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Illinois Supreme Court kills off another attempt at pension reform

Thursday, Nov 29, 2018

* Remember this Tribune story from 2011?

All it took to give nearly two dozen labor leaders from Chicago a windfall worth millions was a few tweaks to a handful of sentences in the state’s lengthy pension code.

The changes became law with no public debate among state legislators and, more importantly, no cost analysis.

Twenty years later, 23 retired union officials from Chicago stand to collect about $56 million from two ailing city pension funds thanks to the changes, a Tribune/WGN-TV investigation found.

Because the law bases the city pensions on the labor leaders’ union salaries, they are reaping retirement benefits that far outstrip the modest salaries they made as city employees. On average, their pensions are nearly three times higher than what the typical retired city worker receives. […]

Pension experts from around the country say they’ve never heard of such a perk for union leaders. They warn that it not only creates opportunities to scam the system but also robs the city of its ability to control pension costs. The city doesn’t set union salaries, the most important ingredient in determining the size of the leaders’ pensions.

What’s more, none of the labor officials retired in the traditional sense. Even as they collected their inflated city pensions, they held on to their high-paying union jobs. A decade ago, those public pension funds were flush, but they’re now in such deep financial trouble that they threaten to burden taxpayers and dues-paying union workers alike.

* The General Assembly quickly passed a law to rein in those pensions, but the Illinois Supreme Court struck it down today

The State concedes that a statutory right to union service credit was created but argues that the right is not one entitled to constitutional protection because the framers of the constitution did not intend it to be entitled to such protection. In so arguing, the State merely relies upon the general justification for a public pension system, which is to reward past public service, to provide a form of compensation for past public service, and to encourage continued public service.

We find nothing in the case law, in the text of the pension clause, or in the constitutional debates on the clause that would support the State’s argument that the particular benefit conferred here is not entitled to protection. Kanerva held that the text of the pension clause places no limits on the kind of “benefit” that is protected by the clause so long as the benefit is part of the contractual relationship “derived from membership” in the retirement system. The participants at issue here are members of their retirement systems entirely due to their government employment. Each plaintiff was either working in his public job when the option to earn union service credit was added as a benefit or started public employment and joined the retirement system after the benefit was already in place. The benefit was clearly a “benefit” within the meaning of the pension clause, and the State’s argument must therefore be rejected. […]

(W)e hold that the ambiguous statutory framework prior to the amendment of Public Act 97-651 must be construed as allowing the right to use a union salary from a leave of absence under section 8-226(c) or 11-215(c)(3) to calculate the highest average annual salary. The amendments effected by Public Act 97-651 necessarily changed the law and thereby diminished plaintiffs’ retirement system benefits in violation of the pension-protection clause of the Illinois Constitution. […]

Plaintiffs next raise an issue of statutory construction unrelated to the two constitutional issues resolved above. They argue that the circuit court erred in denying their motion for summary judgment with respect to counts X and XI of their complaint, which sought a declaration that the “any pension plan” language of section 8-226(c)(3) of the Pension Code does not apply to defined contribution plans. In that regard, section 8-226(c)(3) provides that an MEABF member may receive service credit for time spent on a leave of absence working for a local labor organization, provided “the participant does not receive credit in any pension plan established by the local labor organization based on his employment by the organization.” […]

Because the term “pension plan” in section 8-226(c)(3) is ambiguous in this respect, it must be liberally construed in favor of the rights of the pensioners so as to apply to a defined benefit plan only and not to defined contribution plans. See Kanerva, 2014 IL 115811, ¶ 55. Accordingly, we reverse the circuit court and hold that the term “receive credit in any pension plan” as used in section 8-226(c)(3) does not include defined contribution plans.

- Posted by Rich Miller        

45 Comments
  1. - Perrid - Thursday, Nov 29, 18 @ 3:15 pm:

    ILSC: No take backsies; we don’t care if you made a stupid (corrupt) promise, a promise is a promise.


