Alberta Studier v. Michigan Public Schl Emp Retirement Bd ( 2005 )

Michigan Supreme Court
Lansing, Michigan
Chief Justice: Justices:
Opinion 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,
v o. 125765
N
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 o. 125766
N
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.
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
this issue.1 The second issue is whether the statute
establishing the health care benefits, MCL 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. The Court of Appeals determined that
MCL 38.1391(1) established a contract, but that the
Legislature’s subsequent changes were insubstantial and,
thus, there was no constitutionally impermissible
impairment of contract. 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
I. FACTUAL HISTORY AND PROCEDURAL POSTURE
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. Since that time, participants in the plan
have been 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 of health care and
advances in medical technology. The present case arises
from the two most recent amendments made to the plan by the
board. The first amendment became effective on January 1,
2000, and increased the amount of the deductibles that
retirees are required to pay. The second 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-of-
pocket 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-of-
pocket 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 prohibits the state or a political
subdivision from diminishing or impairing the “accrued
financial benefits” of any pension plan or retirement
system it offers. 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 sides moved for summary disposition on these
counts and the trial court granted defendants’ motion
pursuant to MCR 2.116(C)(10). With respect to count I, the
trial court rejected 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 noting the similarity between the MPSERS
health care plan and those offered by other states,
concluded that MCL 38.1391(1) does establish a 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 appealed to the Court of Appeals, which
affirmed the trial court’s ruling entirely. Thus, the
panel held that health care benefits are not “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’ contractual right to receive health care
benefits. Defendants filed an application for leave to
appeal, seeking to challenge the Court of Appeals
conclusion that MCL 38.1391(1) vests plaintiffs with a
contractual right. We granted both applications 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. These
issues are reviewed de novo by this Court. 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,” and require them to fund
“accrued financial benefits” during the fiscal year for
which corresponding services are rendered. To apply this,
we are called upon to determine what is an “accrued
financial benefit” and, in particular, whether health care
benefits are such a benefit.
This Court has twice considered the issue whether
health care benefits fall within the ambit of “accrued
financial benefits” protected by art 9, § 24. 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 “accrued financial benefits.” Focusing
primarily on statements by some of the constitutional
delegates who supported art 9, § 24 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 I, supra at 513. Justice Riley, joined by
4
Justice Weaver did not participate. 448 Mich. at 503.
5
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, dissented from this portion of the
majority’s analysis primarily on the basis of her
conclusion that the term “financial” is commonly understood
to connote monetary obligations and, thus, the term
“financial benefits” does not encompass health care
benefits. 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 have intended the phrase “accrued financial
benefits” to include health care benefits because the
pension and retirement systems in place at the time art 9,
§ 24 was adopted consisted only of monthly stipends. Id.
at 579-580. Justice Weaver further concluded 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 at 580, quoting 1 Official Record, Constitutional
9
Convention 1961, pp 771, 773-774 (delegate Van Dusen).
Thus, with six justices splitting three to three on the
issue, the question whether health care benefits are
included within the phrase “accrued financial benefits”
remained unresolved by this Court. However, as did the
Court of Appeals in the present 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. Musselman
I, supra at 526. Indeed, we recently stated the correct
standard to be 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 order to reach the objective of discerning the
intent of the people when ratifying a 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; 685 NW2d 174 (2004). In this case, the term
“benefits” is modified by the words “financial” and
“accrued.” Because these adjectives are not technical,
legal terms that would have been ascribed a particular
meaning by those learned in the law at the 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.” At the time that our
1963 Constitution was ratified, the term “accrue” was
commonly defined as “to increase, grow,” “to come 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 increase or a decrease,” “gather,
collect, accumulate,” Webster’s Third New Int’l Dictionary
(1961), p 13, or “to happen or result as a natural growth;
arise in due course; come or fall as an addition or
8
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 Health
care benefits, however, are not benefits of this sort.
Simply stated, they are not accrued. Under 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 art 9, § 24 only protects those financial
benefits that increase or grow over time is 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 second clauses of that provision.
Specifically, the first clause contractually binds the
state and its political subdivisions to pay for retired
public employees’ “accrued financial benefits . . . .”
