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Does Illinois Supreme Court decision doom pension reform?

7 months, 4 weeks ago rebootillinois.com

Ruling states that retiree benefits can't be diminished

From rebootillinois.com:

The state’s new pension reform law could be in danger under an Illinois Supreme Court decision that indicates justices see no room for re-interpretation of the Illinois constitution’s pension protection clause.

By a 6-1 decision, the court ruled that health insurance benefits promised to state retirees should be considered pension benefits and, as such, are protected from any reduction by a clause in the state constitution that states, “Membership in any pension or retirement system of the State, any unit of local government or school district, or any agency or instrumentality thereof, shall be an enforceable contractual relationship, the benefits of which shall not be diminished or impaired.” (The full decision is posted below.)

The ruling strikes down as unconstitutional a 2012 law that increased health insurance premiums for government retirees. The law established emergency rules that could be invoked “to facilitate the maintenance of the program of group health benefits.”

The emergency was that the premiums paid by retirees were insufficient to maintain the group health plan in which the retirees were enrolled and the state could not afford to finance it.

But the court said the state’s ability to pay is irrelevant. Relying on both the constitutional protection clause and the debate at the 1970 constitutional convention from which the clause evolved, the justices said the state is prohibited from reducing the benefits.

“Defendants contend that their position is supported by the debates at the constitutional convention preceding the adoption of article XIII, section 5. This contention is unpersuasive,” writes Justice Charles Freeman, who penned the decision for the majority. “…In light of the constitutional debates, we have concluded that the provision was aimed at protecting the right to receive the promised retirement benefits, not the adequacy of the funding to pay for them.”

That ruling could blast an added $64 million hole in the state’s already unbalanced budget, noted Sarah Wetmore, Vice President and Research Director for the Civic Federation, a nonpartisan fiscal research organization.

“The Civic Federation is disappointed,” she said. “We supported the changes the state made to its state retiree program to end free health care because we thought that would make it more sustainable over the long term.”

Many observers said the July 3 decision also was a harbinger of doom for a much broader pension bill that was passed and signed into law amid much fanfare and controversy in December 2013. The new decision implies that the court is strongly partial to a literal interpretation of the pension control clause, meaning it absolutely will not allow any reduction in benefits. The new law curtails annual pension increases, sets limits on income eligible for computing pensions and raises some retirement ages, among other things.

But the bill also contains trade-offs in exchange for reducing benefits. That’s a legal principle known as “consideration” that wasn’t tested in the Kanerva case. One example of consideration in the pension reform bill is a reduction the amount that comes out of employee paychecks to pay for pensions.

“The legal arguments we were making were not before the court, so we’re still going to be making those arguments,” said state Rep. Elaine Nekritz, a suburban Democrat who played a major role in steering passage of the pension reform bill passed in December.  “I think two things: There is consideration given in the legislation given for some of the changes we made, so that’s’ one argument, and the Legislature is granted broad powers in the case of emergencies.”

State Sen. Daniel Biss, an Evanston Democrat, who joined Nekritz in sponsoring early pension reform attempts, noted the ruling will add to budget problems and is not an encouraging sign for the broader pension changes approved last year.

“I do think it’s important to separate the two rulings because they are on separate issues,” Biss said. “The question is: What counts as adequate consideration? Does additional revenue driven into the system count as adequate consideration? … The are, really, in a fundamental way, different questions.”

Steve Brown, a spokesman for House Speaker Michael Madigan, declined comment Thursday, as did others who were scrambling to interpet the ruling’s implications.

Speaking to Crain’s Chicago Business, Amanda Kass, budget director and pension specialist from the Center for Tax and Budget Accountability, said, “This definitely shuts down the argument that the COLA isn’t part of the benefit.” 

“This is a major victory for members of state retirement systems,” said John Fitzgerald, a partner at Chicago law firm Tabet DiVito & Rothstein LLC who represents retired state teachers and school administrators told Crains. “I expect it will have a very significant effect on pending litigation” over the state’s pension reform law. “It means that the Illinois Supreme Court is giving the pension protection clause the broad and liberal interpretation that the drafters intended.”

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