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The following opinion is presented on-line for informational use only and does not replace the official version. (Mich Dept of Attorney General Web Site - www.ag.state.mi.us)



STATE OF MICHIGAN

FRANK J. KELLEY, ATTORNEY GENERAL


Opinion No. 6547

November 8, 1988

CONSTITUTIONAL LAW:

Const 1963, art 9, Sec. 24--reduction of final average compensation of judge member for retirement benefits computation purposes

RETIREMENT AND RETIREMENT SYSTEMS:

Municipal Employees Retirement System--reduction of final average compensation of judge member for retirement benefits computation purposes

County retirement system--reduction of final average compensation of judge member for retirement benefits computation purposes

There is no unconstitutional diminishment or impairment of an accrued financial benefit under Const 1963, art 9, Sec. 24, by virtue of a reduction of final average compensation of a judge member for retirement benefits computation purposes under the Municipal Employees Retirement System or a county retirement system to meet the requirements of MCL 38.814b; MSA 27.125(14b), and MCL 38.846: MSA 27.125(46).

Mr. Richard L. Beers

Executive Secretary

Judges' Retirement System

General Office Building

Lansing, Michigan 48909

You have requested my opinion on the following question:

Does an unconstitutional diminishment or impairment of an accrued financial benefit occur if a judge's final average compensation used for the purposes of computing a retirement benefit under the Municipal Employees Retirement System or a county retirement system is reduced to meet the requirements of MCL 38.814b; MSA 27.125(14b), and MCL 38.846; MSA 27.125(46)?

The judges' retirement act, 1951 PA 198, MCL 38.801 et seq; MSA 27.125(1) et seq, provides for a retirement system for members of the Supreme Court, the Court of Appeals, circuit courts, district courts, the Recorder's Court for the City of Detroit, the Common Pleas Court of the City of Detroit, probate courts (for judges elected or appointed and beginning service after December 31, 1982) and for certain other probate judges, the State Court Administrator, and certain state officers.

Section 14b(1) of the judges' retirement act, as added by 1981 PA 10, MCL 38.814b(1); MSA 27.125(14b)(1), provides:

"Beginning September 1, 1981, the sum of the final salary determined for each judge as a member of the retirement system established pursuant to this act and the salary or compensation figure used as the basis for determining the judge's retirement benefit as a member of a retirement system which was established pursuant to either section 12a of Act No. 156 Public Acts of 1851, as amended [a county retirement system], ... or which is subject to Act No. 443 of the Public Acts of 1980, ... shall not exceed the judge's total annual salary payable from all sources at the time of his or her retirement. This subsection shall not be construed to diminish or impair an accrued financial benefit." (1)

Language to the same effect appears in 1980 PA 443, Sec. 6, MCL 38.846; MSA 27.125(46), which applies to all political subdivisions of the State which offer a retirement plan in which a judge may be a member. That section provides:

"Beginning September 1, 1981, the sum of the salary or compensation figure used by a retirement plan offered by a local unit of government subject to this act as the basis for determining a judge's retirement benefit as a member of that plan and the final salary determined for the judge pursuant to ... [the judges' retirement act] or ... [the probate judges retirement act], if the judge is a judge of the probate court, shall not exceed the judge's total annual judicial salary payable from all sources at the time of his or her retirement. This section shall not be construed to diminish or impair an accrued financial benefit."

The legislative admonition in both MCL 38.814b(1); MSA 27.125(14b)(1), and MCL 38.846; MSA 27.125(46), that the provisions not be construed to diminish or impair an accrued financial benefit, is undoubtedly a reference to Const 1963, art 9, Sec. 24, paragraph 1, which 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."

The term "accrued financial benefits" means the right to receive a retirement allowance upon retirement based upon service performed. Kosa v State Treasurer, 408 Mich 356, 370-371; 292 NW2d 452, 459-460 (1980). Thus, for example, the unilateral imposition by a city of a minimum age requirement for receipt of vested pension benefits results in a diminution and impairment of benefits related to work already performed and violates Const 1963 art 9, Sec. 24. Ass'n of Professional & Technical Employees v Detroit, 154 Mich App 440, 446-447; 398 NW2d 436 (1986). (2)

This is, however, not to say that the Legislature or local units of governments are forbidden from ever altering the provisions of retirement systems. In Advisory Opinion re Constitutionality of 1972 PA 258, 389 Mich 659, 633-664; 209 NW2d 200 (1973), the court considered whether a statutorily required increase in retirement contributions (with an annual maximum increase of $84.00) by certain public school employees to equalize retirement contributions for all retirement system members without any corresponding increase in benefits was unconstitutional. The court ruled:

"Under ... [Const 1963, art 9, Sec. 24] the Legislature cannot diminish or impair accrued financial benefits, but we think it may properly attach new conditions for earning financial benefits which have not yet accrued. Even though compliance with the new conditions may be necessary in order to obtain the financial benefits which have accrued, we would not regard this as a diminishment or impairment of such accrued benefits unless the new conditions were unreasonable and hence subversive of the constitutional protection.

