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AG Madigan files responses to pension lawsuits

Friday, May 16, 2014

* Attorney General Lisa Madigan responded yesterday to the multiple lawsuits filed against the pension reform law. The Tribune’s Rick Pearson has a very good story about her arguments

In arguing to uphold the law, Madigan’s office contended that since 2000 and the subsequent recession, the state’s underfunding of the pension systems “contributed significantly to a severe financial crisis…that adversely affected the long-term financial soundness of those retirement systems, the cost of financing the state’s operations and outstanding debt, and the state’s abilty to provide critical services to Illinois residents and businesses.

“Although the systems have been underfunded for many years, their underfunding now greatly exceeds the state’s annual budget for all categories of expenditure, including, without limitation, public education, public health and safety, medical coverage for the poor and for current and retired public employees, road construction, repair and maintenance, and all other public services provided by state employees,” the attorney general’s response to the challenges said. […]

The state’s response also argued that a significant driver of the unfunded liability, annual 3 percent compounded cost of living adjustments on retiree pensions, was not a “core benefit” that would be protected by the state constitution.

The law “is a permissible exercise of the State of Illinois’ reserved sovereign powers (sometimes referred to as the State’s police powers),” Madigan’s response said, adding that those challenging the statute “cannot sustain their burden of establishing that (it) is unconstitutional.”

* Here are AG Madigan’s four five responses…

* We Are One lawsuit

* ISEA lawsuit

* Doris Heaton et al vs. TRS

* State University Annuitants Association vs. SURS

* ADDING: RSEA lawsuit

- Posted by Rich Miller        


88 Comments
  1. - Norseman - Friday, May 16, 14 @ 10:10 am:

    Where is the response to RSEA?


  2. - wordslinger - Friday, May 16, 14 @ 10:13 am:

    –In arguing to uphold the law, Madigan’s office contended that since 2000 and the subsequent recession, the state’s underfunding of the pension systems…–

    Since 2000? I think Lisa needs to dial the Wayback Machine back a few more decades.


  3. - A guy... - Friday, May 16, 14 @ 10:16 am:

    Someone just added a little Tabasco to the soup.


  4. - Pacman - Friday, May 16, 14 @ 10:22 am:

    So the state wants to use it’s police powers when it comes to pensions to the exclusion of all other expenditures?


  5. - Wallinger Dickus - Friday, May 16, 14 @ 10:22 am:

    Isn’t discovery going to be fun?

    That’s when everyone will learn that the earth isn’t 6,000 years old and the pension issue didn’t begin with Blagojevich.


  6. - foster brooks - Friday, May 16, 14 @ 10:25 am:

    very weak reponse


  7. - Joe M - Friday, May 16, 14 @ 10:26 am:

    The defendants seem to be arguing that Automatic Annual Increases (AAI) are not protected by the Illinois Constitution’s pension protection clause.

    I’m guessing the plaintiffs will be arguing protection of AAI’s because of the Illinois Constitution’s contract protection clause - as much or more than because of pension protection clause?


  8. - Soccertease - Friday, May 16, 14 @ 10:26 am:

    -The law “is a permissible exercise of the State of Illinois’ reserved sovereign powers (sometimes referred to as the State’s police powers),” Madigan’s response said, adding that those challenging the statute “cannot sustain their burden of establishing that (it) is unconstitutional.”-

    The State also has the sovereign power to tax to generate whatever revenue it needs to pay the pension liability. Can’t wait to listen to a judge clearly explain that to her.


  9. - Wensicia - Friday, May 16, 14 @ 10:27 am:

    I get it. The state didn’t meet its legal obligation in funding the pensions so it doesn’t have to meet its legal obligation in dispensing them.


  10. - UIC Guy - Friday, May 16, 14 @ 10:28 am:

    @Pacman: That’s a very good point. The word ‘bankruptcy’ is often thrown around (though not by the AG, of course: there is no provision for states to go bankrupt, I think) but in a real bankruptcy the burden is shared by all those to whom the given entity owes money. That would most notably include bondholders, but also providers of services who have not been yet paid. But this sudden fiscal emergency, no more than fifty years in the making, is to be solved by reneging on obligations only of one kind.


