Okrie vs State of Michigan

Class Action Against State of Michigan: Taxation of State Pensions


On July 9, 2013, a class action lawsuit was filed in the Ingham County Court of Claims against the State of Michigan for promising school and state employees in many official communications that their pensions would not be taxed. For those born after 1945, that promise was broken when 2011 PA 38 was enacted and went into effect January 1, 2012.  School and state employee retirees relied on the promise of an income tax free pension when planning and making the irrevocable decision to retire. Some bought extra service time at great expense to enhance their pension, calculating that pension income was not taxed and investment income would be taxed. In 2012, school and state employee retirees lost over 4.25 percent of their earned pension to the surprise cancellation of their exemption from the income tax.

There are over 192,000 school retirees and over 55,000 state retirees. It is estimated that up to one-third are affected by the elimination of the state and local tax exemption for pensioners born after 1945. The class of Plaintiffs could be over 80,000 school and state retirees and the revenue generated by income tax on them may exceed $60 million in 2012 alone.

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. Supanich is an Ann Arbor attorney specializing in state appeals. The class action lawsuit asks the court to order that the State of Michigan cease and desist from taxing the pensions of affected public employees and enter an award of damages, plus statutory interest to compensate the class of plaintiffs as a result of having their promised tax-exempt pensions subject to state and local taxation. The lead plaintiff in the case is Tom Okrie, a retired Troy school teacher born in 1946 living in Yale, Michigan, near Port Huron. The matter is in Ingham County Judge Rosemarie Aquilina’s court.

Breach of Contract and Promissory Estoppel

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 may have 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.

Promissory estoppel is a term used in contract law that applies where one party has relied on the promise of the other, and it would be unfair not to enforce the agreement. The elements of Promissory Estoppel are (1) a promise; (2) that the promisor should reasonably have expected to induce action of a definite and substantial character on the part of the promise; (3) which in fact produced reliance of that nature; and (4) the circumstances are such that the promise must be enforced if injustice is to be avoided.

A news conference about the lawsuit arranged by SERA was held on the Capitol steps on Tuesday, August 6 at which Okrie told the story of his 6 written notices from the Office of Retirement Services over the course of 15 years stating that his pension would not be taxed. Relying on this, he made the irrevocable decision to retire in July 2000 at the age of 53. Twelve years later, the State of Michigan began taxing his pension, abrogating the promise in all those statements and notices Okrie received.

Michigan SERA Support of the Lawsuit

At the August 9, 2013 SERA Coordinating Council meeting in Gaylord, Bob Kopasz and Mary Pollock described the case and a discussion was held. The Council voted to support the lawsuit and contribute $450 to the costs. The Coordinating Council also urged local SERA chapters and SERA members to do the same.

Send checks made out to Gary P. Supanich with a note in the memo line that says “For Okrie v State of Michigan” to The Law Office of Gary P. Supanich, 117 North First Street, Suite 111, Ann Arbor, MI 48104. 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.

Attorney General’s Reply to the Lawsuit

What Michigan Seniors/Retirees Lost in the Income Tax Overhaul

Tax ProvisionFY 2012-13
Repeal of Senior Exemption of $2,300$35.3 million
Public and Private Pension Tax Changes$336.2 million
Homestead Property Tax Credit Changes$257 million
Elimination of Senior Interest/Dividend Exemption $6.3 million
Total$634.8 million

Source: Senate Fiscal Agency, State Budget Overview, November 9, 2012 (all figures are estimates)

The Attorney General’s Office filed a motion to dismiss on August 9, claiming that no enforceable contract or promise existed between retirees and the state over taxation of pensions. The motion says that only the Legislature has the power to tax and that Okrie's breach of contract charge hinges on a claimed quasi-contract that allegedly was formed by non-legislative promises. The motion also cites a provision of the state constitution which expressly forbids creating a tax exemption by contract.

More Information

Filings related to the lawsuit are available on Mr. Supanich’s Web site at www.michigan-appeal-attorney.com/. 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 supporting this lawsuit, especially those born after 1945.

Bob Kopasz, Chair
Michigan SERA Coordinating Council
August 27, 2013