"We do not consider the increase of $84 per year in the contributions to be paid by some employees to equalize their contributions with the contributions of other employees in the retirement system to have the effect of subverting the constitutional provision." Advisory Opinion re Constitutionality of 1972 PA 258, supra, 389 Mich at 663-664.

Letter opinion of the Attorney General (Mr. Stephen Van Note, Executive Secretary to the Probate Judges Retirement System, [April 20, 1977] concluded that the Legislature could constitutionally impose a new limitation on benefits (i.e., that all public pensions provided to a probate judge shall not exceed 2/3 of final salary) to the extent the limitation only reduced benefits (enacted at the same time) above the former maximum benefit level provided by the retirement system. The opinion emphasized that in such cases, the limitation did not cause any retrospective diminution of accrued retirement benefits.

With that background, your question may now be considered. MCL 38.814b; MSA 27.125(14b), and MCL 38.846; MSA 27.125(46), both mandate that the salary figure used by a local retirement system to compute retirement benefits for a judge, when added to the salary figure used by the Judges' Retirement System for that same judge, may not exceed the judge's final salary. These parallel requirements are intended to prevent members, starting September 1, 1981, of the Judges' Retirement System from "double counting" their salary used for computing retirement benefits under the various retirement systems to which they may be members. (3)

This prohibition on "double counting" must be placed in historical perspective. In the past, the State has provided, pursuant to MCL 600.555; MSA 27A.555, an annual salary for circuit judges. (4) Until 1981, only the salary paid by the State to the circuit judge was used to compute a judge's benefits under the judges' retirement act.

In addition to this salary, the State has also provided reimbursement to the counties for their additional salary payments to judges by what is known as "state salary standardization payments." As part of the effort to have the State eventually assume the cost of funding the "one court of justice" throughout the State of Michigan, the State has gradually increased state standardization payments during the 1980's. In line with that effort, the Legislature adopted 1980 PA 441, which amended the judges' retirement act to add MCL 38.814a; MSA 27.125(14a). (5) This amendment allowed judges to elect for the first time to add $2,250 of the state salary standardization payment to their final state salary for purposes of computing judges' retirement act benefits. MCL 38.814a; MSA 27.125(14a), was amended by 1982 PA 510 so that $2,250 was automatically applied toward the computation of state retirement benefits, unless within 30 days from taking office, a judge elected otherwise. 1982 PA 510 also added MCL 38.814c; MSA 27.125(14c), to provide for an additional portion (i.e., up to forty percent) of the state standardized payment to be applied toward final salary in computing state retirement benefits. (6)

As the Legislature increased the base upon which retirement benefits were provided under the judges' retirement act, it took care that judges should not receive a windfall in retirement benefits. It, therefore, enacted a system of restrictions on the computation of judges' retirement benefits:

1. MCL 38.814b; MSA 27.125(14b), and MCL 38.846; MSA 27.125(46), which require the reduction of the salary or compensation figure used by a local retirement plan, if that figure, when added to the figure used under the judges' retirement act or the probate judges retirement act, exceeds the judge's final salary.

2. MCL 38.814a; MSA 27.125(14a), which mandates that if $2,250 of the State's salary standardization payment is added to the judge's salary for the purposes of the judges' retirement act retirement benefits, that figure shall be subtracted from the final average compensation figure used to calculate the judge's combined county, city, or district control unit pension.

3. MCL 38.814c; MSA 27.125(14c), which requires that if the judge elects to convert forty percent of the state's salary standardization payment for use under the judges' retirement act, the final average compensation figure used to calculate the judge's combined county, city, or district control unit pension shall be reduced by the amount converted under that section.

4. MCL 38.842; MSA 27.125(42), which requires, in line with the preceding two sections, that local retirement systems deduct any portions converted as an addition to a judge's state salary under the judges' retirement act from the salary figure otherwise used by the local retirement system.

The requirements of MCL 38.814a; MSA 27.125(14a), and MCL 38.814c; MSA 27.125(14c), were challenged in Dunn v Board of Trustees of Wayne County Retirement System, 160 Mich App 384; 407 NW2d 657 (1987). Plaintiffs in that litigation were a class of present and former judges of the Wayne Circuit and Detroit Recorder's Courts, who had retired or would retire after September 1, 1981. They argued that the Wayne County Retirement System should not deduct county salary payments equal to state standardization payments converted for use in the Judges' Retirement System in the calculation of Wayne County benefits.

The court first concluded that the Wayne County Retirement System correctly interpreted the words and intent of the Legislature in deducting an amount equal to the state standardization payments converted for use in the Judges' Retirement System from the calculation of local retirement benefits payable after September 1, 1981.