  2. - Steve - Thursday, Nov 29, 18 @ 3:19 pm:

    You can’t blame the Illinois Supreme Court for doing their job given the state constitution they are handed.


  3. - chi - Thursday, Nov 29, 18 @ 3:22 pm:

    Alternative headline:
    Illinois Supreme Court denies another attempt to violate the Constitution


  4. - Anonymous - Thursday, Nov 29, 18 @ 3:22 pm:

    This example is what leads many to believe that anyone receiving a pension is scamming the system, reaping extravagant sums of retirement income.

    There are instances. But there are plenty getting less than modest amounts and most get modest amounts. Unfortunately, some think in hyperbole and I fear that this will jack those hyperbolic types up to paint with extremely wide brushes once again.


  5. - Galena Guy - Thursday, Nov 29, 18 @ 3:26 pm:

    Steve & chi……yep.


  6. - Sue - Thursday, Nov 29, 18 @ 3:32 pm:

    No- not even close on this one- Supreme Court is wrong and just in my opinion corrupt in terms of turning a blind eye to union influence. The employees while employed by the union should be deprived of their “membership” in a “public” pension plan as they are working for a non public entity. Unfortunately the public sector unions which are really bankrupting us have sufficient influence to have the legislature include these union employees as “employees” covered by the State statute. The IEA and IFT also have some of their private sector employees covered by TRS. If is time someone challenges this with the IRS even if it means getting the plans disqualified. Why should the State’s taxpayers pick up these UNION obligations?


  7. - cover - Thursday, Nov 29, 18 @ 3:33 pm:

    How many more 7-0 decisions will the Illinois Supreme Court have to deliver before the concept of diminishing existing pension benefits finally dies?


  8. - Anonymous - Thursday, Nov 29, 18 @ 3:38 pm:

    If I didn’t know better, I would think that the Supremes are bound and determined to annihilate public support for the public pension system.


  9. - Ole' Nelson - Thursday, Nov 29, 18 @ 3:39 pm:

    It’s almost like the Illinois Supreme Court is hinting that the state is going to have to pay its promised pensions./a

    It was a dumb idea to offer that perk in my opinion, but offer it we did. Now all that’s left is the paying.


  10. - Downstate - Thursday, Nov 29, 18 @ 3:47 pm:

    “It was a dumb idea to offer that perk in my opinion, but offer it we did. Now all that’s left is the paying.”

    And the state has a constitutional amendment that pledges to preserve flat taxes. Job creators invested in this state with that commitment in place.

    Seems like one promise should be as fungible as the other.


  11. - City Zen - Thursday, Nov 29, 18 @ 3:50 pm:

    The whole idea of letting union employees and other third parties piggyback off a govt run pension system is one of the most stupid pension decisions in a long line of stupid pension decisions.

    Unions have their own pension plans for their own employees. If they want to hire public sector employees, they should buyout the govt run pension plan for that employee and enroll them in their own. Unless, of course, their pension plans are inferior, which raises other questions the unions would probably not want to answer.


  12. - Reality Check - Thursday, Nov 29, 18 @ 3:51 pm:

    @Downstate don’t be obtuse. The flat tax language can be changed going forward, by amendment. A graduated tax could not, however, be applied retroactively. The pension language could also be changed going forward, by amendment, but subsequent pension changes could not be applied retroactively either; people get the deal in place when they are hired. And there is no reason to change the constitution for pension changes for new hires, of course, since the pension system can be changed for new hires at any time (see Tier 2).


  13. - Anonymous - Thursday, Nov 29, 18 @ 3:52 pm:

    If I didn’t know better, I would think that the Supremes are bound and determined to annihilate public support for the public pension system

    The Supreme Court is supposed to make decisions based on the Conditution, not public opinion


  14. - Demoralized - Thursday, Nov 29, 18 @ 4:08 pm:

    ==Supreme Court is wrong and just in my opinion corrupt ==

    The Court is corrupt? You want to expand on that “conclusion” other than you don’t like their opinion? Do I like the outcome? No. I think the plan that was set up in this situation is ridiculous. But the Court issues it’s rulings in these pension cases based on what the Constitution says. Unless you think the Constitution is corrupt too . . .


