Letters and Press Releases

Notice to SERA Members: August 4, 2013

Pension Tax Lawsuit Filed
On July 9, 2013, a lawsuit was filed in the Ingham County Court of Claims against the State of Michigan for promising that our pensions would not be taxed and then breaking that promise for those born after 1945. Many in that age group relied on this promise when planning and making the irrevocable decision to retire under the state’s defined benefit pension program. In 2012, school and state employee retirees lost over 4.25 percent of their pension to the surprise cancellation of their exemption from the income tax. The total taxes collected under this broken promise were projected to exceed $300 million.

Michigan SERA Coordinating Council Chair Bob Kopasz and Legislative Representative Mary Pollock met with Gary Supanich, the attorney representing plaintiff Tom Okrie, a retired school teacher, to gather information about the lawsuit. Although the Michigan Supreme Court in In re Request for Advisory Opinion regarding Constitutionality of 2011 PA 38, 490 Mich 295 (2011) ruled that 2011 PA 38 did not impair contracts in violation of the state or federal constitutions, the Supreme Court left the door open to a cause of action based upon the non-constitutional ground of Breach of Contract, which relies upon the equitable doctrine of Promissory Estoppel. The logic of the lawsuit seems sound to us but in any lawsuit, many elements can affect the eventual outcome.

Currently, Mr. Supanich is looking for three things from affected school or state employee retirees:

  • Any copies of the Retirement Guideline Booklets or any Pension Workbooks published by the Office of Retirement Systems wherein the State of Michigan stated that pensions were exempt from state and local taxation. Look in your retirement files and see if you have any of these publications.
  • State employee retirees affected by the pension tax who might be interested in being named plaintiffs to help finance the lawsuit. Mr. Supanich says he needs at least one state employee retiree born after 1945 who, like Tom Okrie, can sign an affidavit swearing that they were informed that their state pension would not be taxed and relied on that fact in deciding to retire. Named plaintiffs would recover more damages in a winning lawsuit (but there are no guarantees of a win, of course).
  • Other financial support for the lawsuit in any denomination. Mr. Supanich will keep track of these donations in an escrowed account dedicated to the case. If there is a win with damages awarded, the donations will be returned.

If you want to know more about Mr. Supanich, a recent retiree from the Michigan Court of Appeals, and the lawsuit, please go to his Website.  In the right column the first two documents relate to this lawsuit. The first is a general plain-English summary of the lawsuit and Mr. Supanich’s request for the three items above. The second is a copy of the complaint filed with the Court of Claims. The matter is in Judge Rosemarie Aquilina’s court. The State’s answer to the complaint is due August 9. Thereafter there will be other filings consistent with court rules.

Please reply to Mr. Supanich through his Website if you can assist him in any way. If you have preliminary questions after reading the materials on the Web site, you can contact Bob Kopasz, bobkopaszserachair@gmail.com, or Mary Pollock, pollockm@michigansera@comcast.net.

Please inform any school or state employee retirees who you think might be interested in assisting with this lawsuit, especially those born after 1945.

Bob Kopasz, Chair
Michigan SERA Coordinating Council
August 4, 2013

Press Release: May 7, 2012

Michigan State Employee Retirees Association Endorses Protect Our Jobs Ballot Proposal
Read the press release.

Press Release: December 3, 2011

SERA Calls for Repeal of Pension Tax
Read the press release.

Press Release: December 2, 2011

Senior groups push for pension tax repeal
Four groups representing more than 1.5 million public and private pensioners and other seniors today called for the Michigan Legislature to repeal the pension tax that is set to take effect Jan. 1.

The tax, passed by the Legislature this summer to help finance a business tax cut, is onerous, unpopular and unfair and should be eliminated, said officials from AARP Michigan, the Michigan Association of Retired School Personnel, Michigan State Employee Retirees Association and the National Active and Retired Federal Employees, Michigan Federation of Chapters.

Read full release (PDF file).

Press Release: November 18, 2011

Michigan Supreme Court Upholds Pension Tax
In a 4-3 decision along party lines, the Michigan Supreme Court upheld the pension tax on public employee retirees born after 1945, upheld the age scheme for taxing pensions, but nixed the phase out of an exemption for high income pensioners. Although disappointing, the decision was not surprising considering the line of questioning during oral argument.