The court then considered whether these changes ran afoul of the constitutional provisions against impairment of contractual obligations and Const 1963, art 9, Sec. 24. Examining the respective retirement systems, the court noted that the Judges' Retirement System provides higher benefits for the same money than are provided under the Wayne County system. With that in mind, the court ruled:

"Plaintiffs therefore have vested contract rights to undiminished benefits acquired prior to their retirement. They do not, however, have veto power over the method or formula constructed to convey those benefits. The particular change occasioned under Sec. 14a is that a portion of each member's income formerly considered county income (but in fact ultimately paid by the state) will, as of 1981, be considered state income for purposes of computing retirement benefits. Consistent with this change is the fact that Wayne County is now required under Sec. 14a to contribute to the state retirement system so as to prevent a member's contributions from accruing in the county system when benefits will be paid out of the state system. MCL 38.814a(1)(b); MSA 27.125(14a)(1)(b). We conclude as a matter of law that members of the plaintiff class, all of whom retired or will retire after September 1, 1981, are without any vested rights to pension benefits computed under a formula used prior to that time so long as the benefits to be paid are equal to or better than those provided by the prior formula." Dunn, supra, 160 Mich App at 392-393.

The court's ruling upholding the constitutionality of MCL 38.814a; MSA 27.125(14a), and MCL 38.814c; MSA 27.125(14c), is, in light of their interrelation with MCL 38.814b; MSA 27.125(14b), and MCL 38.846; MSA 27.125(46), equally applicable here.

It is my opinion, therefore, that there is no unconstitutional diminishment or impairment of an accrued financial benefit if a judge's final average compensation used for the purpose of computing a retirement benefit under the Municipal Employees Retirement System or a county retirement system is reduced to meet the requirements of MCL 38.814b; MSA 27.125(14b), and MCL 38.846; MSA 27.125(46).

Frank J. Kelley

Attorney General

(1) MCL 38.814b(1); MSA 27.125(14b)(1), also provides that its terms are applicable to "a retirement system which was established pursuant to ... Act No. 135 of the Public Acts of 1945, as amended...." That is a reference to the former municipal employees retirement act, which was repealed by the Municipal Employees Retirement Act of 1984, 1984 PA 427, Sec. 55, MCL 38.1555; MSA 5.001(55). MCL 38.814b; MSA 27.125(14b), has not, however, been amended to update its statutory reference to the Municipal Employees Retirement Act. The effect of the failure to amend MCL 38.814b(1); MSA 27.125(14b)(1), on that point need not be reached due to the broad reach of MCL 38.846; MSA 27.125(46), which is set out in the text above, and the provisions of the Municipal Employees Retirement Act of 1984 itself. In particular, Sec. 2a(3) of the Municipal Employees Retirement Act of 1984, MCL 38.1502a(3); MSA 5.001(2a)(3), provides that for the purpose of computing retirement benefits, "[c]ompensation does not include ... items of remuneration which are the basis of a potential or actual benefit from another retirement program." In addition, MCL 38.1502a(4)(c); MSA 5.001(2a)(4)(c), provides that the amount of any state salary standardization payment converted to be an addition to a judge's state base salary under the judges' retirement act shall be deducted from the compensation figure that would be otherwise used to compute a Municipal Employee Retirement System member's retirement benefits.

(2) In a similar vein, OAG, 1985-1986, No 6294, p 67 (May 13, 1985), concluded that the imposition by the Legislature of mandatory employee retirement contributions in an average amount of $1,200 per year without any commensurate advantage to the employee would be unreasonable and, hence, subversive of the rights of the current employee members protected by Const 1963, art 9, Sec. 24.

(3) This is emphasized when those two provisions are read in conjunction with MCL 38.814a, 38.814c, and 38.442; MSA 27.125(14a), 27.125(14c), and 27.125(42). For example, MCL 38.842; MSA 27.125(42), provides:

"A local unit of government, for the purpose of computing retirement benefits of an employee who is a judge, shall use a figure which is the difference between the figure otherwise used under the local unit's retirement plan to compute retirement benefits, and those portions, if any, of the state salary standardization payment which are converted as an addition to the judge's state base salary for the purposes of computation of retirement benefits pursuant to Sec. 14a and Sec. 14c of ... [the judges retirement act]."

(4) The balance of judges' salaries are provided by the county or counties where they sit. See, e.g., OAG, 1981-1982, No 6043, p 580 (February 24, 1982). See also MCL 600.8202; MSA 27A.8202, for salaries of district judges.

(5) 1980 PA 441, enacting Sec. 4, provided that the Act shall take effect September 1, 1981.

(6) The maximum amount which could be converted pursuant to MCL 38.814c; MSA 27.125(14c), was an amount that when added to the $2,250 previously authorized for conversion, would not exceed forty percent of the difference between the state base salary and the maximum total salary for any state fiscal year.

 


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