  11. - lake county democrat - Friday, May 16, 14 @ 10:28 am:

    So now “adversely affecting” is now the same thing as “impossibility”? Or that the state constitution states that benefits won’t be diminished, but that doesn’t apply to a benefit designed to keep inflation from reducing the real value of retiree’s pension overtime to…who knows how little? Or the pretzl logic that the legislature can avoid paying pensions now BECAUSE they underfunded them in the past? This is almost (though not quite) as weak as her argument that the federal probe of Blago constituted incapacitation and allowed her to remove him from office without an impeachment process.


  12. - Just Trying to Survive - Friday, May 16, 14 @ 10:31 am:

    Wish we could hear about what all the “diverted” pension money has paid for over 4 or more decades because of weak spined politicians who trembled in their pants over the thought of asking taxpayers to fund those goodies with increased taxes instead of ripping off employees.


  13. - x ace - Friday, May 16, 14 @ 10:32 am:

    Seems like routine Answer with Police Power Defense. Onward.


  14. - I B Strapped - Friday, May 16, 14 @ 10:34 am:

    Wenscia, in a Landslide!


  15. - archimedes - Friday, May 16, 14 @ 10:35 am:

    The claim that the 3% annual increase is not a “core benefit” will be an interesting discussion. The pension act does not distinguish or define a “core benefit”.

    The exercise of the State’s police power to modify a contract or obligation is the claimed authority for the law. It will be interesting to see if the court extends that authority to allow the State to ignore direct wording in the constitution (this is different than modifying a contract or obligation). In the past, they have not.


  16. - Walker - Friday, May 16, 14 @ 10:38 am:

    Expected arguments from both sides. Not the obvious win either side supposes. On to the court we go.


  17. - Rich Miller - Friday, May 16, 14 @ 10:40 am:

    Norseman, I didn’t have the RSEA response until just a few minutes ago. It’s now posted.


  18. - OVERSIGHT - Friday, May 16, 14 @ 10:46 am:

    Another great diversion.

    Legislature underfunds pensions for years diverting funds to other programs and then the market crashes and them can’t pay pensions. They then blame pensioners as the cause of their problem

    This is the best part…they didn’t make the pension contributions by choice. Then they pass SB 1 knowing that it will be overturned in the Courts. They tell the public..”hey,.we passed pension reform, but the Courts ruled against us.”

    GA diverts blame now away from voting pensioners (election year) and onto the Courts and makes the Courts look like the bad guy to the public.

    Final act…GA screwed up this pension funding and is desperately trying to blame it on someone, anyone but those that created it.
    Themselves…


  19. - dupage dan - Friday, May 16, 14 @ 10:51 am:

    Someone should remind Pearson (annual 3 percent compounded cost of living adjustments on retiree pensions) that it is NOT a COLA.


  20. - Joe M - Friday, May 16, 14 @ 10:52 am:

    Hopefully, the Illinois Supreme Court will be consistent with its ruling in the Illinois Supreme Court’s ruling from Jorgensen v. Blagojevich.

    In that case ISP stated, “No principle of law permits us to suspend [Illinois] constitutional requirements for economic reasons, no matter how compelling those reasons may seem.”.


  21. - dupage dan - Friday, May 16, 14 @ 10:52 am:

    This can’t be the best LM can do, is it? She needs to get better material. Or better writers.


  22. - RNUG - Friday, May 16, 14 @ 10:53 am:

    Going to take a while to read all that.

    From what I have read so far, the State is mostly employing the Sgt Schultz defense in their responses …. “We know nothing”


  23. - PublicServant - Friday, May 16, 14 @ 10:53 am:

    The primary driver of the state’s fiscal problems that led to the unfunded pension liability is a flawed tax policy that generates insufficient revenue to pay for the state’s programs. Why do you think they used the pensions as a piggy bank?

    The state chose to underfund the pensions as opposed to the politically unpalatable, but morally responsible choice of raising adequate revenues to meet the costs of their chosen expenditures. Now, they are attempting to say that we must use the state’s police powers to abrogate the pension contracts because, well, because that’s how we want to do it.

    And even though the state created the situation in which they find themselves, they still think that abrogating the pension contract is “a permissible exercise of the State of Illinois’ reserved sovereign powers.

    If the state is allowed to create a crisis, and then say we’re going to abrogate a contract using our reserved sovereign powers, then any contract with the state would ultimately offer no protection to the other party especially when that party has already fulfilled their obligations under the contract.


  24. - archimedes - Friday, May 16, 14 @ 10:55 am:

    Upon further review. There is a pattern in the responses to the claims. Consistently, AG Madigan admits the impact of the law - but then consistently denies that that impact diminishes or impairs the pension benefit.