  15. - RNUG - Thursday, Nov 29, 18 @ 4:11 pm:

    %== The Supreme Court is supposed to make decisions based on the Conditution, not public opinion ,==

    Which is exactly what the court did; it followed the State Constitution as written.

    I don’t like this particular instance either, but the GA allowed it. Time for the GA to remove this perk going forward for any new prrson taking such a position.


  16. - City Zen - Thursday, Nov 29, 18 @ 4:13 pm:

    @Reality Check - But I started paying income taxes under a flat tax system. That makes me a Tier 1 taxpayer. Any changes to the tax system should only be applicable to Tier 2 taxpayers.


  17. - Anonymous - Thursday, Nov 29, 18 @ 4:16 pm:

    Rauner called the Court corrupt so Sue parrots that. Speaking of corrupt, it will be interesting in light of Rauner’s heavy use of the Blago Pritzger audio in campaign commercials if those emails he is fighting to withhold contain any quid pro quo haggling for appointments.


  18. - Demoralized - Thursday, Nov 29, 18 @ 4:16 pm:

    ==Time for the GA to remove this perk going forward==

    This is a point that needs to be made over and over again. Public employee pensions can be changed any time - for new employees. The GA has done it before. Tier II was the big instance. If the state wanted to it could go to a 401K type system now. For new employees. And, yes, fix this issue as well.


  19. - Demoralized - Thursday, Nov 29, 18 @ 4:17 pm:

    ==But I started paying income taxes under a flat tax system. ==

    Can we please stop going down this ridiculous argument road? It’s asinine.


  20. - Lil Squeezy - Thursday, Nov 29, 18 @ 4:19 pm:

    Legislators certainly knew this one was unconstitutional when they voted on it.


  21. - brickle - Thursday, Nov 29, 18 @ 4:19 pm:

    @City Zen

    your taxes in previous years wouldn’t be retroactively increased, only taxes in future years after the changes. comparison makes no sense.


  22. - anon - Thursday, Nov 29, 18 @ 4:29 pm:

    This is not a similar case to the other pension cases. The Court could have (as the lower court did) interpreted the word “salary” to mean the government salary forms the basis of the pension. The Court’s decision not to has nothing to do with the pension clause.


  23. - very old soil - Thursday, Nov 29, 18 @ 4:34 pm:

    Blaming the ILSC is like blaming the umpire for calling ball four when the pitch is thrown over the top of the backstop. Blame the legislators who passed this bill and the governor who signed it.


  24. - Chicagonk - Thursday, Nov 29, 18 @ 4:46 pm:

    A fairly predictable decision all things considered. Obviously no one would expect Kanerva to be overturned, but it is frustrating that the Supreme Court seems with every decision to be further handcuffing any potential reasonable solutions to pension reform.


  25. - Joseph Lochner - Thursday, Nov 29, 18 @ 4:58 pm:

    The Illinois Supreme Court exists as a creation of the state constitution. It did not spring forth on its own. It is a political creation, and its jurisdiction is subject to politics. There is absolutely no legal reason the state legislature cannot change the state constitution, and change it in such a way that the benefits paid are diminished, and limit the jurisdiction of the state courts in the matter. The federal 7th Circuit has already affirmed in Council 31 AFSCME v Quinn that the state is a sovereign, has sovereign immunity, and that the federal judiciary cannot compel the state legislature to raise funds to pay previously agreed obligations — suits in federal court under various doctrines, e.g. contract clause, are very unlikely to succeed. This is a state political matter.

    The stronger the state judicial wall against attempts at pension reform stands, in particular against even dubious cases such as this, the more likely that something more radical will come to pass. Perhaps at that point Illinois will have its own “switch in time that saves nine.”


