Skip to Main Content
Blogs | March 20, 2015
3 minute read

COA: Pontiac emergency manager’s order eliminating retiree benefit contributions is not retroactive

It’s hard to escape the plain text of a document.  So said the Court of Appeals in Board of Trustees of the City of Pontiac Police & Fire Retiree Prefunded Group Health & Insurance Trust v. City of Pontiac, No. 316418.

In 1996, the City of Pontiac Police & Fire Retiree Prefunded Group Health & Insurance Plan (the “Trust”) was formed to hold and invest City contributions to pay for retirees’ health and life insurance.  Under the Trust agreement, the City was obligated to contribute annually to the Trust in an amount—determined by an actuary—to allow the Trust to pay the expenses for all eligible retirees.  For the City’s 2012 and 2013 fiscal year projections, that amount was just under $4 million per year.  On August 1, 2012, the City’s emergency manager issued Executive Order 225, which terminated the City’s obligation to make contributions to the Trust.

The Trust’s board of trustees (the “Board”) brought an action against the City, alleging that Executive Order 225 violated the Michigan Constitution, a city ordinance, and collective bargaining agreements between unions and the City.  The trial court granted summary disposition in favor of the City.  The Board appealed.

The Court of Appeals first dealt sua sponte with the suspension—and subsequent repeal—of the emergency manager law under which Order 225 was issued.  That law, Public Act 4, was suspended one week after Order 225 was issued.  Voters then repealed Public Act 4 in the 2012 general election.  But MCL 8.4a provides that the repeal of a statute does not release or relinquish any penalty, forfeiture, or liability incurred under the statute, unless the repealing act expressly says so.  The Court of Appeals, therefore, held that the emergency manager’s order survived the repeal of Public Act 4.

The Board argued that Order 225 violated Article 9, Section 24 of the Michigan Constitution.  That section states that “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.”  Mich. Const. art. 9, § 24.  The Michigan Supreme Court has held that health care benefits are not “accrued financial benefits” and, therefore, are not protected by Article 9, Section 24.  Studier v. Mich. Pub. Sch. Emps. Ret. Bd., 698 N.W.2d 250 (Mich. 2005).  The Court of Appeals, thus, affirmed dismissal of the constitutional claim.

Next, the Board argued that Order 225 violated a City of Pontiac ordinance.  The Board’s problem: it failed to specify which ordinance.  Instead, the Board cited provisions of the Trust agreement as the basis for its claim.  The Court of Appeals, therefore, affirmed dismissal of the ordinance violation claim.

Finally, the Board argued that the City breached a contract when it failed to make its fiscal year 2012 contribution to the Trust by June 30, 2012.  The uncontroverted facts showed that the City had not made any contribution for fiscal year 2012.  Therefore, it breached the Trust agreement.  But the City argued that Order 225 had retroactive effect, relieving the City’s obligation to make a contribution for 2012.  The City’s problem: the plain language of Order 225 was not retroactive.  While the emergency manager was empowered to amend the Trust agreement, his order stated that the Trust was “amended to remove . . . obligations of the City to continue to make contributions to the Trust.”  Furthermore, when the emergency manager requested authority from the state treasurer to issue Order 225, his letter focused on the possible savings to the City in fiscal year 2013.  The Court of Appeals, therefore, held that Order 225 was validly issued, but that it did not retroactively eliminate the City’s required contribution for fiscal year 2012.