Michigan reforms to retiree benefits upheld in 6-0 state Supreme Court decision

Illinois lawmakers now have at least one model on which to base necessary reforms.

Illinois’ state pension and retirement plans are in dire straits. The only way to fix the problems is with plan changes.

Michigan did just that in 2012. And in a 6-0 decision on April 8, the Michigan Supreme Court upheld the 2012 state law requiring teachers to contribute more toward their pension plans. The Detroit Free Press reported on the decision:

“The law, backed by Gov. Rick Snyder and the Republican-controlled Legislature, was intended to cut an estimated $45-billion unfunded liability in the Michigan Public School Employees Retirement System by more than $15 billion.

“The American Federation of Teachers and the Michigan Education Association unions argued the law impaired contracts and amounted to uncompensated takings of pension benefits.

“But both the Michigan Supreme Court and the appeals court said the law doesn’t violate a Michigan constitutional provision protecting earned pension benefits, because only future benefits are affected. Also, unlike an earlier law that mandated 3% contributions toward health care, the 2012 law provides an opt-out provision, the court said.”

 A model for cash-strapped states

What passes constitutional muster in Michigan may not do so in Illinois, where the state Supreme Court ruled in July 2014 against a previous attempt to reform health-insurance costs. But the unanimous ruling provides a model for what may work elsewhere. This is good news for all cash-strapped states.

In Illinois, Gov. Bruce Rauner wants changes to insurance programs for state workers and retirees. Health insurance for active state workers and retirees is being targeted for big savings in Rauner’s budget plan.

“By bringing health care benefits more in line with those received by the taxpayers who pay for them, we save an additional $700 million,” Rauner said in his Feb. 18 budget address.

His budget also calls for an end to state subsidies to the health-insurance programs for retired downstate teachers and community-college workers.

Right path

Rauner is on the right path. Benefits must be reformed. For starters, Illinois need to move all employees going forward into 401(k)-style plans. Next, Illinois needs to address skyrocketing costs for those in defined-benefit plans.

Illinois state government would be wise to pursue changes that are likely to be upheld in court. In the wake of the Michigan court decision, state lawmakers now have at least one model on which to base reforms.