  26. - RNUG - Thursday, Nov 29, 18 @ 5:00 pm:

    == it is frustrating that the Supreme Court seems with every decision to be further handcuffing any potential reasonable solutions to pension reform. ==

    The court has been clear since the 1975 IFT decision that benefits can’t be changed. Pretty much all they have done since then is reinforce and further clarify that decision.

    The courts have hinted / identified two ways to change things. Neither will eliminate the existing prneion debt.

    1) implement a new plan going forward for new hires (see Tier 2 as an example)

    2) implement modification(s) to the existing plan(s) using a voluntary consideration model (several examples in the past, most notably the transition as bout 1970-1972 for SERS employees from the State only / non-coordinated pension plan to the combined State & Social Security / coordinated pension plan)


  27. - ENUF - Thursday, Nov 29, 18 @ 5:06 pm:

    Simple…tax all pension payouts over $200K per year at 100%.


  28. - Chicagonk - Thursday, Nov 29, 18 @ 5:20 pm:

    @RNUG - Both of which, as you state, really don’t move the needle.


  29. - Arthur Andersen - Thursday, Nov 29, 18 @ 5:51 pm:

    Sue, the State is not picking up any ” Union Obligation” by allowing a limited number of IEA and IFT staff to participate in TRS. By law, the unions must pay the full actuarial cost of their employees’ pensions, so the State is held harmless. I don’t know if that’s the case in the Chicago situation we’re discussing.


  30. - GOP Turned Dem - Thursday, Nov 29, 18 @ 6:09 pm:

    Why don’t we just pay the damn pensions and accept reality?


  31. - GOP Turned Dem - Thursday, Nov 29, 18 @ 6:10 pm:

    @ENUF - I wonder if the courts would allow that or if they would consider that a diminishment by the back door. And then we would have a precedent that says NO pension or retirement income could be taxed in Illinois.

    Interesting idea, though.


  32. - In the No - Thursday, Nov 29, 18 @ 6:26 pm:

    Joe L. @ 4:58 - federal courts have no problem weighing in on “state political matters” when it suits them. See e.g., Bd of Trustees of Dartmouth v. Woodward. In that case, Mr. CJ Marshall & his radical gang held that even a revolution doesn’t impair contractual rights. We’re livin’ some strange times, but not sure that anything “more radical will come to pass” to modify this clear & long-standing right.


  33. - Anonymous - Thursday, Nov 29, 18 @ 6:42 pm:

    ENUF you really need to think bigger. People making 200k are simpletons in the grand scheme of things. You mean you’d like to eliminate the possibility of people earning 200k but have no issue with folks eaning millions and paying little in the way of taxes? 200K is filthy rich? Puleeze


  34. - City Zen - Thursday, Nov 29, 18 @ 7:04 pm:

    ==your taxes in previous years wouldn’t be retroactively increased, only taxes in future years after the changes. comparison makes no sense.==

    Then why not, for example, increase the TRS employee pension contribution from 9% to 12%? Your contributions (taxes) in previous years wouldn’t be retroactively increased, only contributions (taxes) in future years after the changes. Same principle. Your pension still vests at the same rate and age. The pension formula doesn’t change.

    Because my example above is considered a diminishment. You can’t increase the employee rate without offering something in return (like when the pension systems enhanced the service years calculation in exchange for 1% increase in employee contribution.

    In that light, anyone who has paid Illinois income taxes is a Tier 1 taxpayer. What is being offered in return for this constitutional change? How about letting me deduct social security payments from taxable income?


  35. - City Zen - Thursday, Nov 29, 18 @ 7:29 pm:

    ==By law, the unions must pay the full actuarial cost of their employees’ pensions, so the State is held harmless.==

    If the pension system was made up of teachers making union salaries, the state would be held harmless. But the unions’ normal cost gets lumped in with teachers from poor rural school districts, those who never vest, and all points in between. Do you honestly think the actual normal cost IEA pays for President Kathi Griffin, who spent 30 years teaching but now makes over $200K, is representative of the huge increase in her pensionable salary?

