Appeals court rules in 4% lawsuit

The Michigan Court of Appeals has upheld a lower court ruling that the key element of a law requiring state employees to pay 4% of their income in order to remain in the state’s defined benefit pension plan is unconstitutional.

But in an opinion released today, a three-judge panel rejected a judge’s finding that the entire state law which included the provision, Public Act 264 of 2011, violates the constitution.

Ingham County Circuit Judge Joyce Draganchuk struck down the law last October. The appeal judges sent the case back to her to sort out which parts of the law are valid and which are not.

But the panel unanimously agreed with Judge Draganchuk on the key point that changes to state employee compensation, including pension benefits, are to be made by the state Civil Service Commission, not the Legislature.

Those who ratified the state constitution of 1963 “would have considered ‘rates of compensation’ to include fringe benefits provided to civil service employees, and that would include the pension plan offered as part of the compensation package,” the panel said.

The law affected close to 20,000 state workers hired before 1997. State workers hired since then have gone into a 401(k) type pension plan, not a plan that guarantees certain defined benefits after retirement.

Gov. Rick Snyder and the Legislature approved the change as a way to cut the pension plan’s unfunded liability. State workers who didn’t want to pay the extra 4% would have to move to the defined contribution pension plan.