    For example, she admits the Act will reduce the COLA for the named plaintiff’s pension - but denies that the pension benefits will be diminished or impaired by this change.

    So, the strategy appears to be to admit to a contractual modification (claiming this to be a valid exercise of police power) - but deny that the contractual modification is a diminishment or impairment of the pension.

    Thus the Act would not be a direct violation of the constitutional language.


  25. - Cold - Friday, May 16, 14 @ 11:03 am:

    Ok litigators. What do you think about strategic decision to file an answer rather than a 2-615 or 2-619 motion to dismiss when the affirmative defense doesn’t really allege more than broad conclusions and the preamble to the statute?


  26. - Pacman - Friday, May 16, 14 @ 11:07 am:

    We can’t pay our retires, but we got a 100 million dollars for a presidential library?


  27. - Underfunded - Friday, May 16, 14 @ 11:08 am:

    So in other words. Lisa is saying my father Speaker Madigan of the house has since 2000 has been underfunding the pension systems and that has “contributed significantly to a severe financial crisis. How can the speakers daughter even respond to the lawsuit. I guess the Madigan’s want to be judge and jury. If I remember correctly, people where questioning the neutrality of supreme court justices Speaker Madigan helped to seat. And we wonder why people want term limits.


  28. - RNUG - Friday, May 16, 14 @ 11:23 am:

    Made it through the We Are One response.

    Interesting that the AG is quoting the GA’s contentions / findings as facts while denying a lot of the retirees statements that are easily proven. My reaction is that it is a fairly weak response.


  29. - Kerfuffle - Friday, May 16, 14 @ 11:23 am:

    Perhaps the AG’s heart isn’t in the state’s case.


  30. - Joe M - Friday, May 16, 14 @ 11:28 am:

    Public Servant ==If the state is allowed to create a crisis, and then say we’re going to abrogate a contract using our reserved sovereign powers, then any contract with the state would ultimately offer no protection to the other party …==

    That is pretty much what the U.S. Supreme Court said.

    According to Westlaw, the most cited case about the U.S. Constitution’s contract protection clause and states powers is the case, U.S. Trust Co. of New York v. New Jersey, 97 S.Ct. 1505. In that case, the U.S. Supreme Court stated:

    “Contract Clause of [U.S.] Constitution limits otherwise legitimate exercise of state legislative authority, and existence of important public interest is not always sufficient to overcome that limitation……..”.

    also:

    “If a State could reduce its financial obligations whenever it wanted to spend the money for what it regarded as an important public purpose, the Contract Clause would provide no protection at all.”.


  31. - Just Trying to Survive - Friday, May 16, 14 @ 11:34 am:

    Pacman says we don’t have enough to pay our retirees but we have 100 million for a presidential library………………in addition , we’re SO broke that we can afford to do all the state’s business on less tax revenue too(except honor our constitutional obligations to pay retirees). Uh-hm.
    And then there’s the AAI (some call it a COLA). The AAI was paid for each payroll deduction by workers. At least I should say they paid their
    part while the deadbeats did not. Was everyone thinking that the AAI deduction from paychecks was for Illinois roads or other public services? A donation to everyone except the workers themselves in their retirement?


  32. - Capitol View - Friday, May 16, 14 @ 11:34 am:

    I’m tired of the “poor stock market” defense. When the market was going nuts and generating 18-20% returns, the General Assembly used that occasion to declare a Pension Payment Holiday.
    When you use the market, you have to invest in both good and bad times, and appreciate the growth in good times without cutting back on your investment pattern.
    The General Assembly and GOMB have no one to blame but themselves over the past forty years or more.


  33. - PublicServant - Friday, May 16, 14 @ 11:34 am:

    Is the AAI a benefit to its recipient? Of course.

    What is it a benefit of, if not the pension?

    If the AAI is reduced, has it been diminished or impared?

    Love to hear the State’s arguments that its not unconstitutional.


  34. - Ghost - Friday, May 16, 14 @ 11:35 am:

    So if I buy a house and a car, and what I owe on my mortgage and car loans exceeds my income for a year I am in a fiscal crisis and dont have to pay those loans?

    The fact that the entire endebtidness is greater then a signle years budget is a red herring. The entire debt of the pension plan is not now due, and is not based on what the State currently spends for pensions.

    So its not really a fiscal emergency, its a fiscal problem where the State can make payments for decades to fix it.

