Excerpts from CookCountyRecord.com:
The Illinois Supreme Court has once again rejected a legislative effort to modify public employee pension funding rules, reinforcing the state constitution’s strong protections for retirement benefits. While acknowledging the fiscal challenges facing Illinois, the court ruled that an attempt by the state and Chicago to ease the burden on taxpayers violated constitutional guarantees against reducing public employees' pensions.
On March 24, the court issued a unanimous 5-0 decision, declaring that the 2014 Chicago pension reform law, known as Public Act 98-641, violates the state constitution's pension protection clause. Justice Mary Jane Theis wrote the majority opinion, with five other justices joining in. Justices Charles Freeman and Anne Burke chose not to participate in the decision.
This ruling upheld an earlier decision by Cook County Circuit Judge Rita Novak, who had struck down the same reform law in 2015, citing its failure to meet constitutional standards. Similar attempts at pension reform in Illinois have been repeatedly challenged in court, with courts consistently finding them unconstitutional.
The reform bill allowed the city of Chicago to change how it funds its two main pension systems, which were traditionally supported by property taxes. Under the previous system, employees contributed 8.5% of their pay, while the city matched contributions at a rate of 1 or 1.25 times that amount. Retirees received annuities that increased by 3% annually, regardless of economic conditions. For those who retired after 2011, increases were tied to the Consumer Price Index.
However, subsequent financial analyses showed that the city was underfunding the pension systems significantly. To fully cover obligations, the city would need to contribute nearly three times the employees’ contributions. Without reforms, the city’s pension funds—excluding police and firefighters—were projected to become insolvent within 10 to 20 years.
To address this, the Illinois General Assembly passed a new law requiring the city to increase its pension payments to 90% of actuarial funding levels by 2021. It also gave pension funds the right to sue the city if it failed to meet these obligations. In exchange, the city could ask employees to increase their contributions gradually, up to 11% by 2019, and later reduce it to 9.75% once the funding ratio reached 90%.
The law also eliminated the automatic 3% annual annuity increase for retirees, replacing it with a different funding formula. This led to lawsuits from city employees and retirees, who argued the reform violated the pension protection clause of the Illinois Constitution, which states that public employee benefits “shall be an enforceable contractual relationship, the benefits of which shall not be diminished or impaired.â€
The city defended the reform by claiming it provided long-term stability by ensuring 90% funding and preventing insolvency. However, the Supreme Court rejected this argument, stating that the law effectively forced employees to pay more and retirees to accept less in exchange for a promise that was already legally required by the constitution.
The justices also noted that the 90% funding guarantee in the law was not a binding contract but rather a legal tool for pension funds to sue the city. This left retirees dependent on whatever money the city could afford, rather than a guaranteed benefit. The court reaffirmed its 2015 ruling that a fiscal crisis does not justify violating the constitutional protections against diminishing or impairing pension benefits.
“This reasoning would lead to an absurd and unjust result,†the justices wrote. “Rather, the Illinois Constitution mandates that members of the Fund have a legally enforceable right to receive the benefits they have been promised—not merely to receive whatever happens to remain in the funds.â€
The court also dismissed the city’s claim that the reform was the product of extensive negotiations with unions. While acknowledging that unions were involved in drafting the law, the justices emphasized that the process did not constitute a binding collective bargaining agreement. They stated that individual retirees and workers had not explicitly agreed to the new terms or given up their constitutional rights.
“These negotiations were no different than legislative advocacy on behalf of any interest group supporting collective interests to a lawmaking body,†the court concluded. “The individual members of the Funds have done nothing that could be said to have unequivocally assented to the new terms or to have ‘bargained away’ their constitutional rights.â€
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