Thereafter, the second clause seeks to ensure that the
state and its political subdivisions will be 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 follows that “accrued” financial benefits
consist only of those “[f]inancial benefits arising on
account of service rendered in each fiscal year . . . .”12
Moreover, health care benefits do not qualify as
“financial” benefits. At the time Const 1963, art 9, § 24
12
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, p 453, or “relating to finance or
financiers,” Webster’s, supra, p 851, and “finance” was
commonly defined as “pecuniary resources, as of . . . an
individual; revenues,” Random House, supra; accord
Webster’s, supra. “Pecuniary,” in turn, 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. Accordingly, the
ratifiers of our Constitution would have commonly
understood “financial” benefits to include only those
benefits that consist of monetary payments, and not
benefits of a nonmonetary nature such as health care
benefits.
We further point out that, even if the phrase
“accrued financial benefits” were ambiguous and, thus, it
would be permissible or necessary to consult the
statements of delegates during the constitutional
convention debates, the majority’s approach in doing so
in Musselman I was fundamentally flawed. Specifically,
although this Court has continually recognized that
constitutional convention debates are relevant 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 used in drafting the provision to aid in
discerning what the common understanding of those 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 statement by delegate Van Dusen is directly
relevant to discerning the common understanding of the
words “accrued” and “financial” at the time of the
constitutional convention and, indeed, reinforces our
conclusion that the ratifiers would 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. Stated simply, there is no reason to believe
that the 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 nor “financial”
benefits as those terms were commonly 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. However, we conclude
that MCL 38.1391(1) does not create for retirees a
contractual right to receive health care benefits 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 system” refers to the MPSERS. MCL
38.1307(8).
19
“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 their power to enact, amend, or repeal
legislation. Therefore, a fundamental principle 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, 615-
616; 640 NW2d 849 (2002), quoting Atlas v Wayne Co Bd of
Auditors, 281 Mich. 596, 599; 275 N.W. 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
N.W. 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 U.S. 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 its tension with the
constitutional prohibitions against the impairment 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 in order to protect the sovereign
prerogatives of state governments, id. at 874-875. A
necessary corollary of these limitations that has 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 U.S. 451, 465-466; 105
S. Ct. 1441; 84 L. Ed. 2d 432 (1985); In re Certified Question
(Fun ‘N Sun RV, Inc v Michigan), 447 Mich. 765, 777-778;
527 NW2d 468 (1994). 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 U.S. 300; 16 L. Ed. 602] (1861) (“Such an
interpretation is not to be favored”). This well-
established 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 U.S. 420; 9 L
Ed 773] (1837)). Thus, the party asserting the
creation of a contract must overcome this well-
founded 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 order for a statute to form the basis of a
contract, the statutory language “must be ‘plain 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 U.S.
23
201, 208; 24 S Ct 241; 48 L Ed 406 (1904). If the
statutory language “‘provides for the execution 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 U.S. 379, 386-387; 24 S. Ct. 107;
48 L Ed 229(1903). In addition to the absence of
contractual language, some federal courts, when
interpreting statutes involving public-employee 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 that legislatures frequently need to
utilize that power to modify benefit programs and
compensation schedules. Id. 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).” Id. at 27-
28 (citations omitted). In the area of 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 created contractual rights “if ‘the
Legislature did not covenant not to amend the
legislation.’” In re Certified Question, supra at 778,
quoting Franks v White Pine Copper Div, 422 Mich. 636, 654;
375 NW2d 715 (1985). Finally, in addition to the absence
of such clear and 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 its legislative powers by entering into a
contractual agreement to provide retirement health care
benefits to public school employees when it enacted MCL
38.1391(1). Nowhere in MCL 38.1391(1), or in the rest of
the statute, 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 Had
the Legislature intended to surrender its legislative
powers through the creation of contractual rights, it would
have expressly done so by employing such terms. Indeed, by
its plain language, the statute merely shows 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. However, nowhere in the statute did
21
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 preclude the board and the department from
amending whatever plan they authorize.23 Additionally,
nowhere in the statute did the 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. Thus, plaintiffs themselves, by the positions
they have taken, have effectively recognized that MCL
38.1391(1) merely established a legislative policy 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 between the school
system and public school employees. Specifically, a public
school employee can become contractually entitled to
“compensation” by first performing services. However,
payment of health care premiums by the MPSERS under MCL
38.1391(1) is not among the list of items that the
Legislature specifically set forth as being part of an
employee’s “compensation” in MCL 38.1303a(2)(a) through
(h). Additionally, and more importantly, MCL 38.1303a(3)
expressly lists items that are not included within the
definition of compensation and includes, among other
things, “[p]ayments for hospitalization insurance and life
insurance premiums,”29 and “[o]ther fringe benefits paid by
and from the funds of employers of public school
employees.”30 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). Accordingly, it seems evident that the way
to understand 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 the Court of Appeals
conclusion to the contrary. 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 of an American
citizen is the right to self-government. 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 . . . .” Northwest Ordinance of 1787,
art V. 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 responding to the then
majority can modify or undo. 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 legislature cannot
33
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. This is
the tension that we have attempted to 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 is not. Will they? No one should be
surprised that benefit battles are fought out in the
Legislature. On the contrary, those who could 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. Accordingly, we affirm the Court of
Appeals on this issue. We further hold that the
Legislature did not intend to create a 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 reverse the Court of Appeals determination on
this issue. 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.
