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Plaintiffs' Brief in Support of Their Motion for Summary Disposition on the Claims Added in their Amended Verified Class Action Complaint

STATE OF MICHIGAN

IN THE COURT OF CLAIMS

____________________________________________________________________________

THOMAS R. OKRIE, et al.,

Plaintiffs, Court of Claims No. 13-93-MK

v HON. Rosemarie E. Aquilina

STATE OF MICHIGAN,

GOVERNOR RICK SNYDER,

MICHIGAN DEPARTMENT

OF TECHNOLOGY, MANAGEMENT

AND BUDGET, OFFICE OF

RETIREMENT SERVICES,

STATE EMPLOYEES RETIREMENT

SYSTEM, MICHIGAN PUBLIC

SCHOOL EMPLOYEES RETIREMENT

SYSTEM, and MICHIGAN DEPARTMENT

OF TREASURY,

Defendants.

______________________________________________________________________

Gary P. Supanich (P45547)

LAW OFFICE OF GARY P. SUPANICH

Attorney for Plaintiffs

117 North First Street, Suite 111

Ann Arbor, MI 48104

(734) 276-656

www.michigan-appeal-attorney.com

Patrick M. Fitzgerald (P69964)

Joshua Booth (P53947)

Margaret Nelson (P30342)

MICHIGAN DEPARTMENT OF ATTORNEY GENERAL

State Operations Division

Attorneys for Defendants

P.O. Box 30754

Lansing, MI 48909

(517) 373-1162

_____________________________________________________________________

BRIEF IN SUPPORT OF PLAINTIFFS' MOTION FOR SUMMARY DISPOSITION PURSUANT TO MCR 2.116(C)(10) AND MCR 2.116(I)(1) AS TO THEIR CLAIMS FOR BREACH OF EMPLOYMENT CONTRACT AND UNJUST ENRICHMENT UNDER STATE LAW AND FOR VIOLATIONS OF THE CONTRACT CLAUSE, THE "TAKINGS" CLAUSE, AND SUBSTANTIVE AND PROCEDURAL DUE PROCESS CLAUSE UNDER THE STATE AND FEDERAL CONSTITUTIONS

TABLE OF CONTENTS

I. INTRODUCTION............................................ 1

II. STATEMENT OF FACTS................................ 2

III. ARGUMENT.................................................... 7

(A) The State's Failure to Provide Plaintiffs With Deferred Compensation in the Form of a Tax-Exempt Pension, or Alternative Financial Benefits That Are Equal To or Greater Than The Financial Value of Their Tax-Exempt Pensions, Constitutes a Breach of Their Employment Contracts.................................... 7

(B) The State's Retention of Plaintiffs' Deferred Compensation in the Form of a Tax-Exempt Pension, or Alternative Financial Benefits Equal To or Greater Than the Value of Their Tax-Exempt Pensions, Constitutes Unjust Enrichment.................................................... 12

(C) Application of the Amended Statutes At Issue to Plaintiffs Subjecting Their Pensions to State and Local Taxation, Without Providing Them With Alternative Financial Benefits That Are Equal To or Greater Than The Financial Value of Their Tax-Exempt Pensions:

(1) Impairs a Contractual Obligation in Violation of 1963 Const, art 1, § 10 and US Const, art 1, § 10(1)...... 14

(2) Constitutes a Taking under Const Art 10, § 2 and US Const Ams V and XIV....... 26

(3) Violates Substantive Due Process under 1963 Const, Art 1, § 17 and US Const, Am XIV...... 28

(4) Violates Procedural Due Process under 1963 Const, art 1, § 17 and US Const, Am XIV...... 29

IV. CONCLUSION AND RELIEF....................... 31


I.
INTRODUCTION

This case presents issues of first impression involving the retroactive taxation of Plaintiffs' tax-exempt defined-benefit (DB) pensions after they had fully rendered services as state or public school employees, vested in the DB pension plans at issue and retired from government service. As a defined benefit under the plans administered by the Office of Retirement Services ("ORS"), the tax-exempt component of the pension represents deferred compensation for earned financial benefits to which Plaintiffs are legally entitled. Thus, whether characterized as a contractual right or a property right, these earned financial benefits constitute rights entitled to full legal protection just as much as the right to receive a salary was protected. Accordingly, these financial benefits cannot be retroactively reduced by the State without the payment of damages or restitution equal to or greater in value to the earned financial benefits of tax-exempt pensions. Were it otherwise, these earned financial benefits would have to be construed as gratuities that never vested and could be amended or modified at any time by the State. Because they are not gratuities, this Court must conclude that they represent legally protected rights. To this end, Plaintiffs present in seriatim legal arguments that their legal entitlement to damages or restitution equal to or greater than the financial benefits of their tax-exempt pensions arises from the breach of employment contract or unjust enrichment under state law, or as a violation of the Contracts Clause, the Takings Clause, and the Substantive and Procedural Due Process Clauses under the state and federal constitutions.

II. STATEMENT OF FACTS

As previously indicated, the ORS administered the DB pension plans of school employees covered by the Public School Employees Retirement System ("MPSERS") and state employees covered by the State Employees Retirement System ("MSERS"). A DB pension is a plan established and maintained "to provide systematically for the payment of definitely determinable benefits to employees over a period of years, usually for life, after retirement." 60A Am Jur 2d Pensions and Retirement Funds § 15, citing 26 CFR § 1.401-1(b)(1)(i). As such, the plan itself determines in advance the specific amount of benefits to which each employee is entitled upon retirement. Id. See also CJS2d, § 25, p 164 ("A 'defined benefit plan' is a promise to pay in the future a pension amount which will be calculated in the future by use of a set formula defined in the pension plan provisions.").[1] Thus, upon retirement, an employee covered under a DB plan is entitled to a fixed periodic payment for which the employer bears the risk. Beck v Pace Intern Union, 551 US 91, 98 (2007); Hughes Aircraft Co v Jacobson, 525 US 432, 439-440 (1999).[2]

The DB pension plans administered by the ORS thus provide deferred compensation with the promise to pay state and public school employees a benefit under a fixed formula based upon their salary and years of service upon retirement.[3] For example, the defined-benefit formula specified in the Retirement Guidelines, reflecting the terms of the statute then in effect, 1980 PA 300, § 46(1); MCL 38.1346(1) governing MPSERS, states:

Your pension is calculated using your final average compensation (FAC) and your total years and fraction of a year of credited service. Following is the formula:

Your FAC x 1½%(.015) x your total credited service = your single life annual pension

In addition, the Retirement Guidelines, reflecting the terms of the statute then in effect, 1980 PA 300, § 46(1); MCL 38.1346(1), specifies that "Pensions paid by MPSERS are exempt from Michigan state income tax and Michigan city income tax." Thus, the financial value of the defined benefit represented by a tax-exempt pension is calculated as follows::

[(your single life annual pension subject to Michigan income tax) x (the Michigan income tax rate)] + [(your single life annual pension subject to Michigan city income) x (the Michigan city income tax rate)] = financial benefit of a tax-exempt pension.