    Also why arent we using our police powers to stop paying all the bills we own if we are in such a dire straight? And she does not really explain how the States Police power allows it to over ride its constituion, including the constitutional process for changing the constitution!

    As to the annual increase…in the pension law it is not called a cola, it is described as an annual increase in the pension, for which the employees contributed an extra percentage of their salary. So it is a core pension benefit.

    I would note that when the supereme court had their pensions cut! they held as a matter of law that the cost of living increase every year was part of the core salary.

    I guess this will show whetehr madigan bought the superme court by giginv them their pensions untouched, or whether they will apply the law fairly to all.


  35. - RNUG - Friday, May 16, 14 @ 11:38 am:

    Made it through the RSEA response.

    Like -archimedes- said, definite pattern to the responses. Pretty much identical to the We Are One response although I did notice a couple of more admissions of fact to a couple of items specific to this filing.

    Probably going to skip reading the rest until sometime over the weekend.


  36. - RNUG - Friday, May 16, 14 @ 11:43 am:

    - PublicServant - Friday, May 16, 14 @ 11:34 am:

    On the AAI, the AG’s argument, in a nutshell, is the GA changed the rate in the past so they can change it now. That claim ignores the fact all the changes were upward, which would fall under a previous ruling that “… and enhancements granted by the General Assembly …”


  37. - A guy... - Friday, May 16, 14 @ 11:48 am:

    In the subject line of this memo it should say:
    Dad, FYI


  38. - PublicServant - Friday, May 16, 14 @ 11:53 am:

    I think her argument is that reducing the AAI IS an enhancement…for the state…


  39. - Mason born - Friday, May 16, 14 @ 11:55 am:

    I noticed the response (at least to the we are one) spends a lot of time blaming the Unions for contributing to the Pension mess. Aka for requesting enhancements and salary increases. I don’t think even Rauner would have made some of those contentions.


  40. - dupage dan - Friday, May 16, 14 @ 12:01 pm:

    Maybe they could call the reduction of the AAI an “Aussie” enhancement. Check out the down under maps, they all have south being on top.


  41. - Archimedes - Friday, May 16, 14 @ 12:03 pm:

    On blaming investments.

    In 1970, the State owed $2.5 billion, the unfunded liability,

    The S&P 500 averaged 11.5% from then until 2013. This includes several recessions.

    That $2.5 billion would be worth $178 billion today if invested in an index matching the S&P.

    So, the investment environment is NOT the cause of the unfunded liability.


  42. - Norseman - Friday, May 16, 14 @ 12:05 pm:

    === On the AAI, the AG’s argument, in a nutshell, is the GA changed the rate in the past so they can change it now. That claim ignores the fact all the changes were upward, which would fall under a previous ruling that “… and enhancements granted by the General Assembly …” ===

    RNUG, I’m not seeing this argument in the ISEAR response. It looks like they’re using the AAI as an example of a major cause of the financial crisis. Did this pop up in the We Are One response?


  43. - Federalist - Friday, May 16, 14 @ 12:17 pm:

    WOW! An incredibly weak response from the AG to defend this lawsuit. Basically saying its the state’s fault for not funding but we don’t have the money now and want to spend it on other things.

    Totally ignores the .5% contribution toward the AAI and states it is not a ‘core’ component of the system even though it has been operational for several decades.

    Sounds like she is on the side of the state employees if one has any common sense.

    If the ISC buys into these arguments, the FIX will have been in from the get go. Hopefully that is not the case.


  44. - Norseman - Friday, May 16, 14 @ 12:20 pm:

    === I noticed the response (at least to the we are one) spends a lot of time blaming the Unions for contributing to the Pension mess. ===

    I guess the AG’s office thinks the unions have a right to unilaterally grant these enhancements. Like saying it’s the kids’ fault because mommy and daddy can’t say no.


  45. - Pacman - Friday, May 16, 14 @ 12:25 pm:

    When all else fails throw everything up against the wall and hope something sticks. When you start from a weak position it’s hard to put forward a strong defense.


  46. - Archimedes - Friday, May 16, 14 @ 12:25 pm:

    The AG position can be boiled down to:

    1. The cost of pensions is extreme, preventing reasonable spending on other needs.

    2. This cost was unforeseeable and beyond our control,

    3. We made some changes to the pension contract.

    4. None of the changes made diminish or impair benefits of the pension contract.

    I think 2 and 4 are going to be tough to defend.