Clifford W. Taylor
Maura D. Corrigan
Robert P. Young, Jr.
Stephen J. Markman
35
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 retirees are “accrued financial benefits” under
Const 1963, art 9, § 24, I concur with the majority
conclusion that they are not. I agree with the majority
that “the ratifiers of our Constitution would have commonly
understood ‘financial’ benefits to include only those
benefits that consist of monetary payments, and not
benefits of a nonmonetary nature such as health care
benefits.” Ante at 15. 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.’” Id. at
527. When the Court granted rehearing in 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 to determine if a substantial impairment
indeed occurred, I would remand for further review.
Accordingly, I respectfully dissent from the majority’s
position that public school employees and 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 already been addressed by this Court in
Musselman v Governor, 448 Mich. 503, 510; 533 NW2d 237
(1995) (Musselman I), and Musselman v 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 the state from amassing bills for pension
payments, including health care benefits, for 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 believe this interpretation is the one that the
people gave the constitutional provision when 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 money, would be offered as a
retirement benefit. 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 The constitutional
provision was meant to address all public employee
retirement systems; it is entirely 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, as the majority states, “accrue” means “to
increase, grow” and “to come into existence as an
enforceable claim; vest as a right.” Ante at 12 (citation
2
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 773-
774.3
3
The constitutional provision does two things:
(continued…)
7
When a public school employee has fulfilled his
commitment and is then entitled to receive health 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 be
(…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
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, even if the term “accrued financial
benefits” were viewed as a term more commonly used by
accountants and actuaries than by laypersons, its meaning
would still encompass retirement health care benefits. As
stated by the Governmental Accounting Standards 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, so that the contractual right of the
employee would be limited to the deferred compensation
4
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 Convention 1961, pp 773-774
(emphasis added). By any standard employed, the meaning of
the term “accrued financial benefits” encompasses
retirement health care benefits for 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 Law, or Law impairing the Obligation of
Contracts . . . .” US Const, art I, § 10, cl 1.
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 public school employees is set forth in MCL
38.1391. MCL 38.1391(1) states that the 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 a retirement allowance.” In
Musselman I, supra at 519 n 19, the defendants even
conceded “that retirement health care benefits are
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.” Musselman I, supra at 505 n 1.
The statute’s intent is clear-in exchange for
receiving years of an employee’s services, the state will
pay for retirement health care benefits. This
unconditional guarantee is what many 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.” 1 Official
Record, Constitutional Convention 1961, p 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 performed the
11
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. See 1
Official Record, Constitutional Convention 1961, p 773.
And public school employees do not “receive” these benefits
for free. Because retirement health care benefits cost
money, 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. See, e.g.,
MCL 38.1309; MCL 38.1379; MCL 38.1384. 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 services.” Ante at 30. Because retirement
health care benefits for public school 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 care benefits they receive through 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. The
13
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. Regardless of
the majority’s attempt to distract the 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 welfare benefits could never be altered, as the
majority’s rhetoric proclaims. It merely means that when
6
In Ramey v Pub Service Comm, 296 Mich. 449, 462; 296
N.W. 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 the majority accurately states that benefit
battles are fought in the Legislature, it 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 states a concept that is really quite
unremarkable. The government, just like any other party to
a contract, must fulfill its obligation. When a public
school employee has worked for years in reliance 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 are sufficient school funds available for
children. I believe that ensuring high quality education
for our children is a valuable and worthwhile public
purpose that should be one of our state’s highest
priorities. However, defendants’ argument essentially pits
the 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’ legitimate expectations are that
retirement health care benefits will be continued and
plaintiffs’ portion of the costs for these benefits will
not be significantly altered. It is not sufficient for
16
defendants to pay the “entire monthly premium” if
defendants disproportionately increase the amount 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 be construed to ascertain the
intent of the parties. 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. However, because
plaintiffs raise valid concerns about the accuracy of
17
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 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 further believe that
retirement health care benefits earned by public 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