As explained in an Opinion of the Michigan Attorney General issued on December 18, 1991 (OAG No. 6697, p 6; 1991 Mich AG LEXIS 39):

Analyzing the statutory exemptions here at issue,[4] there is little question that an exemption from taxation for pension benefits constitutes "financial benefits" within the meaning of Const 1963, § 24, since the exemption usually will result in greater net pension payments for the recipient. In Robert Tilove's treatise, Public Employee Pension Funds (1976), cited with approval by Justice Williams for the unanimous Court in Kosa v State Treasurer, 408 Mich 356, 372 n 22; see also pp 372-373; 292 NW2d 452 (1980), the author, Tilove, in referring to public pension income tax exemptions generally, states: "[a]n income tax exemption has precisely the same effect as a benefit." (Emphasis added.)

State and public school employees covered under MSERS and MPSERS, respectively, are thus guaranteed these specific financial benefits upon retirement, with periodic disbursements on a monthly basis until death or the death of any beneficiary. These specific pension benefits are deferred compensation consisting of a single life annual pension that is exempt from state and local taxation.

The primary underlying question in this case is whether the State may reduce or repeal the income-tax exemptions in the retirement statutes at issue as to retired state employees and public school employees, without providing alternative financial benefits equal to or greater than the value of their tax-exempt pensions. In this regard, it is important to consider the above-referenced Opinion of the Attorney General, which posed but did not completely answer this question:

It is my opinion, therefore, that the Legislature may, without violating Const 1963, art 9, § 24, limit or repeal the tax exemptions now found in the four retirement statutes as to current retirees and members if it provides alternative benefits in their place that are equal to or greater than the pension benefit[s] that would be limited or withdrawn since there would be no constitutionally cognizable impairment of the pension benefit[s].

The remaining question is whether the Legislature may, without violating Const, art 9, § 24, limit or repeal the tax exemptions in the four retirement statutes. . . as to current retirees and members without providing equal alternative benefits in place thereof. The response to that question is still being researched. When the research is completed, my response will be forthcoming.

This case presents the opportunity to answer that question by holding that the State must pay contract damages or restitution to Plaintiffs for applying the amended statutes at issue to them without providing alternative benefits in their place that are equal to or greater than monetary value of their tax-exempt pensions.[5]

III. ARGUMENT

A. The State's Failure to Provide Plaintiffs With Deferred Compensation in the Form of a Tax-Exempt Pension, or Alternative Financial Benefits That Are Equal To or Greater Than The Financial Value of Their Tax-Exempt Pensions, Constitutes a Breach of Their Unilateral Employment Contracts.

The Michigan Supreme Court has defined a contract as an agreement, supported by sufficient consideration, to do or not to do a particular thing. McInerney v Detroit Trust Co, 279 Mich 42, 46 (1937). However, employment contracts are generally considered to be unilateral and may be accepted only by performance, and thus a promisor does not receive a promise in return as consideration. Sniecinski v Blue Cross & Blue Shield, 469 Mich 124, 138 n 9 (2003); Gaydos v White Motor Corp, 54 Mich App 143 (1974) (noting that the adoption by the employer of a policy of severance pay constituted an offer of contract and work thereafter by employees supplied consideration for unilateral contract, on which employees had right to rely). As explained by the Michigan Court of Appeals in Cunningham v 4-D Tool, 182 Mich App 99, 106 (1989):

Employment contracts can generally be described as unilateral contracts, a unilateral contract being one in which the promisor does not receive a promise in return as consideration. 1 Restatement Contracts, §§ 12, 52; pp 10-12, 58-59. The employer makes an offer or promise which the employee accepts by performing the act upon which the promise is expressly or impliedly based. The employer's promise constitutes, in essence, the terms of the employment agreement; the employee's action in reliance upon the employer's promise constitutes sufficient consideration to make the promise legally binding. Toussaint [v Blue Cross & Blue Shield of Michigan, 408 Mich 579], 630-631 [1980]; In re Certified Question, 432 Mich 438, 444-447; 443 NW2d 112 (1989).

Here, the undisputed facts show that Mr. Okrie and the other affected public employees entered into a contract by which the State offered to pay deferred compensation in the form of a tax-exempt pension, or the financial value equal to or greater than a tax-exempt pension, once they had fully performed governmental service, fulfilled the eligibility requirements for vesting in the DB pension plans at issue and retired.[6] The terms and condition of Plaintiffs' services were contained in the DB plans administered by the ORS covering public school employees under MPSERS and state employees under MSERS. Importantly, the method of compensation set forth in the pertinent statutes in effect at the time of their retirement was part of the arrangement. See Seneca Nursing Home v Kansas, 490 F2d 1324 (CA10 1974) (holding that plaintiffs, by performing the required services, became entitled to the statutory payment amounts since the method of compensation set forth in the statutes was part of the terms and conditions of the contract); Payne v Bd of Trs of the Teachers' Ins & Ret Fund, 35 NW2d 553, 556 (ND 1948); Bakenhus v City of Seattle, 296 P2d 536, 538 (Wash 1956)('"But, where . . . services are rendered under such a pension statute, the pension provisions become a part of the contemplated compensation for those services, and so in a sense a part of the contract of employment itself.'"), quoting O'Dea v Cook, 169 P 366, 367 (Cal 1917). By performing the required services and fulfilling the vesting requirements, Plaintiffs thus became entitled to the earned financial benefits of deferred compensation in the form of a tax-exempt pension as set forth in the DB plans at issue, or the monetary value that was equal to or greater than the value of their tax-exempt pensions.

