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* Ralph Martire of the Center for Tax and Budget Accountability explains why he believes the current pension reform plans on the table are unconstitutional, but he also inadvertently helps point out why judges shouldn’t ever be included in the plan…
Back in the early 1980s the Illinois General Assembly was worried about the unfunded liability owed to the Judicial Retirement System. So to save some money and reduce that unfunded liability, it passed a law changing how a judge’s salary would be measured for purposes of calculating pension benefits.
This miffed a few justices, who sued claiming the change was a violation of Article XIII, Section 5 of the Illinois Constitution. That article provides: “Membership in any pension or retirement system of the state … shall be an enforceable contractual relationship, the benefits of which shall not be diminished or impaired.”
One of the named plaintiffs in this case, James Felt, showed that upon his retirement, the new computation would cause him to lose $3,187.44 in annual benefits. The state countered that its police power allowed it to impair contracts where the impairment was insubstantial and the state’s interest was compelling — in this case ensuring the fiscal viability of its underfunded judicial pension system.
While recognizing the state’s legitimate interest in ensuring the fiscal viability of its pension systems, the Illinois Supreme Court nonetheless struck down the legislation as an unconstitutional diminishment of a pension benefit.
In the process, the Felt Court rejected every single argument the state made. Indeed, the court maintained that doing otherwise would ignore the plain language of the Illinois Constitution, overrule prior Illinois Supreme Court decisions and run counter to the clear intent of the drafters of the Illinois Constitution.
As to this last point, the Supreme Court cited an explanation of Article XIII, Section 5 given by its author in the Record of Proceedings from the 1970 Constitutional Convention. That explanation plainly stated the intention of the provision was to prohibit the state from “changing the terms of” or “lessening” the pension benefits payable to workers “after they have embarked upon employment.”
I’m sure it also didn’t hurt that judicial salaries are protected by the Illinois Constitution…
Judges shall receive salaries provided by law which shall not be diminished to take effect during their terms of office. All salaries and such expenses as may be provided by law shall be paid by the State
But that diminishment clause also gives ample precedent for the pension language’s even broader language…
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.
Discuss.
posted by Rich Miller
Friday, Jan 11, 13 @ 8:37 am
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A great article on this issue - IS WELCHING ON PUBLIC PENSION PROMISES AN OPTION FOR ILLINOIS?: AN ANALYSIS OF ARTICLE XIII, SECTION 5 OF THE ILLINOIS CONSTITUTION - is posted on the Senate Dem’s website. The Great Pension Debate. A detailed analysis of the Illinois Constitution’s pension clause, available at, http://www.illinoissenatedemocrats.com/index.php/component/content/article/108-public-information-brochures/1517-pension-debate
Comment by Reformed Public Servant Friday, Jan 11, 13 @ 8:42 am
By stating its an enforceable contract and making it so the Illinois Constitution ivokes Article 1 of the US Constitution so Illinois judges dont have to be involved ..and Out of state retiree could very well sue in federal court where PQ and Elaine Nekritz are simply defenants who have violted the constitutions they swore to uphold.
The union proposal probably doesnt even make it
Comment by western illinois Friday, Jan 11, 13 @ 9:07 am
Reading the material provided by RPS does seem to indicate that the state is obligated to pay the pension up to the limits of the fund, not beyond. In other words, the state is not guarantor. Am I getting that right?
Comment by dupage dan Friday, Jan 11, 13 @ 9:20 am
What happens if that section of the constitution is amended by vote?
Comment by Ahoy! Friday, Jan 11, 13 @ 9:32 am
to: Reformed Public Servant
Thank you…the link you provided answered a lot of questions. The absurdity of this is that the Governor, Civic Club, and many in the General Assembly are ignoring this analysis. I should point out that all the judges I have spoken with are offended that their retirement system is being left out of many of the reform proposals.
Apparently, some legislators believe that if the reform does not affect judges…they won’t rule against it.
I would venture to say….the Judiciary is not amused.
Comment by R B Friday, Jan 11, 13 @ 9:49 am
Ahoy! @ 9:32 am:
Without the “diminishment” clause, then you probably drop back to the position pensions are still a contract for deferred compensation, and just argue straight contract law … which ought to rule out retroactive changes.
Comment by RNUG Friday, Jan 11, 13 @ 9:56 am
=== also inadvertently helps point out why judges shouldn’t ever be included in the plan… ===
Since the article focuses on the impairment clause, the same has to be said of current employees and retirees.