Read the court’s summary of the decision here: www.mi-sera.org/doc/syllabus_pa38-2011constitutionality.pdf

Read the decision here: http://courts.michigan.gov/supremecourt/Clerk/11-12-Term-Opinions/143157.pdf

Read some of the media coverage here:

Michigan high court hands Gov. Rick Snyder a victory on plan to tax pensions — Detroit Free Press
“A divided Michigan Supreme Court has given the green light to the extension of Michigan’s 4.35% personal income tax to pensions, one of the cornerstones of the Gov. Rick Snyder-led overhaul of the state tax system that was approved amidst partisan rancor earlier this year. The court did, however, unanimously strike down provisions in the new tax law that would have phased out the use of personal tax exemptions by wealthier taxpayers. That provision, effectively raising the taxes on higher income earners, is barred by the state constitutional ban on a graduated income tax, the court said.”

Michigan Supreme Court clears way for tax on public pensions — Detroit News

Gov wins major tax ruling at Mich. Supreme Court — WKAR

Read the Governor’s statement here: www.michigan.gov/snyder/0,4668,7-277-57577_57657-265917--,00.html  

See also Remarks Summarizing SERA/NARFE/AARP Friend of the Court Brief by Mary Pollock.

Briefs and reply from all the parties and a background description of the case from the Michigan Supreme Court can be accessed through the Michigan Supreme Court Web site.

The video of the Michigan Supreme Court hearing can be accessed through the State Bar of Michigan Virtual Court.

Press Release: October 19, 2011

Ingham Court Rules Against AG Bill Schuette on State Employee Domestic Partner Benefits
Michigan SERA Opposes Legislative Action to End Public Employer Domestic Partner Benefits

On October 6, Ingham County Circuit Court Judge Paula Manderfield rejected the AG’s challenge of the Michigan Civil Service Commission’s decision to provide domestic partner benefits for state employees. The AG challenged the benefit on two grounds: (1) that the policy exceeds the scope of the CSC’s legislative authority under Art. 11 Sec. 5 of the Michigan Constitution, and (2) that the policy violates the Equal Protection Clause of the Michigan Constitution.

Read full release (PDF file).

Press Release: August 10, 2011

State pension tax unconstitutional, retiree groups contend in joint court filing

Three organizations representing Michigan pensioners are taking the fight against the state pension tax to another front — the Michigan Supreme Court.

The State Employees Retirement Association, the National Active and Retired Federal Employees Association and AARP have filed a joint friend of the court brief with the state’s high court challenging the constitutionality of the tax on public pensions. The Michigan Constitution specifically prohibits such a tax, the groups contend.

Oral argument will be heard before the court on September 7.

“We’ve said all along the tax is unfair and we stand by that,” said Stuart Cohen, senior vice president of legal advocacy for AARP. “In the case of the tax on public pensions, it’s also unconstitutional. The pension tax amounts to a broken promise to retirees at a time when the economy continues to struggle and they can ill afford to pay a new tax.”

Added Bob Kopasz, chair of the Michigan State Employee Retirees Association Coordinating Council: “State employee retiree pensions have been exempt from the income tax since 1943. In 1964, the statutory exemption from taxation of all public pensions was enshrined in our Michigan Constitution. The Legislature has no authority to violate the Constitution and tax public pensions.”

David Adams, Jr., president of Michigan Federation of the National Active and Retired Federal Employees Association, said: “The U.S. Supreme Court has also ruled that federal employee retirees should enjoy the same income tax exemptions under state law as other Michigan public employee retirees. Taxing our pensions violates both the state and federal Constitutions.”

Gov. Rick Snyder proposed a $900 million tax on pensioners earlier this year and a scaled-down version of the plan eventually passed the Legislature. AARP Michigan, joined by the State Employees Retirement Association, organized a rally against the tax on the Capitol lawn in March and strongly opposed the levy in testimony before legislative committees and in private meetings with political leaders.

The organizations took exception to assessing a new tax on pensioners — who had already made financial calculations regarding their retirement security — in order to provide a $1.7 billion tax cut for businesses.