Significantly, Plaintiffs' position in this case is clearly supported by the other state courts that have considered this matter, such as the Oregon Supreme Court's decision in Hughes v State, 838 P2d 1018 (Ore 1992) and the North Carolina Supreme Court's decision in Bailey v State, 500 SE2d 54 (NC 1998). In Hughes, the Oregon Supreme Court addressed a challenge to the Oregon legislature's repeal of the tax exemption contained in the Public Employees' Retirement System ("PERS"), which had been in the Public Employees' Retirement Act since 1945. The Oregon Supreme Court found that the tax exemption, which induced retired public employees to accept the state's offer of employment, was part of the PERS contract between the state and the retired public employees. Id. at 1032. According to the court, the tax exemption had benefitted Oregon by allowing it to receive the services of workers for less upfront pay in exchange for deferred compensation in the form of tax-exempt pensions. As the Oregon Supreme Court recognized:

Government obtained its employees' services less expensively because the gross cost of providing a more nearly adequate pension amount was lowered by the tax exempt nature of the benefit payments and of the contributions put in trust to purchase annuities payable at the time of each employee's future retirement. . . . Less expense meant that less tax money was exacted from the taxpayers in general over past years to fund a public employee's salary and benefits. . . Government proposes to keep the benefit of lower cost, but to take away the promise that its employees accepted in order to lower that cost, thereby keeping the benefit of its bargain but depriving the employees of the benefit of theirs. [Id. at 1042 n 7].

Similarly, Bailey supports Plaintiffs. There, the North Carolina Supreme Court ruled that the capping the tax exemption deprived public employees of their vested contractual right to benefits. The court based its decision on "the premise that retirement benefits are presently earned but deferred compensation to which employees have a vested contractual right" and that the tax exemption was a term of that contract. 500 SE2d at 60, 63. As the North Carolina Supreme Court recognized:

The necessity for the State to be bound to its contractual obligations is clear when the Act in question is compared with the long-established practice of the issuance of municipal bonds. The State regularly enters into contracts for tax exemptions in connection with its issuance of municipal bonds and the creation of its obligations thereunder. In exchange for paying a lower rate of interest, the State agrees by statutory exemption to forgo taxation of the income or gain on the bonds. The State's policy of entering into a contract for a tax exemption clearly serves a public purpose by inducing needed investment for important projects while paying a lower-than-market rate of interest.

The State's action here in changing the taxability of vested retirement benefits is no different than if the State issued tax-free bonds, collected hundreds of millions of dollars for their purchase, and then retrospectively repealed investors' tax-free interest and capital gain advantages. However, under application of defendants' premise, this is precisely what the State could do. The basis for prohibiting such action is fundamental fairness. As the Pennsylvania Supreme Court so eloquently stated:

According to the cardinal principle of justice and fair dealings between government and man, as well as between man and man, the parties shall know prior to entering into a business relationship the conditions which shall govern that relationship. Ex post facto legislation is abhorred in criminal law because it stigmatizes with criminality an act entirely innocent when committed. The impairment of contractual obligations by the Legislature is equally abhorrent because such impairment changes the blueprint of a bridge construction when the spans are half way across the stream.

Hickey v Pension Bd., 378 Pa. 300, 309-10, 106 A.2d 233, 237-38 (1954).

Here, in exchange for the inducement to and retention in employment, the State agreed to exempt from state taxation benefits derived from employees' retirement plans. This exemption certainly was for a public purpose, as it was a significant difference between governmental and comparable private employment that helped attract and keep quality public servants in spite of the generally lower wage paid to state and local employees. Thus, the State entered into a contract for, inter alia, a tax exemption for a public purpose. [Id. at 65].

In this case, having received the benefits of Plaintiffs' governmental service in exchange for its promise of a tax-exempt pension, the State was also bound by the terms of the statute in effect at the time providing Plaintiffs with a tax exemption for public pension benefits after they had fully performed the required services and vested in the DB pension plans at issue. Thus, there was an enforceable binding contract entitling Plaintiffs to the earned financial benefits of deferred compensation in the form of a tax-exempt pension, or the financial benefits that were equal to or greater than the value of their tax-exempt pensions. This is a determinable financial value that is directly tied to the value of the pension itself. Thus, the Legislature's subsequent enactment of the amended statutes at issue and their application to Plaintiffs could not retroactively reduce or diminish the value of these earned financial benefits without providing benefits that were equivalent to or greater than those already earned. By not providing these earned financial benefits, the State impermissibly altered the terms of the contractual agreement in effect at the time that Plaintiffs had fully performed, vested in the DB pension plans at issue, and retired from government service. Accordingly, the State's breached the employment contracts with Plaintiffs by failing to pay them the monetary value that is equal to or greater than the value of a tax-exempt pension.

B. The State's Retention of Plaintiffs' Deferred Compensation in the Form of a Tax-Exempt Pension, or Alternative Financial Benefits Equal To or Greater Than the Value of Their Tax-Exempt Pensions, Constitutes Unjust Enrichment.

Under Michigan law, the elements of a claim for unjust enrichment are (1) receipt of a benefit by the defendant from the plaintiff, and (2) an inequity resulting to the plaintiff because of the retention of the benefit by the defendant. Dumas v. Dumas v Auto Club Ins Ass'n, 437 Mich 521, 546 (1991). Auto Club Ins Ass'n, 437 Mich 521, 546 (1991); Barber v SMH (US), Inc., 202 Mich App 366, 375 (1993). To support an action on the theory of unjust enrichment, the controlling equities must favor the party claiming to have been injured. In re McCallum Estate, 153 Mich App 328, 335 (1986); City Nat'l Bank v Westland Towers Apartments, 107 Mich App 213, 230 (1981). Plaintiffs satisfy these conditions.

First, the State received the benefits of Plaintiffs' employment in exchange for its promise of deferred compensation in the form of tax-exempt pensions. Second, an inequity has resulted because the State of Michigan received the benefits of Plaintiffs' governmental service but retained the financial value equal to or greater than that represented by a tax-exempt pension. Here, the controlling equities clearly favor Plaintiffs. For after repeatedly promising for decades to pay deferred compensation in the form a tax-exempt pension once the affected public employees had rendered governmental service, fulfilled the conditions precedent by vesting in the DB pension plans at issue and retired, the State simply broke its word to the affected public employees by taxing their pensions but not paying the deferred compensation in an equivalent or greater value represented by a tax-exempt pension.

As a result, the State retained the earned financial benefits to which Plaintiffs were legally entitled. Because Plaintiffs had earned the financial benefits represented by the promised tax-exempt pensions as deferred compensation for services rendered, see Davis, supra, the State cannot now retain these benefits and unjustly enrich itself at their expense. Given the obvious inequity, Plaintiffs are entitled to restitution of a monetary value that is equivalent to or greater than that represented by a tax-exempt pension.

(C)(1) Application of the Amended Statutes At Issue to Plaintiffs Subjecting Their Pensions to State and Local Taxation, Without Providing Them With Alternative Financial Benefits That Are Equal To or Greater Than The Financial Value of Their Tax-Exempt Pensions, Impairs a Contractual Obligation in Violation of 1963 Const, art 1, § 10 and US Const, art 1, § 10(1).

