Alberta Studier v. Michigan Public Schl Emp Retirement Bd

• Court: Michigan Supreme Court
• Decided: June 28, 2005
• Docket: 125765
• Status: Published

Opinion

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).

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.

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.

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).

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

(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).

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.

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.

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.

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.”

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.

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.)

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.

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

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.]

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).

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 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).

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 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), 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 US 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 US 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 US 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 US 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

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.)

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.

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.

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.

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).

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.

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.

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.

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

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,

v No. 125765

MICHIGAN PUBLIC SCHOOL EMPLOYEES' RETIREMENT BOARD, MICHIGAN PUBLIC SCHOOL EMPLOYEES' RETIREMENT SYSTEM, DEPARTMENT OF MANAGEMENT AND BUDGET, and TREASURER OF MICHIGAN,

ALBERTA STUDIER, PATRICIA M. SANOCKI, MARY A. NICHOLS, LAVIVA M. CABAY, MARY L. WOODRING, and MILDRED E. WEDELL,

V No. 125766

MICHIGAN PUBLIC SCHOOL EMLOYEES’ RETIREMENT BOARD, MICHIGAN PUBLIC SCHOOL EMPLOYEES’ RETIREMENT SYSTEM, DEPARTMENT OF MANAGEMENT AND BUDGET, and TREASURER OF MICHIGAN,

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.” 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

ALBERTA STUDIER, PATRICIA M. SANOCKI, MARY A. NICHOLS, LAVIVA M. CABAY, MARY L. WOODRING, and MILDRED E. WEDELL,

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,

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.

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.

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.]

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.”).

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.]

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.

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.”

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

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

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 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.

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