  47. - Kurt in Springfield - Friday, May 16, 14 @ 12:45 pm:

    Regarding the Automatic Annual Adjustment (AAI) commonly referred to as the COLA increase and the Pension Clause in the constitution.

    First, the AAI is contained within the pension code. See 40 ILCS 5/14-114(a-1); 40 ILCS 5/15-136(d-1); and 40 ILCS 5/16-133.1(a-1).

    Second the ISC has already ruled the Pension Code is the contract mentioned in the “contractual relationship” portion of the clause.

    (a State employee’s pension rights are “governed by the actual terms of the Pension Code at the
    time the employee becomes a member of the pension system”); Miller v. Retirement Board of
    Policeman’s Annuity, 329 Ill. App. 3d 589, S97 (1st Dist. 2001)

    Therefore the only conclusion based on the history of the ISC decision is that the AAI is a pension benefit that is covered by the Pension Protection Clause.


  48. - Sue - Friday, May 16, 14 @ 12:51 pm:

    why not get everyone to agree to file an agreed motion to transfer case directly to the Supreme Court/ there is nothing to be gained by wasting any time in the trial court or appellate court


  49. - Kurt in Springfield - Friday, May 16, 14 @ 12:55 pm:

    There is a huge difference between the changes in SB1 and the retiree healthcare changes in the Maag case.

    Retiree Healthcare benefits are not and never were contained in the pension code; and therefore, not covered by the Pension Protection clause of the Illinois Constitution, at least IMHO.

    BTW, the Miller case I mentioned above may have been an appellate decision, but it stands as the final ruling on that issue by Illinois courts.


  50. - anon - Friday, May 16, 14 @ 12:57 pm:

    I think the decision to file an answer and engage in discovery instead of filing a potentially dispositive motion to dismiss may have been to delay Supreme Court review of the case. After all, the AG opposed a stay which would be in place until Supreme Court resolution. The politicians have a lot to gain by the farce that the courts might uphold the “reform.”


  51. - archimedes - Friday, May 16, 14 @ 1:14 pm:

    As far as the AG argument that the increase in pension costs can be attributable to things such as the 3% compounded annual increase, people living longer, and other changes in actuarial assumptions.

    Per the TRS Annual Reports, in 1971 the annual increase was 2% simple and the normal cost was 15.8% - teachers paying 8% and the State paying 7.8%.

    In 2014, the annual increase is 3% compounded and the normal cost is 17.38% - teachers paying 9.4% and employer paying 7.98% (State pays 6.72% and school districts pay 1.26%).

    I’m not seeing the increased cost to the State from the 3% compounded annual increase and the change in actuarial assumptions.


  52. - east central - Friday, May 16, 14 @ 1:23 pm:

    “Defendants deny that the fact that the State did not make the required ARC payments caused all of the unfunded liabilities or were the proximate cause of the State’s fiscal crisis” (AG ISEA response, page 4)

    As an aside, is it doubly bad to fail to make required Actuarially Required Contribution payments?

    If the GA extends the 5% income tax rate, then is there still a fiscal crisis given they plan to send $500 checks to homeowners while ARC payments are being made?


  53. - Anon. - Friday, May 16, 14 @ 1:24 pm:

    ==Retiree Healthcare benefits are not and never were contained in the pension code; and therefore, not covered by the Pension Protection clause of the Illinois Constitution, at least IMHO.==

    Too bad the constitution doesn’t say it protects pensions, but rather it protects the benefits of “Membership in any pension or retirement system”.


  54. - anonymous - Friday, May 16, 14 @ 1:25 pm:

    I think if I were the state and I had to argue in court to uphold legislation to diminish pensions, I would base my argument on a clause in the preamble of the state constitution: “In order to provide for the health, safety and welfare of the people….” I would acknowledge that previous legislators and governors messed up by not fully funding state employee pensions and that pensioners are going to be adversely affected by the new law. But I would counter that the constitution provides for the health, safety and welfare of ALL the people of Illinois, not just the sub-group of pensioners, and that the cost of funding pensions has grown so great as to undermine the welfare of the 10 million or so Illinoisans who are not pensioners — the greatest good for the greatest number Utilitarian doctrine. This is the “police powers” emergency strategy, but I don’t see how the state has any other argument to make.


  55. - No Raise - Friday, May 16, 14 @ 1:29 pm:

    This entire scenario is an exercise in deceit. And it goes to the heart of contractual obligations and protections. Simply put, if the state can unilaterally refuse to abide by a fully executed contract (employees performed their part) when that contract is constitutionally protected, then why not declare regular contracts with vendors null and void (after the vendors performed). Those vendors’ contracts aren’t constitutionally protected. Point is, why would any company ever want to do business with the state if the constitution means nothing?