Whether the right to the earned financial benefits of deferred compensation in the form of a tax-exempt pension as set forth in the DB plans at issue is characterized as contractual right based upon promissory estoppel or a unilateral employment contract, the State's application of 2011 PA 38 and the related legislation, 2011 PA 41, 43-45, to Plaintiffs beginning on January 1, 2012, impairs a contractual obligation in violation of 1963 Const, art 1, § 10 and US Const, art 1, § 10(1).[7]

As a preliminary matter, it is necessary to underscore the fact that this Court is not bound by the Michigan Supreme Court's decision in In re Request for Advisory Opinion regarding Constitutionality of 2011 PA 38, 490 Mich 295 (2011). See In re Certified Question)(Bankey v Storer Broadcasting Co, 432 Mich 438, 467-171 (1989) (noting that advisory opinions are not precedentially binding since the court addresses questions without having before it adverse parties to existing controversies and thus acts not as a court, but as the constitutional adviser of the other departments of government).[8] Specifically, this Court is not bound by the Court's holdings in the Advisory Opinion that "[r]educing or eliminating the statutory exemption for public-pension incomes as set forth in MCL 206.30 does not impair accrued financial benefits of a 'pension plan [or] retirement system of the state [or] its political subdivisions' under Const 1963, art 9, § 24" or that "[r]educing or eliminating the statutory tax exemption for pension incomes as set forth in MCL 206.30 does not impair a contractual obligation in violation of Const 1963, art 1, § 10 or US Const, art I, § 10(1)." Id. at 301 (Emphasis in original; footnote omitted). Because there are serious problems with both conclusions, this Court should not adhere to them, as they lack persuasive force.[9]

First, the Advisory Opinion's conclusion that the tax-exempt portion of the pension benefit was not an "accrued financial benefit" under Const 1963, art 9, § 24 rests upon the determination that "it does not 'grow over time'" and that "it does not even 'come into existence' or 'vest' until after the employee has retired and begins to collect his or her pension benefits." Advisory Opinion, supra, 490 Mich at 315. Both of these determinations cannot withstand serious scrutiny.

Properly defined, it is clear that the tax-exempt portion of the pension benefit does "grow over time." Specifically, the DB pension plan formula specifies that the tax-exempt portion of the pension benefit is a function of the pension benefit itself. As already set forth, the DB pension plan formula specifies that the pension benefit is calculated as follows:

Your FAC x 1½%(.015) x your total credited service = your single life annual pension

As the Advisory Opinion correctly found, the pension benefit itself is a constitutionally protected "accrued financial benefit" because it increases in value over time. But the same is also true of the tax-exempt portion of the benefit since it is calculated as a function of the pension benefit itself. As previously set forth, the tax-exempt portion of the pension benefit is determined as follows:

[(your single life annual pension subject to Michigan income tax) x (the Michigan income tax rate)] + [(your single life annual pension subject to Michigan city income) x (the Michigan city income tax rate)] = financial benefit of a tax-exempt pension.

As a result, to the same extent as the pension benefit itself, the pension-tax exemption must necessarily be an "accrued" financial benefit because its value is determined as a function of pension benefit itself. Just as the value of the pension benefit itself "grows over time," so necessarily does the value of the tax-exempt portion of the pension benefit. So if the pension benefit itself is "an accrued financial benefit" under Const 1963, art 9, § 24, so is the tax-exempt portion of the pension benefit.

In addition, the Advisory Opinion's determination the tax-exempt portion of the pension benefit "does not even 'come into existence' or 'vest' until after the employee has retired and begins to collect his or her pension benefits" is problematic because it was simply assumed to be true without any facts or argument in support. However, there are excellent reasons to dispute this determination as wrong-headed.

As set forth by Eric M. Madiar in Public Pension Benefits Under Siege: Does State Law Facilitate or Block Recent Efforts to Cut the Pension Benefits of Public Servants, 27 ABA J of Lab & Emp L 179, 181 (2012) (EX. 1), there are four different legal ways to protect public pension benefits: (1) contractual; (2) proprietary; (3) promissory estoppel; and (4) gratuity.[10] Madiar explains the contractual approach as follows:

Most states follow the contractual approach based on court decisions or specific constitutional or statutory provisions. Under this approach, a contractual relationship exists between the state, as the employer, and a public employee regarding the statutory provisions granting pension benefits. These benefits generally receive the status of "vested" rights at one of four different points in the employment relationship: (1) when the employee begins employment or joins the pension system; (2) after each day of service provided by the employee; (3) when the employee satisfies the eligibility requirements to receive a pension; or (4) when the employee retires and begins receiving pension payments. (Id. at 181-182; footnotes omitted).

According to Madiar:

In Illinois, New York, and Arizona, for example, by joining a pension system, public employees obtain absolute "vested" rights in the pension plan, including later benefit increases added during their service. These rights cannot be unilaterally changed by the legislature under any circumstances . . . .

California, Washington, and many other states, in contrast, use a less restrictive or "limited vesting" approach. Under this approach, pension benefits still "vest" upon initial employment (or after substantial services are provided), but the legislature retains the right to make reasonable reductions or modifications to benefits before employees retire or qualify for retirement . . . .

Still other states - Hawaii and Michigan - only protect pension benefits that are "earned" after employees provide service. These states mirror the approach found under ERISA whereby employees "accrue" vested rights after each day of service. These states, in turn, permit the legislature to change the pension benefits employees will "earn" via future service.

Finally, public employees in a host of states obtain vested contractual pension benefits only after becoming eligible to retire or upon actually retiring. Prior to that point, the legislature is free to modify or revoke the pension plan available to its existing employees. Thus, depending on the state, vested pension benefits could be reduced under the Contract Clause's three-part test. [Id. at 182-183; emphasis added.) [11]

For present purposes, it is enough to point out that the Advisory Opinion's determination, without any apparent legal or factual basis, that there is no right to the tax-exempt portion of the pension benefits until the public employee has actually retired and begun receiving pension benefits clashes with the longstanding practice in Michigan. Rather, for state employees covered under MSERS and public school employees covered under MPSERS, pension benefits, including the tax-exempt portion of the pension benefit, "vest" upon satisfying 10 years of service credit, whereas eligibility for the collection of the pension benefits does not begin until age 60. So it is demonstrably false to say that the right to a tax-exempt pension "does not even 'come into existence' or 'vest' until after the employee has retired and begins to collect his or her pension benefits." Advisory Opinion, supra, 490 Mich at 301.