The tax bill passed by lawmakers, which takes effect in 2012, sets up a three-tiered pension tax. Pensioners born before 1945 are exempt from the new tax. Those born in 1946 through 1952 would pay the state’s income tax rate on pensions but $20,000 for individuals and $40,000 for couples is exempt. Those born after 1952 would pay taxes on all retirement income other than Social Security. When they reach age 67, they would get the $20,000/$40,000 exemption against all retirement income, including Social Security.

As of September 30, 2010, there were 108,799 active and retired members in the two state employee retirement plans. Additionally, state employees and retirees have diverted $400 million from their savings to buy additional pension benefits under a contractual arrangement with the state assuming that the pension benefit would not be taxed. There are over 50,000 state employee retirees at this time, and most still live in Michigan. State Retirees born after 1945 and residents of Michigan would pay about $20 million a year in additional income taxes under the new law, the joint friend of the court brief states. Michigan NARFE says its members, including 47,000 retirees in Michigan, would also pay an additional $20 million annually in income taxes under the pension levy.

The brief notes that Dr. Ethel Percy Andrus founded AARP more than 50 years ago to advocate on behalf of retired school teachers who received inadequate pensions. AARP remains committed to safeguarding the economic security of its members.

The resolution of issues before the Michigan Supreme Court will have a direct and vital bearing on the economic value and market power of public employee retirement pensions in Michigan, the brief says.

For More Information Contact:
Bob Kopasz, Chair, Michigan SERA Council, 810-240-8380, bobkopaszserachair@gmail.com
Mary Pollock, Legislative Representative, Michigan SERA Council, 517-351-7292, michigansera@comcast.net

Press Release: June 28, 2011

State and Federal Retirees Plan Joint Friend of the Court Brief Challenging the Tax on Public Pensions

Over 100,000 state and federal pensioners on relatively fixed incomes reside in Michigan. Many current and future public pensioners will lose their pension tax exemption on January 1, 2012, if the new income tax law is allowed to go into effect.

The Michigan State Employee Retirees Association (Michigan SERA) and the Michigan Federation of Chapters, National Active and Retired Federal Employees Association (Michigan NARFE) announced today that the two organizations are planning to file a joint friend of the court (amicus curiae) brief with the Michigan Supreme Court concerning the constitutionality of taxing public employee pensions.

“We think the two primary organizations representing state and federal retirees can make a stronger argument to the Michigan Supreme Court than we could separately,” Michigan SERA Chair Bob Kopasz said. Michigan SERA contends that Article IX, Section 24 of the Michigan Constitution protects public pensions from taxation and that the recent change in the income tax act to eliminate the exemption for taxation of pensions is unconstitutional as applied to public employee pensions.

“The U.S. Supreme Court has also ruled that federal employee retirees should enjoy the same income tax exemptions under state law as other Michigan public employee retirees,” added Michigan NARFE President David Adams, Jr. “Taxing our pensions violates Article I, Section 10 of both the state and federal Constitutions,” he added.

Dan McLellan, former General Counsel to the Michigan Civil Service Commission and former member of the State Employee Retirement System Board, will be representing the two organizations before the Michigan Supreme Court.

Michigan SERA advocates for over 50,000 state employee retirees in 21 chapters and Michigan NARFE advocates for a similar number of federal employee retirees with 32 chapters throughout Michigan.

In response to Governor Rick Snyder’s request, the Michigan Supreme Court issued an Order on June 15 requesting that the Attorney General prepare briefs on both sides of the issue of taxing public pensions. The Order invites amicus curiae briefs from interested parties such as Michigan SERA and Michigan NARFE. Oral argument is scheduled for 9:30 a.m. September 7, 2011, at the Hall of Justice in Lansing. In Re Request For Advisory Opinion Regarding Constitutionality Of 2011 PA 38, Docket No. 143157.

For More Information Contact:

Bob Kopasz, Chair, Michigan State Employee Retirees Association Council, www.mi-sera.org, 810-240-8380, bobkopaszserachair@gmail.com

David Adams, Jr., President, Michigan Federation of Chapters, National Active and Retired Federal Employees Association, www.narfemi.org, 248-939-2438 cell; 586-232-4594 home, adamsadamsjr@comcast.net

Dan McLellan, Esq., representing Michigan SERA and Michigan NARFE, 517-897-4611

Press Release: May 13, 2011

Michigan State Employee Retirees Association Resolves to Fight the Unconstitutional Raid on Public Pension Funds

In contravention of their oath of office swearing to uphold the Michigan Constitution, lawmakers yesterday ignored their duty under Article 9, Section 24 and did exactly what they are forbidden to do: diminish public pensions through taxation of public retirees.