Comment by Norseman Friday, Jan 11, 13 @ 9:56 am
Does anyone out there know if a federal judge has jurisdiction to hear the inevitable constitutional case against any type of state pension reform? Can a federal court pull such a case away fronm the state courts due to conflict of interest? I have no confidence in an elected state judge ruling on this issue even if any change exempts the judiciary. We need to come to grips with the fact that judges are politicians in our state, and they are not invulnerable to government employee union anger at election time.
Comment by Cook County Commoner Friday, Jan 11, 13 @ 10:00 am
Rich, you have a mental illness. Why are you so funking stupid? You are a zero and everyone knows it. Thanks for letting the truth out.
.
Comment by rahm the god of all Friday, Jan 11, 13 @ 10:05 am
Whaoooo. My computer started displaying some ‘interesting’ words.
By reference, it is suggesting that all of us are mentally touched, of which I must agree in my case is true.
Sometimes the truth hits like a large hammer on an anvil and causes one to pontificate in an unusual manner.
Comment by Sunshine Friday, Jan 11, 13 @ 10:15 am
@Ahoy - the argument would be that amending the Constitution would only work going forward, not retroactively.
Comment by titan Friday, Jan 11, 13 @ 10:17 am
==Apparently, some legislators believe that if the reform does not affect judges…they won’t rule against it.==
If that’s the case, they should quit the GA now. If a court ruled that certain changes to TRS, SURS, etc were OK, then those changes could (and most certainly would) be applied to the judge’s plan. The judges understand precedent.
Comment by Pot calling kettle Friday, Jan 11, 13 @ 10:19 am
Dupage dan your incorrect.
Judges also dealt at the time they can rule on the benefits that affect them.
So many people have not bothered to read the various articles published by experts. The link provided by Reformed Public Servant is a great summary and an analysis of Sidley Austin’s claim on how benefits can be reduced. The U of I Institute for Government and Public Affairs has great information as does Martiere’s…
Comment by Liberty_First Friday, Jan 11, 13 @ 10:33 am
The special rule for judges’ compensation applies only “during their terms of office,” so whatever the GA can do to an already-retired participant in the other retirement systems it can do to a retired judge.
Federal courts would have jurisdiction under Section 1983 of the federal Civil Rights Act to hear a complaint about violation of the federal contracts clause. You have to plead it right, which AFSCME failed to do in its wage freeze suit even after the judge told them how to fix it, which is the reason the judge eventually threw the case out. The federal contracts clause would also prevent the state from reneging on rights deemed to be contractual under the Illinois pension clause, even if that clause is repealed, if they were earned before the repeal. Finally, federal judges have held that statutes that are written in contract-like terms (e.g., “work for the state for 1 year, get 5% of your health insurance premiums paid when you retire”) create rights protected under the contracts clause.
Comment by Anon. Friday, Jan 11, 13 @ 10:36 am
To the Legislative Leaders, the article above is precidence. If any retiree or future retiree can show that any changes you make to the pension system will result in a net loss, reread the article.
My suggestions is you look at the social programs you put in place with the pension money and start cutting there.
Comment by He Makes Ryan Look Like a Saint Friday, Jan 11, 13 @ 10:39 am
Dupage Dan: Here is a link to the pension law handbook put out by the legislature’s Commission- this is from the unions suing over funding: Holding
The Supreme Court examined whether or not pension fund participants and their beneficiaries enjoy a contractual right to enforce a specific level of funding to the respective pension plans. The court noted that the Illinois Constitution allows the Governor to line item reduce or veto any appropriations in a spending bill that is presented to him.
-3-
The court sustained the Governor’s vetoes and held that no statutorily-mandated contractual relationship existed with regard to funding. The court also observed that the legislature could have easily enacted such a provision had it chosen to do so. Furthermore, the court recognized that the sponsors of section 5 of article XIII of the 1970 Constitution only intended to guarantee that pensioners would receive the full amount of their pensions, and that the framers never intended to place a constitutional restriction on the Governor’s ability to reduce annual appropriations to the pension systems.
http://www.ilga.gov/commission/cgfa2006/upload/2008%20january%20handbook%20of%20illinois%20pension%20case%20law.pdf
Comment by Liberty_First Friday, Jan 11, 13 @ 10:39 am
maybe time to redraft IL Constitution
Comment by Dozer Friday, Jan 11, 13 @ 10:41 am
===My suggestions is you look at the social programs you put in place with the pension money and start cutting there. ===
That’s a pretty big assumption, and it says more about you than you may realize.