  56. - Just Trying to Survive - Friday, May 16, 14 @ 1:31 pm:

    What would a “benefit” of membership in any pension or retirement system be other than receiving a pension? A trip to Disneyworld?


  57. - Rich Miller - Friday, May 16, 14 @ 1:44 pm:

    ===clause in the preamble===

    I could be wrong, but I think the ILSC has ruled that the preamble is non-binding. You’d be surprised how much of the constitution has been ruled that way. For instance, this one…

    ARTICLE XI
    ENVIRONMENT

    SECTION 1. PUBLIC POLICY - LEGISLATIVE RESPONSIBILITY
    The public policy of the State and the duty of each person is to provide and maintain a healthful environment for the benefit of this and future generations. The General Assembly shall provide by law for the implementation and enforcement of this public policy.

    SECTION 2. RIGHTS OF INDIVIDUALS
    Each person has the right to a healthful environment.
    Each person may enforce this right against any party, governmental or private, through appropriate legal proceedings subject to reasonable limitation and regulation as the General Assembly may provide by law.


  58. - Anonymous retireee - Friday, May 16, 14 @ 1:49 pm:

    It is the current and former members of the General Assembly and the current and former governors who created the underfunding by kicking the can down the road. Perhaps they should all give up their pensions and that money can be used to fund the other pension systems


  59. - Andrew Szakmary - Friday, May 16, 14 @ 2:18 pm:

    There has been no change to the 3% compounded AAI since 1989. I accepted employment with the state in 1990, and it was a close call, because I had two other job offers elsewhere. I don’t see how you can argue with a straight face that that the AAI is not a contractual obligation - were that not part of the deal, I probably would never have taken the job with a Illinois to begin with.


  60. - The Dude Abides - Friday, May 16, 14 @ 2:25 pm:

    I read a report not too many months ago which examined the gradual decrease of pension funding. Such things as the big recession of 2001-2002 and the long term historically low interest rates did have a negative effect on the pension system funding. However that is not the principal cause of the funding problem. The study found that if the state had just made its annual payments all along, the fund would currently be funded at a 70% level. With 70% funding you certainly don’t have a big crisis. The state is primarily responsible for the pension fund problem because the state had a structural deficit for years but rather than stick their neck out politically by suggesting an increase of the 3% state income tax, which was much lower than the neighboring states, they borrowed money from the pension fund.
    Last year, they took the easy way out again by penalizing a small portion of the state population in coming up with their solution. There was less political risk in angering the state workers and retirees rather than coming up with alternative solutions which would affect more people. Once again, they think of themselves first and seek solutions which put their political careers at less risk.


  61. - Just Trying to Survive - Friday, May 16, 14 @ 2:28 pm:

    =probably would never have taken the job with Illinois=

    While friends asked me how I could settle for such a low salary, I thought ahead to my retirement and figured I would at least be secure in old age in return for not having the good life along the way. Ha.


  62. - east central - Friday, May 16, 14 @ 2:41 pm:

    This may be in court for a few years, with the many individual situations in the suits and with the AG throwing everything but the kitchen sink into the responses. A long time frame is probably not good for any of the parties involved, except the attorneys of course.

    I wonder if it is possible that a new legislative solution may emerge next year after the election.


  63. - archimedes - Friday, May 16, 14 @ 2:41 pm:

    Its important to distinguish between a contractual obligation - and a change to the contractual obligation that is prohibited by the constitution.

    The State, if they can defend their use of police power, can change or modify a contractual obligation. However, the courts have already said the State cannot change/modify a contractual obligation in a manner prohibited by the constitution (as in the judges vs. Blagojevich).

    So, AG Madigan is stubbornly saying that - while reducing the Annual Increase (COLA) is a contractual obligation permitted using police power - reducing the Annual Increase is not a diminishment nor impairment of benefits.

    The latter would cross the line of an action prohibited by the constitution, which even using police power cannot be done.

    I realize it seems like common sense that reducing the COLA is a diminishment (and I agree) - but that is the argument being made. The COLA is not a pension benefit (at least, not as defined in the Pension Clause), and can therefore be reduced as a contract modification using police power.

    In essence, the State - with a valid use of police power - can modify the pension contract as long as “the benefits of which shall not be diminished nor impaired.”