But even assuming arguendo and contrary to fact and law that the tax-exempt component of the pension is not an "accrued financial benefit" entitled to constitutional protection because "it does not 'grow over time'" and that "it does not even 'come into existence' or 'vest' until after the employee has retired and begins to collect his or her pension benefits," it is nonetheless a financial benefit to which Plaintiffs are legally entitled arising from their contractual relationships with the State once they have retired and begun to collect pension benefits. Like an annuity, it constitutes an enforceable contractual right to a specific income stream payable upon retirement until the death of the recipient. Thus, the application of the amended statutes at issue to Plaintiffs, without providing alternative financial benefits equal to or greater than the value of their tax-exempt pensions, violates the Contract Clause under the state and federal constitutions.[12]

To establish a Contracts Clause violation against a state, it is necessary to show three elements: (1) a contractual relationship; (2) the change in the state's law has resulted in a "substantial impairment of a contractual relationship" and (3) the impairment is justified as "reasonable and necessary to serve an important public purpose." United States Trust Co of New York v New Jersey, 431 US 1, 25 (1977); Gen Motors Corp v Romein, 503 US 181, 186 (1992).[13]

In determining whether a contractual relationship exists, it is instructive to rely upon the decision of the Massachusetts Supreme Court in Opinion of the Justices, 303 NE2d 320 (Mass 1973) where the Court observed:

When . . . the characterization 'contract' is used, it is best understood as meaning that the retirement scheme has generated material expectations on the part of employees and those expectations should in substance be respected. Such is the content of 'contract.' Id. at 328.

In deciding whether an impairment is substantial as not to be "permitted under the Constitution," the United States Supreme Court has examined contracts to determine whether the plaintiff had "reasonably relied" upon the abridged right and thus "substantially induced" the plaintiff to "enter into the contract." Allied Structural Steel Co v Spannaus, 438 US 234, 246 (1978).

In determining the third prong whether the impairment was reasonable and necessary to serve an important public purpose, the United States Supreme Court made clear in United States Trust that state attempts to impair its own contracts, especially financial obligations, were subject to heightened scrutiny and afforded very little deference because the state's self-interest is at stake. Specifically, the Court stated:

Merely because the government actor believes that money can be better spent or should not be conserved does not provide a sufficient interest to impair the obligation of contract. . . . In applying this standard . . . complete deference to a legislative assessment of reasonableness and necessity is not appropriate because the State's self-interest is at stake. A governmental entity can always find a use for extra money, especially when taxes do not have to be raised. If a State could reduce its financial obligations whenever it wanted to spend the money for what it regarded as an important public purpose, the Contracts Clause would provide no protection at all. . . . Thus, a State cannot refuse to meet its legitimate financial obligations simply because it would prefer to spend the money to promote the public good rather than the private welfare of its creditors. [Id. at 25-26, 29].

Importantly, the United States Supreme Court has recognized that public employees have a contractual right protected by the United States Constitution to compensation that has been earned through services rendered. Mississippi ex rel Robertson v Miller, 276 US 174, 178-79 (1928). This right is not based upon statutory language but rather is implied from the fact that the employee rendered services in exchange for the promised compensation. Id. at 179 ("But after services have been rendered by a public officer under a law specifying his compensation, there arises an implied contract under which he is entitled to have the amount so fixed."). Id. at 179.[14]

Likewise, because deferred compensation in the form of a tax-exempt pension, or a monetary value equivalent to or greater than a tax-exempt pension, is a financial benefit that was earned by state and public school employees after having performed government services and fulfilled all the required conditions precedent by vesting in the DB pension plans at issue, these benefits are likewise entitled to contractual protection. Here, the State's purported justification for the impairment of the contracts was neither reasonable nor necessary to serve an important public purpose. United States Trust, supra. Indeed, the State Legislature, in seeking to pay for a corporate tax break, acted with an improper motive by targeting the affected public employees for taxation of their pensions after the ORS had deliberately induced them to believe over decades that their pensions were exempt from taxation, representing deferred compensation. See United States Dep't of Agriculture v Moreno, 413 US 528, 534 (1973) (noting that "animus is not a legitimate state interest" and that "a bare desire to harm a politically unpopular group cannot constitute a legitimate government interest"). Rather than electing to make up the anticipated revenue loss through general prospective taxation or by foregoing the tax break to corporations, the Legislature singled out Plaintiffs' deferred compensation in the form of a tax-exempt pension as set forth in the DB plans at issue, without providing alternative financial benefits equal to or greater than the value of their tax-exempt pensions. As stated in United States Trust, "a State is not free to impose a drastic impairment when an evident and more moderate course would serve its purposes equally well." 431 US at 31. The same is true here.[15]

(C)(2) Application of the Amended Statutes At Issue to Plaintiffs, Subjecting Their Pensions to State and Local Taxation, Without Providing Them With Alternative Financial Benefits That Are Equal To or Greater Than The Financial Value of Their Tax-Exempt Pensions, Constitutes a Taking Under Const Art 10, § 2 and US Const Ams V and XIV.

Whether the right to the earned financial benefits of deferred compensation in the form of a tax-exempt pension as specified in the DB plans at issue is characterized as a contract or property right, the State's application of 2011 PA 38 and the related legislation, 2011 PA 41, 43-45, to Plaintiffs beginning on January 1, 2012, constitutes a "taking" in violation of 1963 Const, art 10, § 2 and US Const, Ams V and XIV by confiscating property that belongs to Plaintiffs without just compensation. See AFT Michigan et al v Public School Employees Retirement System et al, 297 Mich App 597, 617 (2012)("It is well settled that when the government directly seizes property in which a person has a property interest, a Fifth Amendment taking occurs, requiring that the government pay compensation.").[16]

The United States Supreme Court has held that property interests "extend well beyond actual ownership of real estate, chattels, or money. Bd of Regents v Roth, 408 US 564, 577 (1972). Specifically, in Roth, the Court stated:

[T]o have a property interest in a benefit, a person clearly must have more than an abstract need or desire for it. He must have more than a unilateral expectation of it. He must, instead, have a legitimate claim of entitlement to it. [Id.]

See also AFT Michigan, supra at 617-622 (reviewing case law supporting the proposition that confiscation of money, as opposed to physical property, constitutes a taking).