The Michigan Constitutional Convention in 1962 found it necessary to constitutionalize statutory protections for public pension funds to prevent raids on those funds to finance other state government programs and promises.

Nearly 50 years later, Governor Snyder and a majority of the Legislature propose to use about $100 million a year in public pension funds contractually belonging to pubic employee retirees to help finance a $1.8 billion business tax decrease and other spending priorities.

Michigan SERA testified in both the House Tax Policy Committee and the Senate Reforms Committee, and communicated with all lawmakers warning them that the proposal to tax public pensions was unconstitutional.

Now we must move to the courts to get a fairer hearing about the legality of raiding public pension funds through the back-door method of taxing public retirees.

Additionally and contrary to the Governor’s assertions, seniors 65 or over will pay increased taxes under the revisions to the income tax structure in Michigan. Nearly 500,000 Michigan seniors received an average $770 per year from the senior-based Homestead Property Tax Credits in 2008 according to the House Fiscal Agency analysis. Many of those tax credits will be lost under the bill passed yesterday in the Senate and concurred in by the House. The Governor and Legislature have now taken away $137 million a year in Homestead Property Tax Credits from seniors.

Additionally, all seniors will lose the $2,300 senior tax exemption and the senior exemption for the first $10,058 of investment income.

Although seniors account for only 13% of Michigan’s population, seniors and pensioners will be contributing $528 million in increased taxes. That is over one-third of the $1.5 billion in increased taxes on individuals in Michigan. The increase in senior tax liability is between 40 and 240 percent according to the testimony of Lieutenant Governor Brian Calley. The increase in non-senior taxes is about 6 percent. Business entities will receive a net decrease between 58 and 72 percent according to that same testimony.

Make no mistake about it, Governor Snyder and the majority Republicans in the Michigan House and Senate punished pensioners and senior citizens with the income tax changes they have made.

Links to House Concurred bills:

HB 4361, INCOME TAX, Rate,
Provide for general revisions and implementation of a corporate income tax
HB 4480, RETIREMENT, State Employees
Eliminate tax exemption for state employee pensions

Letter to All Michigan Senators concerning HB 4361 and HB 4480 sent Wednesday, May 11, 2011

Dear Senator:

Today the Michigan State Employee Retirees Association testified before the Senate Reforms, Restructuring, and Reinventing Committee that the proposed elimination of exemptions and credits for pensioners and seniors amounts to $587 million.

Michigan SERA provided the first publicly available legal analysis of why it is unconstitutional to tax public pensions in Michigan. Basically, a pension tax cannot be used as a backdoor method to diminish the constitutionally-protected contractual obligation to exempt public employee pensions from state taxation, at whatever age the recipient.

Although seniors account for only 13% of Michigan’s population, seniors will be contributing over one-third of the $1.5 billion in increased taxes on individuals in Michigan if this tax proposal is signed into law. The loss of the tax exemption for public pensioners is estimated at about $100 million; the loss of the senior Homestead Property Tax Credit is $137 million, a number that has not previously been available and discussed by lawmakers. About 453,200 senior Homestead Property Tax Credits were allowed in tax year 2008, and the average credit was $770 according to the House Fiscal Agency. This is a huge portion of a senior’s typical tax return.

We hope you take our message into account when considering the income tax bills in the coming hours and days.

Letter to all Michigan House of Representatives Members concerning HB 4361 and HB 4480 sent April 25, 2011

The letter addressed three points:

  • Taxing the pensions of public employee retirees is unconstitutional under Article IX, Section 24 of the Michigan Constitution.
  • Even if taxing public pensions were not unconstitutional, the compromise plan’s effective tax rates on pensioners and seniors is still unacceptable.
  • About 75% of state employee pensioners have pensions of $24,000 or less; about one-third have pensions of $12,000 or less. State employee retirees served this state for many years. They made decisions to retire based on the guarantee in our Michigan Constitution that our pensions would never be taxed and that senior tax preferences would be available.