State Not Bound by Informational Pension Materials

The State of Michigan Court of Appeals recently reviewed the case of AFT Michigan v. State of Michigan and denied the plaintiffs’ appeal to a Court of Claims ruling. The plaintiffs, representative organizations of public school employees, had challenged amendments made to Michigan’s Public School Employees Retirement Act (PSERA) in 2012, which altered future health care and retirement benefit plans available to public school employees for service performed after December 1, 2012.

These amendments include the requirement that public school employees who had historically contributed nothing to their pensions would now be required to contribute a portion of their income to their pensions. In addition, these employees were asked to opt in or out of retiree health care benefits.

The plaintiffs sued the state, alleging that the amendments were a breach and diminishment of contract, unconstitutional diminishment of accrued financial benefits and a denial of substantive due process. The Court of Claims ruled in favor of the state, saying, “We have informed consent and there are a number of choices [for employees].” In regard to the plaintiffs’ claim that pension-related pamphlets published by the state constituted a contract, the Court of Claims ruled that the pamphlets were advisory in nature and included disclaimers, adding that they did not believe that “a pamphlet can be part of a contract.”

In their appeal of the Court of Claims ruling, the plaintiffs argued that the PSERA amendments impair “existing contractual obligations to pension and retiree health care benefits in violation of both the federal and state constitutions.” The appeals court disagreed with the plaintiffs, upholding the Court of Claims contention that the state was not bound by previously published materials, especially since these materials contained disclaimers such as “The law may change at any time altering the information in this booklet.”

According to the appeals court’s ruling, “The Court of Claims did not err in concluding that the documents did not form an enforceable contract. The pamphlets and brochures were simply an informational explanation of the then-existing formula. The state was not bound in perpetuity by its contents.”

The full text of the court’s decision can be found here.