Having fully rendered service, vested in the DB pension plans at issue and retired from governmental service, Plaintiffs have property interests in the earned financial benefits representing deferred compensation in the form of a tax-exempt pension, or an equivalent or greater monetary value. Because such financial benefits are vested and because Plaintiffs are eligible to collect on these vested financial benefits, these financial benefits are immune from revision at the time that they are earned. See Pierce, supra, 910 P2d at 292 (finding that a retirement plan creates a property right in the amount of the benefit and requiring compensation for any reduction once the participant vests and "matures" once the participant has attained the age necessary to receive the benefits); Pineman v Oechslin, 488 A2d 803, 810 (Conn 1985) (finding that benefits created by public pension plan are entitled to constitutional protection as property).

(C)(3) Application of the Amended Statutes At Issue to Plaintiffs Subjecting Their Pensions to State and Local Taxation, Without Providing Them With Alternative Financial Benefits That Are Equal To or Greater Than The Financial Value of Their Tax-Exempt Pensions, Violates Substantive Due Process under 1963 Const, Art 1, § 17 and US Const, Am XIV.

Whether the right to the earned financial benefits representing deferred compensation in the form of a tax-exempt pension as specified in the formula set forth in the DB plans at issue is characterized as a contractual or property right, the State's application of 2011 PA 38 and the related legislation, 2011 PA 41, 43-45, to Plaintiffs beginning on January 1, 2012, constitutes a violation of substantive due process under 1963 Const, art 1, § 17 and US Const, Am XIV. See People v Sierb, 456 Mich 519, 522-523 (1998). As noted in AFT Michigan et al, supra, 297 Mich App at 622:

"The essence of a claim of violation of substantive due process is that the government may not deprive a person of liberty or property by an arbitrary exercise of power." Landon Holdings, Inc v Grattan Twp, 257 Mich App 154, 173; 667 NW2d 93 (2003) (Emphasis in original).

To establish a substantive due process claim in this case, Plaintiffs have to show that the application of the amended statutes eliminating the tax-exemption without providing alternative benefits equal to or greater than those represented by a tax-exempt pension is not rationally related to a legitimate government purpose. United States v Carolene Prods Co, 304 US 144, 152 (1938). Here, the State acted arbitrarily because the retroactive application of the amended statutes at issue, without providing alternative benefits equal to or greater than those represented by a tax-exempt pension, was not rationally related to the achievement of a legitimate governmental purpose. Cf. Pension Benefit Guar Corp v R A Gray & Co, 467 US 717, 730 (1984) (finding that the application of retroactive economic legislation survived a substantive due process challenge because "the legislation is itself justified by a rational legislative purpose"). As already stated, the Legislature acted with an improper motive, specifically targeting the affected public employees for taxation of their pensions, without providing alternative benefits equal to or greater than those represented by their tax-exempt pensions, so as to pay for a corporate tax break. Because this was not an action rationally related to a legitimate governmental purpose, the application of the amended statutes at issue to the affected public employees is so arbitrary and capricious as to amount to confiscation in violation of the Substantive Due Process Clause under the state and federal constitutions.[17]

(C)(4) Application of the Amended Statutes At Issue to Plaintiffs Subjecting Their Pensions to State and Local Taxation, Without Providing Them With Alternative Financial Benefits That Are Equal To or Greater Than The Financial Value of Their Tax-Exempt Pensions, Violates Procedural Due Process under 1963 Const, art 1, § 17 and US Const, Am XIV.

Alternatively, the retroactive application of the tax statutes at issue violates procedural due process under the state and federal constitutions because it is so harsh and oppressive as to transgress the constitutional limitation under the Due Process Clause. United States v Hemme, 476 US 558, 568-69 (1986), quoting Welch v Henry, 305 US 134, 147 (1938). The "harsh and oppressive" formulation "does not differ from the prohibition against arbitrary and irrational legislation" that applies generally to enactments in the sphere of economic policy. R A Gray, supra, 467 US at 733.

The critical question is whether the taxpayer has reasonably relied to his detriment on the pre-amendment tax statute. Here, there is no question that Mr. Okrie and the other affected public employees reasonably relied to their detriment on the pre-amendment statutes at the time they made irrevocable retirement and employment termination decisions, given that there was no indication foreseeable at the time of their irrevocable retirement and employment termination decisions that amended statutes imposing wholly new taxes were in the offing so as to interfere with their settled expectations. Specifically, in Welch, supra, 305 US at 147, the United States Supreme Court noted:

[T]his Court has held invalid the taxation of gifts made and completely vested before the enactment of the taxing statute, decision was rested on the ground that the nature and amount of the tax could not reasonably have been anticipated by the taxpayer at the time of the particular voluntary act which the statute later made the taxable event.

Moreover, as already shown, the State Legislature, in seeking to pay for a corporate tax break, acted with an improper motive by targeting the affected public employees for taxation of their pensions after the ORS had deliberately induced them to believe over decades that their pensions were exempt from state and local income tax, representing deferred compensation for services already rendered to the State. Thus, because the retroactive application to Plaintiffs of the amended statutes at issue, without providing them with alternative financial benefits that are equal to or greater than the financial value of their tax-exempt pensions, is not supported by a legitimate legislative purpose furthered by rational means, the State violated the procedural due process clause under the state and federal constitutions.

IV. CONCLUSION AND RELIEF

Accordingly, Plaintiffs respectfully request that this Court grant their motion for summary disposition under MCR 2.116(C)(10) and MCR 2.116(I)(1) as to their claims for breach of employment contract and unjust enrichment under state law, as well as for violations of the Contract Clause, "Takings" Clause, Substantive and Procedural Due Process Clauses under the state and federal constitutions; award damages consisting of financial benefits equal to or greater than the value of a tax-exempt pension and any equitable relief that this Court deems necessary and just; and grant Plaintiffs' attorney fees and costs from a "common fund."

Considering the intricate and overlapping nature of Plaintiffs' claims set forth in their motions for summary disposition, this Court should treat the present motion as a continuing motion for summary disposition. As such, Plaintiffs thus request that this Court hold in abeyance any action on their previous claim for breach of contract based upon promissory estoppel, but decide all the claims in a single written opinion after the parties have had an opportunity to argue the present issues before this Court.

Respectfully Submitted,

LAW OFFICE OF GARY P. SUPANICH

__________________________

Gary P. Supanich (P45547)

Attorney for Plaintiffs

117 North First St., Suite 111

Ann Arbor, MI 48104

Dated: November 1, 2013 (734) 276-6561


[1] "A DB plan is essentially a deferred annuity - a regular, fixed benefit paid to workers after they retire, generally based on their final salary and years of service." Andrew Biggs and Jason Richwine, The Effect of Pension Accounting Rules on Public-Private Comparisons, 27 ABA J of Lab & Emp L, 227, 229 (2012).