Comment by Rich Miller Friday, Jan 11, 13 @ 10:41 am
Anon - thank you for that post… there is so little info about SB1313 and how the courts may consider it…
Comment by Liberty_First Friday, Jan 11, 13 @ 10:42 am
…Adding… People always assume that budget cuts will effect the “others,” particularly those they don’t like. In your case, the assumption was made that we could cut social programs and make poor people suffer so you can keep your pension intact.
But the biggest pile of money out there is local government revenue sharing. What if the GA just dipped into that? Well, your local property taxes would soar.
Careful what you wish for.
Comment by Rich Miller Friday, Jan 11, 13 @ 10:46 am
In Munn vs. The State of Illinois (1877) the Supream Court (the Federal Supream Court) ruled that state’s, contrary to the Contract Clause of the U.S. Constitition, could in fact regulate the rates of railroads and warehouses by an agency, independent of the legislature and judicary, that were franchised by the the state. The state’s could modify existing contracts. The results is today’s Illinois ICC. The justification for the ruling was “the good of the people”. Thus regulatory govrnment. I’d be interested in comments on the applicability of Munn to our present situation in Illinois.
Comment by Professor Friday, Jan 11, 13 @ 10:53 am
RPS thanks for the links. Although the state may not be a guarantor couldn’t the retirement systems sue since the state caused their insolvency? It seems that the judges retirement system needs to be included since they are part of ‘the five state systems’. It also appears Quinn, Nekritz and others are using the rating agencies’ demands for 100% funding when they funded 0% in some years. I don’t think the courts-especially with the state’s attempt to bribe them-will be very sympathetic towards the State
Comment by Soccertease Friday, Jan 11, 13 @ 10:55 am
Dozer- Changing the constitution isn’t likely a legal panacea.
Comment by Liberty_First Friday, Jan 11, 13 @ 11:00 am
What part of the “diminishment” clause in the State Constitution do our politicians not understand?
Comment by Meaningless Friday, Jan 11, 13 @ 11:02 am
Read the links- the pension funds are liabilities of the state….
Comment by Liberty_First Friday, Jan 11, 13 @ 11:04 am
Must read on pensions to understand the protections:
http://www.senatedem.ilga.gov/phocadownload/PDF/PensionDocs/madiarrevisedpensionclausearticle.pdf
Comment by Liberty_First Friday, Jan 11, 13 @ 11:11 am
As an observation, courts usually rule on the minimum they can to resolve the given issue in front of them.
IMHO, because in 1975 a level of payments were being made and the pensions funds had money in them and weren’t going to go broke immediately, the court felt it had no need to address the overall funding question at that time … so they deferred that to the legislature. In other words, they said it was up to the legislature to fix it.
A different situation might get a different result … but the funds would probably have to get lower than today first.
Comment by RNUG Friday, Jan 11, 13 @ 11:17 am
“A great article on this issue - IS WELCHING ON PUBLIC PENSION PROMISES AN OPTION FOR ILLINOIS?: AN ANALYSIS OF ARTICLE XIII, SECTION 5 OF THE ILLINOIS CONSTITUTION”
- Thank you. It is simpler just to do the right thing and repay the borrowed funds. Its unfortunate thought Illinois policy makers’ and managers first instinct is to pursue the most difficult and dysfunctional approach every problem.
Comment by Crime Fighter Friday, Jan 11, 13 @ 11:45 am
What am I not understanding….if it is already established that “if” the State defaults on pension payments, the State can be taken to court and sued to make the payments good, how is it the current bills out there cut benefits/increase payments contend they are constitutional because they offer a “guarantee” that the State will fully fund the pensions and this is an equal benefit/comparable new advantage? Wouldn’t being able to take the State to court to legally force them to make the pension payments equal to the bills saying the payments to the pension system will be guaranteed? How is the bill “guarantee” a new advantage/benefit?? Sounds like giving something you already have a legal right to.
Comment by Huggybunny Friday, Jan 11, 13 @ 11:58 am
- That’s a pretty big assumption, and it says more about you than you may realize. -
I’ve seen a lot of letters expressing the same sentiment in the SJ-R. Not the most liberal union, it seems.
Comment by Small Town Liberal Friday, Jan 11, 13 @ 12:08 pm
The Nekritz/Bliss bills contention that promising to fully fund the pension systems counts as “consideration” for reducing benefits, is like saying we should give someone a good citizen’s award because they didn’t rob a bank.
