Retired state employees tell lawmakers not to tax pensions

Members of the Michigan State Employee Retirees Association slammed Gov. Rick Snyder’s plan to tax pensions in a letter to lawmakers today.

The letter, signed by Bob Kopasz, the organization’s chair, and Mary Pollack, the group’s legislative representative, says the proposal — if enacted — would violate the state constitution.

First, taxing the pensions of public employee retirees is unconstitutional under Article IX, Section 24 of the Michigan Constitution. It states:
§ 24 Public pension plans and retirement systems, obligation. The accrued financial benefits of each pension plan and retirement system of the state and its political subdivisions shall be a contractual obligation thereof which shall not be diminished or impaired thereby.

In 1991, the Attorney General was asked if the tax exemption in Section 40 of the State Employee Retirement System Act constituted accrued financial benefits protected by Mich Const, Art 9, § 24. The Attorney General opined in OAG 1990-1991, No 6697 (December 18, 1991) as follows:

(a) Amending or repealing the public pension tax exemption in the Income Tax Act would not affect the statutory exemption in Section 40 of the State Employee Retirement System Act.
(b) The legislature could repeal or limit the tax exemption for state retirees in the SERS Act, but only prospectively for new members of the retirement system. Existing state retiree benefits cannot be taxed because these benefits are accrued
financial benefits protected by Mich Const, Art 9, § 24

The association said that under the governor’s plan seniors would end up with a 420 percent tax increase on qualified pensions, and 40 percent increase on non-qualified pensions.

It concluded:

It is ill-advised for the Legislature to violate the Michigan Constitution and break promises it made to state retirees by amending the Income Tax Act (HB 4361) and the various public employee retirement system acts (HB 4480 – 4484) with the intent of taxing current public pensioners, at whatever age. The elimination of senior exemptions and credits will create additional hardships. We urge a NO vote on these measures.

Republicans in both chambers of the legislature have indicated they have significant concerns about the pension tax plan. The revenue the state would bring in under the plan would be used to offset a proposal to eliminate the state’s Michigan Business Tax and surcharge.

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