    The unions are more than happy for this deal because they outsource the pensions of their most expensive employees to the state. If it wasn’t cost effective, they wouldn’t do it.

    The IEA has a pension plan. Ironically, their latest LM-2 report indicated they have an $80 million dollar pension liability even with this loophole.

    You know this already. We’ve had this conversation before. Why do you keep pretending this is a fair deal?


  36. - thoughts matter - Thursday, Nov 29, 18 @ 9:32 pm:

    Was this loophole fair? No- but it was legal. Change it for new employees, if you want, go to a defined contribution plan for new employees. Of course. Be prepared for the state to make matching contributions every paycheck and to have to start paying employer side social security contributions too. Also be prepared for the pension systems to look worse because there will be less contributions being paid into it. Result- higher taxes for all including present and future employees. Second result- a more temporary work force that will take their 401ks with them to their next employer.


  37. - Arthur Andersen - Thursday, Nov 29, 18 @ 10:02 pm:

    What’s the IEA pension plan’s funded ratio? Higher than any of the State plans, I’ll bet.

    We keep having this discussion because Rauner bots like you and Sue try to make everything about Big Labor. You’re not concerned that the School Board Association has the same access to TRS and more participants.

    Oh well, they will all be bailing when the 3% salary cap takes hold and everyone’s bills go up. Another fine Rauner reform.


  38. - mwl - Thursday, Nov 29, 18 @ 10:47 pm:

    So, who exactly changed the three lines of code in the law to make this happen?


  39. - Sue - Friday, Nov 30, 18 @ 4:25 am:

    AA- school administrators are actually public employees. Please tell us why anyone not actually a public employee should be granted pension service credits in a pension intended to benefit public sector employees


  40. - Da Big Bad Wolf - Friday, Nov 30, 18 @ 7:47 am:

    I believe AA was describing superintendents and others in management who aren’t union members but are covered by the same pension.


  41. - Late to the Party - Friday, Nov 30, 18 @ 8:24 am:

    What sort of Legislature do we have that passed the bill that caused this? What sort of Governor did we have that signed it? Good Grief.

    Only when someone shines a light on this sort of thing do they attempt to change it.

    Perks for the few, the powerful, the connected.

    I wonder what deals caused the Legislature to do this.


  42. - jimmydean - Friday, Nov 30, 18 @ 8:44 am:

    keep voting blue and for all of madigans minions..this is what you get…and ask yourself..who sponsord this bill? who called it for vote? do your homework…or if you dont care, ask yourself who has to pay for it…you and the new “fair tax” coming. but hey….you sent a message to trump didnt you?


  43. - City Zen - Friday, Nov 30, 18 @ 8:58 am:

    ==I believe AA was describing superintendents and others in management who aren’t union members but are covered by the same pension.==

    But they are employees of the school district.

    ==What’s the IEA pension plan’s funded ratio? Higher than any of the State plans, I’ll bet.==

    It’s strange, that report doesn’t indicate pension assets nor does it label that liability as net. And reporting the liability with no asset makes the IEA look like its bleeding money. I’m not sure why they’d do that.

    But to answer your question, considering their most expensive employees are not participants in their own company plan, I’d wager their pension plan is better funded than TRS. All the more reason to cover their own employees.


  44. - Oswego Willy - Friday, Nov 30, 18 @ 9:18 am:

    ===keep voting blue and for all of madigans minions..===

    Explain the Illinois constitution.

    Thanks.


  45. - wondering - Friday, Nov 30, 18 @ 9:37 am:

    ENUF…Here is something simple for you. $250,000 pensioner lives in a house worth 4 times his/her income and pays $40,000 in property tax. You tax %100, of income over 200k…sells the house moves out of state, local government down 40k. simple


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