LANSING – Teachers unions quickly won a temporary restraining order on part of the new law overhauling public school employee retirement benefits as they filed litigation before Governor Rick Snyder had even signed the law.

Ingham Circuit Judge Rosemarie Aquilina, ruling from the bench, placed a restraining order against the state from forcing public school employees to decide by October 26 whether to remain in the pension and retiree health care systems. Lawsuits were filed against SB 1040 (PA 300, immediate effect) by the American Federation of Teachers-Michigan and the Michigan Education Association. AFT’s lawsuit was actually filed Friday with the knowledge Snyder would sign the bill Tuesday.

“The judge agreed that it’s far too short a period of time to give people to make decisions that are that important for the remainder of their lives,” AFT-Michigan President David Hecker said.

Overall, the AFT litigation asserts violations of contract law as well as the Michigan and U.S. constitutions.

“It’s our contention that all of these people were hired by public school employers with a very clear idea of what their retirement benefits are going to be,” said Mark Cousens, AFT-Michigan’s attorney. “That breaches a very clear and reasonable understanding of what all these public employees had of what their retirement is going to be.”

MEA officials could not be reached to discuss its lawsuit.

Snyder, after signing the bill, professed little concern about the litigation, noting much of what he does winds up in court, but ultimately is found to be legal.

“We feel good about our litigation position in these matters,” he said. “I think we’ll be fine from the judicial point of view.”

Kurt Weiss, spokesperson for the Department of Technology, Management and Budget, said administration attorneys are reviewing Aquilina’s order. The parties will next appear in Aquilina’s courtroom November 28.

Among the key pieces in the bill besides the revised 3 percent contribution as described above:

Retirees will pay 20 percent of the cost of their health insurance premium, up from the current 10 percent, if they are 64 or younger on January 1, 2013. For those 65 years old or older on that date, the premium would remain 10 percent.

Elimination of retiree health insurance for new employees in favor of a 401(k) or 457 plan that includes an employer match of up to 2 percent of compensation plus a lump sum deposit of either $1,000 or $2,000 upon termination of employment. Current employees also could opt to leave the system for this same type of defined contribution plan (one of the choices that must be made by October 26).

Increase of pension contributions for employees in the basic plan from 0 to 4 percent and for those in the Member Investment Plan to 7 percent (those in the MIP plan now pay between 3 and 6.4 percent). Employees can avoid the higher contribution if they leave the pension system for defined contribution or accept a lower multiplier (one of the choices that must be made by October 26).

Capping of school district costs to the system at 24.46 percent of payroll.

The bill also calls for a study to be completed by November 15 by a third party reviewing the costs associated with moving all new employees to a defined contribution system instead of the current hybrid system that provides some pension and some defined contribution benefit. That study also will examine how the 24.46 percent should be assessed, on payroll as is now the case or on expenditures, a move that would help the system through the loss of service employees as districts contract out services like food, transportation and janitorial.

“The way to enhance the education of our children is not to undercut the retirement of our teachers, it’s not to take away retiree health care from new teachers,” Hecker said. “But that’s all part of what has been going for the last two years. Legislation after legislation trying to quiet teacher voices.”

Meanwhile, Snyder said Tuesday that his administration will appeal its loss in the Court of Appeals on the constitutionality of a law that deducts 3 percent of public school employees’ pay to cover the cost of retiree health care.

Some 227,000 public school employees have put more than $508 million combined into an escrow fund since the deduction took effect two years ago while awaiting the outcome of the litigation.

Snyder made the announcement after signing into law SB 1040 that overhauls public school employee retirement benefits far beyond the 2010 law signed by then-Governor Jennifer Granholm that set up the 3 percent contribution. Under SB 1040, the 3 percent contribution continues, but would stay with the specific employee instead of going into a trust for all employees like the previous law. Additionally, employees could avoid the 3 percent contribution if they agreed to give up retiree health insurance coverage in exchange for a 401(k)-style plan to fund such needs (one of the October 26 deadline dates).

“If anything, this law strengthens the position for the 3 percent contribution,” he said. “We are clearly identifying that 3 percent is that person’s money and goes into an account for their future retirement costs. The second thing is we’re offering an option for employees that don’t want to take post-retiree medical and they would have that 3 percent set aside if they would rather go to another alternative and they want to go to a matching program with us.”

Hecker voiced disappointment at the administration’s decision.

Cousens said the changes made by SB 1040 fail to address the legal defects cited by the Court of Appeals in the original 3 percent contribution.

Signing SB 1040 will eliminate $15 billion out of the $45 billion in unfunded liability in the Michigan Public School Employees Retirement System, the governor said.

Snyder said he is looking forward to the study. Several Senate Republicans pushed hard to move now on switching all new employees to defined contribution, but could not muster enough support. Budget Director John Nixon had urged the study be done first and said the hybrid system actually is less costly than defined contribution.

“There is more work to be done,” Snyder said.

Sen. Roger Kahn (R-Saginaw Township), who also resisted moving to defined contribution prior to a study, said the same.

“SB 1040 is not the end of school financial reform in Michigan,” he said. “It’s not even the end of the beginning. It’s only a start.”

Some key components of the bill were dropped as it moved through the Legislature that would have further reduced the amount of unfunded liability. Snyder was asked why he was celebrating the elimination of $15 billion in unfunded liability when $30 billion still remained.

“We took care of 15 of the 45 and we are putting in place a system to fund the other 30,” he said, referring to the prefunding component. “This is huge fiscal responsibility from the state’s side.”

But Snyder also said wiping out the other $30 billion would take “a number of years.”

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