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Schuette Preserves Right to Defend Pension Clause in Constitution at U.S. Court of Appeals for 6th Circuit

Contact: Joy Yearout 517-373-8060

May 27,  2014

LANSING Attorney General Bill Schuette today filed a statement in support of the Pension Clause of the Michigan Constitution for the pending bankruptcy appeal filed by retirees in the U.S. Court of Appeals for the 6th Circuit.

"I recognize the hardship bankruptcy has caused, and the hardships facing pensioners, whose future is uncertain," said Schuette.  "The City's pensioners have a legal right to vote on this grand bargain, and I support their authority to decide these complex issues within the democratic process.  Pensioners may choose to waive their Constitutional protections, make adjustments to their retirement plans, and settle this case."

"However, if a settlement is not reached, I will continue to aggressively defend the pension clause in the Michigan Constitution, Article 9, Section 24, in bankruptcy court, and at the U.S. Court of Appeals."

In the Statement of Support for Oral Argument filed today, Schuette notes Michigan taxpayers are not on the hook for the City's potential pension fund shortfalls [emphasis added below]:

…the latter portion of Michigan's Pension Clause must be given effect, with the result that accrued financial benefits cannot be treated as ordinary contractual obligations, but are protected from any unilateral diminishment or impairment.  Applying the text of the Pension Clause as written, the City may not ask the bankruptcy court to approve a plan of adjustment that reduces pension benefits over the objection of members.  The City's duty under the Pension Clause is underscored by the second paragraph, which directs the City to fund accruing financial obligations on a yearly basis.  And it is the City alone, not the State or its taxpayers, that bears this obligation.  1976 Mich. Op. Att'y Gen. No. 5076, pp. 563, 565 (Aug. 9, 1976) ("the state is not ultimately liable for funding or paying the benefits of local government retirement programs.") (Pp. 23-24)

 

Pensioners May Voluntarily Waive Constitutional Rights

Earlier this month, Schuette announced an agreement with the City of Detroit to extend the deadline for his comments on the city's proposed Plan of Adjustment until the city's pensioners, including retired cops and firefighters, have had the opportunity to vote on whether they will accept the proposed Plan. Schuette is preserving the right to file a statement in defense of Michigan's pension clause of the state Constitution, depending on the pensioners' vote, which is scheduled to end on July 11, 2014.   The order and briefing schedule allows for Schuette to file comments on the Plan on two dates: June 22, 2014 and July 17, 2014.

In keeping with past filings, Schuette noted that honoring the pensioners' vote on the proposed Plan of Adjustment is consistent with existing legal precedent allowing certain rights to be subject to negotiation (Cranford v. Wayne County, Stone v. State).   Under the Pension Clause, the pension plans are Constitutional obligations of the City.  

As noted in the Attorney General's original statement filed in August 2013, the freedom to contract permits parties to mutually modify their existing agreements through a formal waiver acknowledging voluntary relinquishment of a known right or advantage.  In that vein, the Michigan Supreme Court has recognized that "[t]here is no question that a constitutional right can be contractually relinquished[.]"  Stone v. State, 651 N.W.2d 64, 66 (Mich. 2002).

[Copy of Brief Addressing Michigan's Constitutional Protections of Vested Pensions]

 

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