[2] See Edward A. Zelinsky, Defined Contribution Paradigm, 114 Yale L J 451, 457 (2004) (noting that "[t]he traditional defined benefit plan specified a quite particular kind of benefit: a deferred annuity, starting at retirement, typically measured by the employee's work and salary history"). As Zelinsky notes:

[T]raditional defined benefit pensions have four major characteristics as a matter of plan design. First, they provide income on a deferred basis at retirement and not before then. Second, traditional defined benefit plans provide such retirement income as periodic, annuity-type payments rather than as single lump sums. Third, traditional defined benefit plans are funded collectively, the employer's contributions being pooled in a common trust fund from which all participants receive their benefits. Finally, the defined benefit format places on the employer rather than the employee the obligation to fund the benefit promised to the participating employee. If the funds in the trust are inadequate to pay promised benefits, the employer is obligated to make up the shortfall. [Id. at 455].

[3] See Davis v Michigan Dep't of Treasury, 489 US 803, 808 (1989) ("We have no difficulty concluding that civil service retirement benefits are deferred compensation for past years of service rendered to the Government."). As explained by Amy Monahan, Statutes as Contracts? The "California Rule" and Its Impact on Public Pension Reform, 97 Iowa L Rev 1029, 1043 (2012):

Pension benefits are, at their core, a form of deferred compensation. They are given in return for an employee's labor and they are structured in the form of pension benefits, rather than current cash wages, for at least two distinct reasons. First, such benefits, accrued over a long period of time, can incentivize employees to stay with a given employer for longer than they might otherwise choose in the absence of such benefits. Second, pension benefits can also be structured in a way that encourages employees to voluntarily leave their employment at the time desired by their employers, thus improving human resource efficiency.

Pension benefits also are likely to have paternalistic motivations. If an employer is concerned that its employees will not adequately save for retirement on their own or will make poor decisions regarding issues such as savings level, investment options, and the rate of withdrawals, then providing a traditional pension plan removes nearly all such decisions from an employee's control and provides employees with a known benefit amount at retirement for as long as the employee lives.

Of course, basic economic theory suggests that the employer will only offer such benefits if the benefits are, in fact, desired and valued by the workers the employer wishes to attract and retain. If the desired employees did not value pension benefits, the employer would be better off offering an equivalent amount of current cash compensation. After all, it is important to remember that these issues are contained within the basic employer-employee framework. At the most basic level, an employer offers these benefits in order to compete for and retain valued employees, in return for the employees' labor. These benefits are part of the overall compensation package, but are structured differently than current cash compensation in order to provide desired benefits to both employer and employee.

[4] State Employees' Retirement Act, 1943 PA 240, § 40, MCL 38.40, providing the right to an exemption from state and local taxes since 1943; Public School Employees Retirement Act of 1979, 1980 PA 300, § 46(1); MCL 38.1346(1), amending predecessor act, 1945 PA 136, Ch 1, § 25, providing an exemption for retirement benefits from state or local taxation for only Chapter I members since enactment in 1945; Michigan Legislative Retirement System Act, MCL 38.1057(1), with exemption added by 1961 PA 167; and City Library Employees' Retirement Systems, 1927 PA 339, MCL 38.705, with an exemption since 1927. It is important to underscore that state pensions under these four retirement systems were not subject to state taxation until the enactment of the Income Tax Act of 1967, 30(1)(f), MCL 206.30(1)(f), which exempted retirement and pension benefits from taxation.

[5] See Pierce v State, 910 P2d 288, 304 (NM 1995)(stating that "any action by the legislature that serves to terminate, diminish or alter the value of pension benefits must be compensated for by providing an equal or greater benefit").

[6] Mark Petit in Modern Unilateral Contracts, 63 BU L Rev 551, 563 (1983) notes:

Courts in earlier times sometimes characterized certain employment benefits as "mere gratuities" in order to reject claims of contractual rights to them by employees. This view runs counter to contemporary conceptions of the employment relationship, however, and has generally been discarded. Most modern courts characterize employment benefits as forms of compensation (usually deferred compensation) that employees earn just as they earn wages or salaries. (Footnotes omitted).

[7] Const 1963, art 1, § 10 provides: "No bill of attainder, ex post facto law or law impairing the obligation of a contract shall be enacted;" US Const, art 1, § 10(1) states in pertinent part: "No State shall . . . pass any . . . Law impairing the Obligation of Contracts. . ."

[8] Recently, in his new book, Reflections on Judging, Judge Richard Posner of the United States Court of Appeals for the Seventh Circuit recognized the dangers of prematurely deciding cases without having all the necessary facts and arguments before the court. Discussing his majority opinion affirming Indiana's voter identification law in Crawford v. Marion County Election Board (2007), which the U.S. Supreme Court affirmed, Judge Posner admitted that he was mistaken because "[w]e weren't given the information that would enable that balance to be struck" between preventing fraud and protecting voters' rights. Observing that the primary opinion in the 2008 Supreme Court decision upholding the law had been written by Justice John Paul Stevens, Judge Posner stated that the outcome of the case goes to show that oftentimes, "judges aren't given the facts that they need to make a sound decision." John Schwartz, "Judge in Landmark Case Disavows Support for Voter ID," New York Times, October 15, 2013.

[9] See Raven Merlau, Comment: The State Giveth And The State Taketh: Constitutional Pension Protections And The Retroactive Removal of Public Pension Tax Exemptions, 19 Geo Mason L Rev 1229, 2256 (2012), criticizing the Advisory Opinion, pointing out that "there is simply no real distinction between diminishing the corpus of a pension payment and taxing it away" and that "allowing states to revoke tax exemptions in public pensions years after the benefits have vested contravenes the very point of constitutional provisions that cordon off public pensions from a legislature's temporal desire to find revenue" and thus "circumvent the protections of their constitutions." As Merlau incisively observes:

A tax-exempt pension is, without question, more valuable than a nonexempt pension. If public employees are willing to accept lower wages because of the prospect of receiving greater deferred compensation, public employees would be willing to accept even lower wages if the later compensation were of higher value. Tax exemptions create just such an increase, thus functioning as part of the consideration a public employee accepts in forming an employment contract with the state.

When states repeal their tax exemptions, they modify their employees' employment contracts - often years after employees rendered their service. In doing so, they retroactively change the structure of the original bargain that they struck with their employees. As the Oregon Supreme Court noted in Hughes [v State, 838 P2d 1018, 1042 n 7 (Ore 1990)], this unfairly allows the state to retain the benefit of the original bargain (receiving the employee's services at a lower wage than would otherwise have been paid), while depriving the employee of her half of the bargain (more pay later).

