have
already
11
performed
the
responsibilities
necessary
to
fulfill
their
obligations
under the contract.
The
state
did
not
offer
retirement
health
care
benefits to public school employees to be charitable; it
did so to remain competitive in the marketplace.
Official
Record,
Constitutional
Convention
1961,
See 1
p
773.
And public school employees do not “receive” these benefits
for free.
money,
Because retirement health care benefits cost
the
monetary
compensation
for
public
school
employees had to have been factored into the equation.
It
is unreasonable to now claim that public school employees,
who received less compensation because of the benefits they
believed they would receive when they retired, are now no
longer entitled to the health care benefits they worked to
receive.
Stability in retirement benefits is likely at
least part of the reasons why many people chose to accept a
position with the public schools or stay in that position,
and it is untenable to tell these employees and retirees
that it was for naught.
The
majority
attempts
to
buttress
its
argument
by
noting the definition for “compensation” provided by MCL
38.1303a(1).
However, the definition of “compensation” in
MCL 38.1303a does not indicate that retirement health care
benefits
are
not
to
be
considered
“accrued
financial
benefits” or are not contractual obligations that the state
12
must fulfill.
The items listed in MCL 38.1303a are used to
determine a retiree’s monthly cash allowance.
MCL 38.1309; MCL 38.1379; MCL 38.1384.
See, e.g.,
However, this does
not mean that the state is absolved of its responsibility
to fulfill its obligations.
The majority even states the
fundamental concept that is critical to the analysis of
this issue:
“Specifically, a public school employee can
become contractually entitled to ‘compensation’ by first
performing
health
services.”
care
Ante
benefits
for
at
30.
public
Because
school
retirement
employees
are
deferred compensation, see ante at 17, I fail to comprehend
how the majority can justify its misapplication of a basic
contract principle. I am quite certain that it comes as a
surprise to the over 140,000 public school employees that
their retirement health care benefits are nothing more than
a
“policy
decision”
that
the
Legislature
can
choose
to
alter or eliminate at its whim.
To many retirees, the
health
through
care
benefits
they
receive
their
pension
plan are every bit as important, if not more so, than the
monthly cash allowance they receive through their pension
plan.
Public school employees surely did not envision that
they were afforded no protection against their retirement
health care benefits being capriciously eliminated.
13
The
provision of health care benefits for retirees is not a
gratuitous undertaking by defendants.6
It is a benefit that
is provided to plaintiffs in exchange for years of service.
Defendants are not altruistically giving plaintiffs these
benefits, plaintiffs earned them through years of hard work
and dedication.
Plaintiffs fulfilled their obligations,
and the state should fulfill its obligation.
Finally,
contrary
to
the
majority’s
panic-stricken
response to the dissent, the Constitution and our system of
government are not under attack merely because I disagree
with the majority over the interpretation of the words of
the Constitution and the applicable statute.
the
majority’s
attempt
to
distract
the
Regardless of
reader
from
the
issues at hand, reading the plain words of the statute to
indicate
that
a
contract
was
made
with
public
school
employees and retirees does not mean that no legislative
action can ever be amended or repealed.
It does not mean
that
altered,
welfare
benefits
could
majority’s rhetoric proclaims.
6
never
be
as
the
It merely means that when
In Ramey v Pub Service Comm, 296 Mich 449, 462; 296
NW 323 (1941), this Court held that vacation with pay is
not a gratuity—it is compensation for services rendered.
If paid vacation time is not considered a gratuity, then I
cannot fathom how retirement health care benefits can be
considered
a
gratuity
when
they
are
part
of
the
consideration that was exchanged for the years of service
provided by public school employees.
14
reading this statute, it is clear that the words chosen by
the Legislature were meant to oblige the state to provide
the retirement health care benefits that were promised to
public school employees.
While
battles
the
are
majority
fought
in
accurately
the
states
Legislature,
that
it
benefit
inaccurately
states that benefits “won” can then be changed at the whim
of
a
subsequent
legislature.
Once
benefits
have
been
guaranteed to workers and the workers have served the state
in
reliance
on
them,
it
is
unconstitutional
to
substantially impair the receipt of these earned benefits.
