Mich. Unions Win Benefits Battle

October 1, 2012 (PLANSPONSOR.com) – A coalition of unions in Michigan won a lawsuit against a 2011 law that requires state employees to opt out of their defined benefit pension plans or start contributing 4%.

Ingham County Judge Joyce Draganchuk said Public Act 264 infringed on the constitutional authority of the Michigan Civil Service Commission to set compensation for state employees, reported the Detroit Free Press.

“By mandating that members contribute 4% of their compensation to the empyees’ savings fund, the Legislature reduced the compensation of classified civil servants—an act that is within the sphere of authority vested in the Civil Service Commission,” Draganchuk said in a 12-page opinion.

The administration “strongly disagrees” with the ruling and is assessing its options, said Kurt Weiss, spokesman for the Department of Technology, Management and Budget, according to the news report. He argued the law is expected to save the state $5.6 billion in long-term liabilities and ensure “the post-retirement promises made to our employees can be kept.”

A 2010 law requiring state employees to pay 3% toward retiree health care was earlier declared unconstitutional on the same grounds. The Ingham County court ruling was upheld on appeal.

State officials argue that this case is different because employees could choose to switch to a 401(k)-style retirement plan if they didn’t want to pay the 4%. Draganchuk disagreed, saying “PA 264 requires every member who elects to remain in a defined benefit plan to pay 4%.”

The suit was filed in February by five Michigan unions (see “Mich. Unions File Lawsuit Against Changes in State Retirement Plans”).