Excerpts from the CookCountyRecord.com:
The Illinois Supreme Court has once again rejected a legislative effort to modify public employee pension funding rules, emphasizing that any attempt to reduce retirement benefits for public workers violates the state constitution. While acknowledging the real fiscal challenges facing Illinois, the court ruled unanimously on March 24 that the 2014 Chicago pension reform law, known as Public Act 98-641, is unconstitutional because it undermines the pension protection clause.
Justice Mary Jane Theis wrote the majority opinion, with Chief Justice Rita Garman and Justices Robert Thomas, Thomas Kilbride, and Lloyd Karmeier 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 in 2015, finding it unconstitutional. The court’s decision reaffirms that public employees’ pension benefits are protected under the Illinois Constitution, meaning they cannot be reduced or altered without violating their contractual rights.
The original pension system required city employees to contribute 8.5% of their salary, while the city matched contributions at a rate of 1 to 1.25 times that amount. Retirees received annual 3% increases, compounded over time, regardless of economic conditions. Newer retirees saw their annuities tied to the Consumer Price Index instead.
However, financial analyses revealed that the city's contributions were insufficient, and a multiplier of nearly three times the employee’s contribution would be needed to sustain the system. Without reforms, the city’s two main 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 law requiring the city to increase its payments to 90% of actuarial funding levels by 2021. It also allowed the pension funds to sue the city if it failed to meet those obligations. In return, the city could raise employee contributions from 8.5% to 11% by 2019, with potential reductions later if funding improved.
The law also eliminated the automatic 3% annual increase for retirees, replacing it with a new funding formula. City employees and retirees challenged the law, arguing it violated the pension protection clause, which guarantees that benefits “shall not be diminished or impaired.â€
The city defended the reforms, claiming they provided long-term stability and ensured the pensions wouldn’t collapse. However, the Supreme Court rejected this argument, stating that the law essentially forced employees to pay more and retirees to accept less in exchange for a promise that was already legally required.
The justices pointed out that the 90% funding guarantee was not a binding contract but rather a legal tool for the pension funds to sue the city. This left retirees dependent on whatever the city could afford, rather than a guaranteed benefit.
In 2015, the court had already ruled that a fiscal crisis does not justify breaking the constitutional protections for public pensions. The same principle applied here, the justices said, and allowing such changes would lead to unjust outcomes.
“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,†the court stated.
The court also dismissed the city’s claim that the reform was the result of negotiations with unions. While the unions were involved in drafting the bill, the justices said this did not constitute a binding collective bargaining process. Therefore, individual retirees and workers had not given up their constitutional rights.
“These negotiations were no different than legislative advocacy on behalf of any interest group,†the justices noted. “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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