The
dissent
unremarkable.
states
a
concept
that
is
really
quite
The government, just like any other party to
a contract, must fulfill its obligation.
When a public
school
reliance
employee
has
worked
for
years
in
on
a
promise of retirement health care benefits, our system of
government is not challenged by the simple notion that the
state must provide these benefits.
III. ADDITIONAL DISCOVERY IS NECESSARY TO PROPERLY ASSESS
WHETHER DEFENDANTS’ ACTIONS CREATE A SUBSTANTIAL IMPAIRMENT
OF PLAINTIFFS’ CONTRACTUAL RIGHTS
Because
plaintiffs’
retirement
health
care
benefits
are a contractual right, the next step is to determine
whether
the
increases
in
plaintiffs’
copayments
and
deductibles substantially impaired plaintiffs’ contractual
rights. Romein v Gen Motors Corp, 436 Mich 515, 534; 462
15
NW2d 555 (1990).
If plaintiffs’ contractual rights are
impaired, the impairment must be the result of a legitimate
public purpose.
Id. at 535.
Finally, the means chosen to
carry out the public purpose must be reasonable.
I
must
first
address
defendants’
argument
that
the
legitimate public purpose of the increases is to ensure
that
there
children.
for
children
that
priorities.
the
sufficient
school
funds
available
for
I believe that ensuring high quality education
our
purpose
are
is
should
a
valuable
be
one
of
and
our
worthwhile
public
state’s
highest
However, defendants’ argument essentially pits
quality
of
education
for
school
children
against
providing adequate health care benefits for retirees.
Yet
meeting the needs of school children and meeting the needs
of retirees are not mutually exclusive.
While it may be
challenging, to say the least, to determine the best way to
meet the needs of children and retirees, it does not mean
that the commitment made to our state’s retirees can be
ignored.
Merely because meeting our responsibilities is
difficult does not mean that our responsibilities can be
abandoned.
Plaintiffs’
retirement
health
legitimate
care
expectations
benefits
will
be
are
that
continued
and
plaintiffs’ portion of the costs for these benefits will
not be significantly altered.
16
It is not sufficient for
defendants
to
pay
the
“entire
defendants
disproportionately
monthly
increase
premium”
the
amount
if
that
plaintiffs must pay for their deductibles and copayments.
Moreover, increasing the amount that plaintiffs must pay
over time can certainly amount to a substantial impairment
if
defendants
do
in
increments
what
they
would
not
be
allowed to do in one large adjustment.
The amount of copayments and deductibles is linked to
the
amount
of
the
monthly
premiums.
By
increasing
copayments and deductibles to extremely high proportions,
the defendants could essentially avoid paying any monthly
premium.
That would not fulfill the terms of the contract.
While the statute does not specifically state the amount
that the state must pay, like any contract, the words used
by
the
Legislature
must
intent of the parties.
be
construed
to
ascertain
the
See Sobczak v Kotwicki, 347 Mich
242, 249; 79 NW2d 471 (1956).
Whether
there
has
been
a
substantial
impairment
is
largely a factual question that is better resolved after
additional discovery, especially because there have been
claimed inaccuracies in some of the documents submitted by
defendants.
It
is
reasonable
that
the
amount
that
plaintiffs must pay will increase in logical proportion to
the amount they have historically paid.
plaintiffs
raise
valid
concerns
17
about
However, because
the
accuracy
of
reports submitted by defendants, I believe it is imprudent
to determine on the basis of what may amount to be an
inadequate record whether the increases pose a substantial
impairment.
IV. CONCLUSION
The years of dedication that public school employees
and retirees have committed to educating and caring for the
children of our state are worth more than empty promises
provided to them by the majority’s approach.
I believe
that
by
retirement
school
that
employees
are
or
health
care
constitute
protected
diminishment
retirement
health
by
benefits
“accrued
our
financial
Michigan
impairment.
care
earned
I
benefits
earned
benefits”
Constitution
further
by
public
believe
public
from
that
school
employees are a contractual right created by statute, and
whether this contractual right was substantially impaired
cannot be determined without further review by the lower
courts.
Accordingly, I respectfully dissent.
Michael F. Cavanagh
Marilyn Kelly
18
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