  64. - Yellow Dog Democrat - Friday, May 16, 14 @ 2:42 pm:

    In the AG’s defense, Illinois’ pension system was 89% fully funded.

    I think Schnorf will back me up.

    I suspect that underfunding of the pension system is cocyclical with the stock market.


  65. - RNUG - Friday, May 16, 14 @ 2:43 pm:

    - Norseman - Friday, May 16, 14 @ 12:05 pm:

    I’d have to double-check, but I believe it was part of the affirmative defense at the bottom. You may not find it exactly as I stated it, I was summarizing.


  66. - RNUG - Friday, May 16, 14 @ 2:50 pm:

    - archimedes - Friday, May 16, 14 @ 2:41 pm:

    I would counter that the argument Nardulli used in the Maag / Kanerva stating the health care is not protected because it isn’t part of the pension code could be reversed to say the AAI is protected because it is part of the pension code.


  67. - Low information voter - Friday, May 16, 14 @ 2:57 pm:

    Hey archimedes - thanks for the insight.

    I have no idea what to make of all of this (I’m your typical uninformed voter), and more importantly…I have no idea who to trust.

    I just assume everyone is trying to zoom me for their own purposes.

    Your analysis seems pretty levelheaded. Thanks!


  68. - Federalist - Friday, May 16, 14 @ 2:57 pm:

    @ Just Trying to Survive,

    Your commnet: What would a “benefit” of membership in any pension or retirement system be other than receiving a pension? A trip to Disneyworld?

    For your edification it would be called Health Insurance as promised and provided for by legislation and which became a part of this conversation.

    And as Anon stated: Too bad the constitution doesn’t say it protects pensions, but rather it protects the benefits of “Membership in any pension or retirement system”.

    Hope this helps explain it to you. But you are right in that it would not cover a trip to Disneyland.


  69. - archimedes - Friday, May 16, 14 @ 2:59 pm:

    RNUG - exactly. While the health care was not protected, the AAI certainly is since it is a part of the pension formula. If it is protected under the Pension Clause from “diminishment or impairment” then it cannot be reduced as a contractual modification using police power.


  70. - Anon. - Friday, May 16, 14 @ 3:06 pm:

    ==What would a “benefit” of membership in any pension or retirement system be other than receiving a pension?==

    How about health insurance when there is (or was) a statute that says participants in a state retirement system are entitled to health insurance under the state group plan, and the state will pay 5% of the premiums for each year of service? Health insurance is part of a lot of retirement plans. It used to be a frequent component of corporate retirement plans until about 25 years ago, when the FASB started making companies report the expense properly.

    If the clause was meant to protect only pensions, why doesn’t it say that instead of “benefits”?


  71. - Federalist - Friday, May 16, 14 @ 3:13 pm:

    Nardulli’s decision just threw out everything.
    Totally ignored the the IC language which includes not on the words ‘pension’ but also ‘retirement’ benefits by saying the Constitution only mentions pensions and not other benefits. And if anyone thinks that health insurance is not a retirement benefit they are really living in an alternative universe.

    Nardulli even dismissed the contention that premium-free health insurance was an iron-clad promise that induced people to take advantage of an early retirement plan in 2002. Even if someone accepts the idea that promises were made by CMS and the State Employees Retirement System, Nardulli wrote, “Representatives of CMS and SERS cannot bind the General Assembly.” Pretty spacious and desperate logic to my way of thinking considering that the last time I checked these agencies are under law approved by the GA and are responsible to the GA.

    As Norseman stated last March in Capitalfax: “I was fearful of an unfavorable ruling when I heard of the judge assignment.” So was I.

    We shall eventually see and perhaps Nardulli’s decision will be totally vindicated.

    I will go on record and say that I doubt it. There may well be a two Tier system with in Tier 1 whereby what you earned at the time of the law you have and after the new law you are under new rules.

    But again, I am stating only my opinions.


  72. - Arthur Andersen - Friday, May 16, 14 @ 3:26 pm:

    YDD, that’s correct on the 89%. For a period of time, SURS was 100% funded.

    I think you’re also correct on funding and markets. It should be the reverse, which is difficult when times are tough.


  73. - Norseman - Friday, May 16, 14 @ 3:46 pm:

    AA, do you have a time period for that. I don’t recall ever seeing these numbers. Thanks.


