Michigan Supreme Court
Lansing, Michigan 48909
____________________________________________________________________________________________
C hief Justice Justices
Maura D. Cor rigan Michael F. Cavanagh
Opinion
Elizabeth A. Weaver
Marilyn Kelly
Clifford W. Taylor
Robert P. Young, Jr.
Stephen J. Markman
____________________________________________________________________________________________________________________________
FILED SEPTEMBER 24, 2002
JOHN T. STONE and PHILLIP M. STEVENS,
Plaintiffs-Appellees,
v No. 120211
STATE OF MICHIGAN and DEPARTMENT OF
TREASURY,
Defendants-Appellants.
________________________________
PER CURIAM
I
At issue is whether the plaintiffs, members of a class
consisting of those who retired under the state’s 1996 early
retirement program,1 are subject to withholding for state and
local income taxes on monthly accumulated sick leave payments
pursuant to MCL 38.19f(3). The Court of Claims and the Court
of Appeals concluded these payments were not taxable. We
reverse because we conclude that these sick leave payments are
1
1996 PA 487; 1997 PA 3.
not tax exempt under the relevant statute.
II
As all the parties acknowledge, pursuant to the Michigan
Civil Service Commission Compensation Plan (MCSCCP), Civil
Service Reg 5.10(3)(D)(1)(a) retiring employees of the state
of Michigan hired before October 1, 1980, typically receive a
lump-sum payment for their accumulated sick leave from which
income tax is withheld. In 1996, however, the Legislature, by
amending the State Employees Retirement Act (SERA), MCL 38.1
et seq., created an early retirement program of limited
duration for some senior state employees. This legislation,
which was designed to encourage early retirement by enhancing
certain retirement benefits, also provided that the payment of
accumulated sick leave time to these early retirants2 was to
be made not in a lump sum as was usual, but rather in sixty
consecutive equal monthly payments.3 The state, consistent
with its handling of other retirants accumulated sick leave
pay, was of the view that these payments were subject to
withholding for state and local tax purposes.
2
A “retirant,” as defined by MCL 38.1h(2), is “a person
who has ceased to be a member of the retirement system by
reason of retirement with a pension or retirement allowance
payable from the funds of the retirement system.”
3
MCL 38.19f(3) provides:
Any amount that a member retiring under this
section would otherwise be entitled to receive in a
lump sum at retirement on account of accumulated
sick leave shall be paid in 60 consecutive equal
monthly installments.
2
Plaintiffs, representing a class of former employees who
retired under the early retirement program, sued the state and
the Department of Treasury in the Court of Claims arguing that
taxes could not be withheld from these payments because such
withholding was prohibited by MCL 38.40(1) of the SERA.4
The Court of Claims agreed and granted plaintiffs’ motion
for summary disposition. The Court of Appeals affirmed in a
two-to-one decision. 247 Mich App 507; 638 NW2d 417 (2001).
Defendants seek leave to appeal.
III
The grant or denial of summary disposition by a trial
court is reviewed de novo. Spiek v Dep’t of Transportation,
456 Mich 331, 337; 572 NW2d 201 (1998). This matter also
presents an issue of statutory interpretation. In construing
a statute, it is our obligation to review the words of the
statute and give the words used their plain and ordinary
meanings. Herald Co v Bay City, 463 Mich 111, 117-118; 614
NW2d 873 (2000).
IV
The amendment of the SERA, at § 40(1), states that any
4
MCL 38.40(1) provides:
The right of a person to a pension, an
annuity, a retirement allowance, any optional
benefit, any other right accrued or accruing to any
person under the provisions of this act, the
various funds created by this act, and all money
and investments and income of the funds, are exempt
from any state, county, municipal, or other local
tax . . . .
3
right accrued or accruing to a person under the act is not
taxable. Plaintiffs contend this language precludes taxation
of these payments. However, this statute did not create a
right to receive a lump-sum payment for accumulated sick
leave. That right had earlier been created under the MCSCCP.
The SERA, at § 19f(3), only altered the manner of payment.
When the plaintiffs accepted the state’s offer of early
retirement, with its attendant benefits, they also agreed to
a “give-back” that allowed the sick leave payment to be made
over a sixty-month period, rather than being paid off at the
time of retirement. This concession did not create a right
that accrued to plaintiffs under the SERA. Therefore the tax
exemption provided under § 40(1) does not apply to the monthly
payments for accumulated sick leave under § 19(f).
Plaintiffs also contend that taxation of payments for
accumulated sick leave is a diminishment of a contractual
benefit and as such is a violation of Const 1963, art 9, § 24,
which provides that accrued financial benefits of each pension
plan and retirement system of the state shall be a contractual
obligation that shall not be diminished or impaired. However,
plaintiffs cannot argue that their benefits were impaired or
diminished because these payments were subject to tax and paid
over a sixty-month period in light of the fact that they
agreed to this alteration and thus waived their constitutional
right under Const 1963, art 9, § 24. There is no question
4
that constitutional right can be contractually relinquished,5
and plaintiffs waived their right when they agreed to retire
under the conditions set forth in the act.
IV
The judgment of the Court of Appeals is reversed. The
matter is remanded to the Court of Claims for entry of
judgment in favor of defendants. The motion for peremptory
reversal filed by the defendants is denied as moot.
CORRIGAN , C.J., and WEAVER , TAYLOR , YOUNG , and MARKMAN , JJ.,
concurred.
CAVANAGH and KELLY , JJ., would not dispose of this case by
an opinion per curiam, but would grant leave to appeal.
5
Snepp v United States, 444 US 507; 100 S Ct 763; 62 L
Ed 2d 704 (1980); Haig v Agee, 453 US 280; 101 S Ct 2766; 69
L Ed 2d 640 (1981).
5