Noting this unfairness, the North Carolina Supreme Court in Bailey analogized a state's taxing of previously exempt public pensions to a state issuing tax-exempt bonds and then subsequently taxing them. The analogy is apt. When a purchaser of a tax-exempt municipal bond accepts a lower interest rate than is available on commercial bonds, he does so because the state's promise not to tax the bond's interest adds value to the investment; without this assurance, no rational investor would accept the lower municipal interest rate. Removing the tax exemption when the investor attempts to redeem the bond would fundamentally rework the original bargain and violate the terms of the original purchase contract. Removing a tax exemption from vested pension rights - years after the employee has performed the work - is no different. In both cases, the state has used a tax exemption to induce individuals to accept worse terms than are available elsewhere, and it is fundamentally inequitable for the state to later remove the future benefit it promised up front. (Id. at 1251-53; emphasis provided; footnotes omitted.)

[10] See also Eric M. Madiar, Is Welching on Public Pensions an Option for Illinois? An Analysis of Article XIII, Section 5 of the Illinois Constitution (March 1, 2012), http://papers.ssrn.com/sol3/papers.cfm?abstractid=1774163. Madiar is an Illinois Senate Parliamentarian and Chief Legal Counsel to Illinois Senate President John, J. Cullerton.

[11] It is important to note that Madiar criticizes Monahan's approach limiting contractual protection to only "those benefits an employee has accrued through past services." According to Madiar,

Her view, however, fundamentally misapprehends (and ignores) why courts use the deferred compensation analogy to protect public benefits as vested contractual rights.

The deferred compensation analogy exists as a means to achieve a specific objective. That objective was best explained long ago: "Whether it be in the field of sports or in the halls of the legislature it is not consonant with American traditions of fairness and justice to change the ground rules in the middle of the game." The deferred compensation analogy, in turn, is used by courts as a way to avoid the limitation found in most state constitutions that public servants cannot receive "gifts" or "extra compensation" for past services. This fundamental point must be kept firmly in mind.

* * *

As a result, there is no strength to Professor Monahan's claim that "it is consistent with the theory of pensions as a form of deferred compensation [only] to protect pension benefits already accrued" by past services. Professor Monahan's claim fails because it seeks to transform a means into an end itself and jettisons the fundamental principle that the rules of the game for contracting parties are not to be changed midstream.

Accordingly, it is difficult to fathom how Professor Monahan's position truly protects or reflects the reasonable expectations of pension plan participants. This is especially hard to comprehend when public employees have diligently and faithfully paid their contributions while their governmental employers have failed to pay their required share. Indeed, for decades, states have treated pension systems as a credit card to pay for government services and avoid tax increases or service cuts. (27 ABA J of Lab & Emp L at 193-194; footnotes omitted).

[12]As explained by Amy Monahan in Public Pension Plan Reform: The Legal Framework, http://ssm.com/abstract=1573864la, p 15:

Legislation impairs a contract if it alters the contractual relationship between the parties (Allied Structural Steel Co v Spannaus, 438 US 234, 240 (1978). "Legislation which deprives one of the benefit of a contract, or adds new duties or obligations thereto, necessarily impairs the obligation of the contract (Northern Pac Ry Co v State of Minnesota, 208 US 583, 591 (1908). Legislation that reduces the value of a contract has also been found to be an impairment (see, e.g., Retired Public Employees of Wash v Charles, 148 Wash 2d 602, 605 (2003)). An impairment appears to be substantial "where the right abridged was one that induced the parties to contract in the first place. . . or where the impaired right was one on which there had been reasonable and especial reliance." (Baltimore Teachers' Union v Mayor and City Council of Baltimore, 6 F3d 1012, 1017 (4th Cir 1993).

[13] As Jack M Beerman noted in The Public Pension Crisis, 70 Wash & Lee L Rev 3, 51-52:

Unlike the typical regulatory program, pension benefits are earned through government employment and, especially with regard to past services, are compensation for work already performed. In employment situations, perhaps the presumption [that the principal function of a legislature is not to make contracts, but to make laws that establish the policy of the state. Indiana ex rel Anderson v Brand, 303 US 95, 104-105 (1938)] should be flipped - it ought to be presumed that promises made based on employment are intended to be contractual. Otherwise, state and local employers would be free to take advantage of employees in exactly the way that the Contract Clause, as applied to the government's own contracts, is supposed to prevent. Further, allowing state and local governments complete freedom to alter employee benefits retroactively could hamper public employers' ability to attract high quality employees or reduce employers' flexibility regarding the timing of pay and benefits if employees refuse to accept insecure promises of deferred compensation. (Emphasis added; footnote omitted).

[14] See also Lynch v United States, 292 US 571, 579 (1934)("When the United States enters into contract relations, its rights and duties therein are governed generally by the law applicable to contracts between private individuals."); United States Trust, supra, 431 US at 30-31 (noting that "a State is not completely free to consider impairing the obligations of its own contracts on a par with other policy alternatives"). As Beerman points out,

[T]here are very good reasons to treat statutory promises to government employees different from promises contained in other regulatory statutes. Most people have multiple employment options at the outset and at various stages of their careers. Retirement promises form part of the inducement for individuals to choose and remain in government employment. . . . Employees cannot be expected to save two or three times for retirement or change jobs every so often so their retirement promises come from multiple employers. This recognition helps explain why federal law protects private pensions through the ERISA and the programs administered by the Pension Benefit Guaranty Corporation. . . [70 Wash & Lee L Rev at 58].

[15] See also Sylvestre v State, 298 Minn 142 (1973), where six retired Minnesota state district judges brought suit alleging that the state could not reduce their retirement benefits by amending the judges' retirement statute after they had assumed their positions. Because the state was "irrevocably bound" by the terms of the statute in effect at the time that promised certain retirement benefits to district judges after at least 15 years of service and reaching the retirement age, the Minnesota Supreme Court held the State violated the contract clauses of the state and federal constitutions when it applied a statutory amendment retroactively decreasing their benefits.

[16] See US Const amend V ("[N]or shall private property be taken for public use, without just compensation.") As stated by Justice Brandeis in Lynch, supra, 292 US at 579, "valid contracts are property, whether the obligor be a private individual, a municipality, a State or the United States," and "are protected by the Fifth Amendment."

[17] See generally John V. Orth, Due Process of Law: A Brief History, p 7 (2003) (explaining the development of the notion of due process beginning with the rights established in the Magna Carta in 1215 when "the notorious King John was forced by his rebellious barons" not to take certain actions against a free man "except by the lawful judgment of his peers or by the law of the land").

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