I’m not sure the Courts will buy Cullerton’s idea of choosing between two negatives either - loose your access to health ins or loose your COLA.
One commentator, Whet Moser, seemed to sum it up best in Chicagomag.com when he wrote:
“Get It? The Nekritz bill is unconstitutional because it unilaterally reduces benefits. Cullerton’s bill is constitutional because it gives employees a choice as to what benefits they want to be reduced.”
It will be interesting to see what the Courts have to say about either of those plans if they are passed into law.
Comment by Joe M Friday, Jan 11, 13 @ 12:10 pm
Huggybunny @ 11:58 am:
About the only difference I see in the language in SB0001 is the retirement systems can skip trying other possible steps / actions first and go directly to court. Is this a big deal? I don’t know.
Comment by RNUG Friday, Jan 11, 13 @ 12:14 pm
Soccertease, apparently, one union (teachers?) did try to sue the state for not funding the pensions at the needed level. I can’t remember the details, tho. If my memory serves, the court ruled against the union. Wasn’t there a provision in the lame duck session bill (Nekritz?) that would allow for such lawsuits?
Why all the sturm und drang over the pensions if the state can just tell us pensioners that they have spent all available cash and there ain’t no more. Quinn did that with raises. I think the “jury” may still be out on that tho.
Comment by dupage dan Friday, Jan 11, 13 @ 12:30 pm
DD,
IFT 1975
That and a lot more are identified and analyzed in the Madiar report several people have referenced today.
It and some of the other reports should be mandatory reading for every member of the GA …
Comment by RNUG Friday, Jan 11, 13 @ 12:38 pm
Cullerton’s bill seems to be based on the premise that health insurance is not part of the pension or retirement system. SERS has stated for years that health insurance was not a guaranteed benefit. I could be wrong but I do not believe heath insurance is funded through a pension or retirement system. I would not want to make any significant wager that this approach would be found to violate anything.
Comment by Bigtwich Friday, Jan 11, 13 @ 12:39 pm
@dupage dan:
I’m not sure that I believe your argument. Aside from the obvious, the fact that there is no cash still cannot override the Constitutional provision about pensions. If I remember correctly (and mind you this is other states), I think there was a case in Oklahoma or Nebraska about school funding and the obligation of the state to provide the majority of funding (sound familiar?). The court in that state ruled that the state HAD to come up with the money and the state legislature did so under court order.
Comment by Demoralized Friday, Jan 11, 13 @ 1:07 pm
===The court in that state ruled that the state HAD to come up with the money and the state legislature did so under court order. ===
That argument doesn’t apply here. The courts have consistently and repeatedly (including a few weeks ago) shot down attempts to force the GA to fund education at a certain level.
Comment by Rich Miller Friday, Jan 11, 13 @ 1:09 pm
Sorry. I was wrong. The state did it on their own after the lawsuit was dropped. The court found that it was a political question and not a legal one. My bad.
Comment by Demoralized Friday, Jan 11, 13 @ 1:10 pm
Rich:
I know. And I think it is a shame that the courts in Illinois have failed to live up to their obligation to rule on obvious Constitutional questions. If the Constitution doesn’t mean what it says then why even have one?
Comment by Demoralized Friday, Jan 11, 13 @ 1:13 pm
We will get our first indication as to which way the courts are leaning on the diminishment clause on Monday. The Maag lawsuit has its first hearing on the legislature’s attempt to end subsidies on retiree health care benefits on Monday. Much hinges on the outcome. If the subsidy is found to be a protected benefit then Cullerton’s trade for consideration is dead. However, it is important to note that even if it is not protected he has problems with the bill. Perhaps most obvious is that it is simply not relevant to about 48% of the pensioners (TRS members) who do not get subsidized health care. The rest can claim that it is a coercive choice (no good alternative among choices) and therefore illegal. The Nekritz Bill is simply not worth taking the time to discuss since it is unconstitutional on its face.
As for the outcome I suspect that it will be found to be a protected benefit. Even Madiar in discussions has said that it was protected. (The source of the funding for this benefit does not matter. I could find no evidence that SERS or any other plan specifically noted that the benefit was not guaranteed. In fact quite the opposite.) If that is indeed confirmed then its time to circle the wagons and start considering true reform and not simply stealing from the employees and pensioners.
I’ll say it again, the employees and the pensioners are a very small part of the problem. The uncomfortable and inconvenient truth is that the taxpayers of Illinois are the real problem. They want services and infrastructure but do not want to pay for it! The pension funds have been a credit card for 70 years and now that its time to pay off the balance its very expensive!