  74. - archimedes - Friday, May 16, 14 @ 4:03 pm:

    As of June 30, 2013 the five state pensions are 41.1% funded using market valuation of assets (COGFA). In 1970, the five pension funds were 41.8% funded.


  75. - Arthur Andersen - Friday, May 16, 14 @ 4:13 pm:

    Norseman, FY 2000 I believe.


  76. - RNUG - Friday, May 16, 14 @ 4:24 pm:

    - archimedes - Friday, May 16, 14 @ 4:03 pm:

    And given the current situation, the fact the funds have survived 64 years is a powerful argument against any kind of fiscal emergency existing.


  77. - Just Trying to Survive - Friday, May 16, 14 @ 4:26 pm:

    Anon. and Federalist………I apparently was in Disney in my head and did not read accurately what was stated when I replied as I did at 2:28. You are absolutely right that membership includes more than a pension (insurance, AAI). Our household has been turned upside down in our planning with this uncertainty (retirees) and it was a hair trigger retort on my part from someone who is stressed out over this. Apologies. This attack on our “assured” livlihood began the moment of retirement and sometimes I think part of the plan is to induce so much stress in some of us, our pension payments won’t be needed anymore so there’ll be more in the pot.


  78. - RNUG - Friday, May 16, 14 @ 4:28 pm:

    - Federalist - Friday, May 16, 14 @ 3:13 pm:

    If the ISC does create a disparity between the already retired and still working Tier 1 groups, it will be interesting to read their justification for going against their previous rulings going back to about 1976.


  79. - wordslinger - Friday, May 16, 14 @ 4:32 pm:

    –As of June 30, 2013 the five state pensions are 41.1% funded using market valuation of assets (COGFA). In 1970, the five pension funds were 41.8% funded.–

    And how many pension payments were missed in those 43 years?

    Zero.


  80. - Rich Miller - Friday, May 16, 14 @ 4:35 pm:

    ===Zero===

    Not true. We had a two year pension “holiday” under RRB.


  81. - Anonymous 85 - Friday, May 16, 14 @ 4:37 pm:

    Charming. The attorney general, whose oath of office (Ill State Const, Article XIII, sect. 3) includes a provision about protecting and defending the state constitution, argues that the governor and the legislature should be able to violate Article XIII, sect. 5 of that same state constitution. I’ve always liked and voted for Lisa Madigan; thought, really, that she would have made a good alternative to Quinn or a viable candidate for Mark Kirk’s senate seat. Feeling a lot less love these days.


  82. - RNUG - Friday, May 16, 14 @ 4:38 pm:

    - Just Trying to Survive - Friday, May 16, 14 @ 4:26 pm:

    Believe me when I say I understand your worries and concerns; if SB0001 stands I’m probably getting whacked harder than most the people here.

    All I can tell you is to try to not stress out and just trust that the legal system will, in the long run, work the way it should work. That’s the only way you can stay sane and healthy because it may be several years before this is all more or less settled.


  83. - wordslinger - Friday, May 16, 14 @ 4:39 pm:

    I wasn’t clear. I meant zero payments to beneficiaries have been missed.

    Payments to the funds are another story, of course.


  84. - Norseman - Friday, May 16, 14 @ 4:40 pm:

    Rich, I think Word was referring to payments by systems to pensioners. PS: did the AG send you the correct response to RSEA?


  85. - PublicServant - Friday, May 16, 14 @ 4:42 pm:

    The current pension ramp is the reason for the crisis. They’re sticking with it to use it as an excuse to paint the pensions as unsustainable even though, as I previously stated, over 80% of the annual amount called for is a ridiculously aggressive payback of the unfounded liability. CTBA had a re amortization schedule that would make the debt repayment level going forward and actually save the state billions through 2059.


  86. - RNUG - Friday, May 16, 14 @ 4:47 pm:

    And I’m sure some of the alternative plans, including the CTBA one, will be used to refute the State’s contention of a fiscal emergency.


  87. - LisaC - Friday, May 16, 14 @ 4:48 pm:

    Rich…I think wordslinger meant how many retirement payments to retirees were missed with the fund only being funded 41% …zero…retirees have never missed a check to my knowledge.


  88. - Arthur Andersen - Friday, May 16, 14 @ 5:05 pm:

    I don’t agree that there is a crisis or that the ramp as enacted created today’s underfunding.

    The multiple re-amortizations of the ramp by Blago/Filan, pension holidays, and the FY 2008 market crash all are bigger problems.


Sorry, comments for this post are now closed.


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