We have met the enemy and he is us! Pogo
Comment by Old and In the Way Friday, Jan 11, 13 @ 1:17 pm
Why is no one looking to offer a positive choice instead of incessantly exploring two negatives? In other words, why not, say, give the current empoyers the option to reduce their working hours (37.5 to, say, 30) in exchange for a reduced pension benefits?
They keep what they’ve earned, but moving forward — you can work less and receive less. This seems fair. While if you choose to work the same, you’ll receive the same.
Comment by Anonymouse Friday, Jan 11, 13 @ 1:45 pm
==In other words, why not, say, give the current empoyers the option to reduce their working hours (37.5 to, say, 30) in exchange for a reduced pension benefits?==
Because that does not put needed funds into the system while reducing output. (It reduces output, but also input.) A solution needs to add to the pot.
Comment by Pot calling kettle Friday, Jan 11, 13 @ 2:19 pm
Joe M, I agree with you sentiments IF the courts overturn SB1313, the bill taking away the guarantee of health care benefits. If they allow that to stand, then admission to the states health care plan and some subsidation would be a benefit that can be traded. If they overturn it, then the Cullerton plan falls apart.
Comment by Raising Kane Friday, Jan 11, 13 @ 2:20 pm
Professor — Munn involved the “impairment” of contracts between grain elevators and their customers by setting rate schedules, not a contract between the state and someone else. The courts are much more suspicious of states’ claims that the public good or necessity justify impairment their own contracts.
Comment by Anon. Friday, Jan 11, 13 @ 3:02 pm
How is health care upon retirement not considered a pension benefit/enhancement, when it states you will earn a premium payment of 5% per year of employment up to 20 years. If health care was just a benefit of employment, and not a pension benefit, wouldn’t it just say “you will have health care upon employment” and not mention the word pension or the 5% payment for each year? Isn’t employment considered a contract between the employer and employee? So you have a contract that says it will pay you upon retirement 5% of your health care premium, why would that not be considered protected under the Constitutional amendment?
Comment by Huggybunny Friday, Jan 11, 13 @ 3:09 pm
Once again its not a pension PROMISE its a pension CONTRACT so quit using the term promise
Comment by concern1 Friday, Jan 11, 13 @ 3:58 pm
Old is so full of truth . QC Ch 8 compared Illinois and Iowa Taxes not just income but property and sales and what did they find? Not much difference and with cheaper housing the IL QCs were a better bargain. IL is over all much wealthier than the neigbors and that let us get away with NY and Calif services on an Iowa budget
Iowa medicade would not cover an Iowa Trucker with congestive heart disease because he had made more than 4000 in the last year. He would be covered in Illinois
What we need to look into is if there is anyway we can switch people from low reimbrusemnet medicaide to HIGH reimbrusement Medicaid
Comment by western illinois Friday, Jan 11, 13 @ 3:59 pm
@dupage dan - if you are arguing that the courts can’t force the state to pay an obligation if there is no or insufficient appropriation, you’re wrong. I recalled at least one prominent case associatied with our beloved Blago. He eliminated judge colas from the appropriation. The judges sued, he lost.
The following is from the judgment in ANN B. JORGENSEN et al., Appellees, v. ROD R. BLAGOJEVICH, Governor, et al., Appellants.
“For the foregoing reasons, the judgment of the circuit court is affirmed. Upon receipt of vouchers prepared by the Administrative Office of the Illinois Courts, THE COMPTROLLER IS HEREBY ORDERED TO ISSUE WARRANTS DRAWN ON THE TREASURY OF THE STATE OF ILLINOIS TO PAY THE JUDGES, and the class of judges they represent, the judicial COLAs due and owing for FY2003 and FY2004. Any matters that arise in connection with execution of this judgment shall be presented directly to our court. Because both parties have requested an expedited hearing and ruling in this matter, the mandate shall issue immediately.” (Emphasis on Comptroller language added.)
I’m sure this case figured prominently in the decision to leave judges out of the effort to make pension reductions.
Comment by Norseman Friday, Jan 11, 13 @ 4:21 pm
Old and In the Way,
First, really, really appreciate your thoughtful posts.
If I could add a bit … when the State first granted the “premium free” health insurance upon retirement, it was conditioned on have attained 8 years of service. It didn’t take too long to realize that some private employees were taking their company’s “early” retirement, and then coming to the State for just 8 years to get the health insurance deal.
So they decided to plug that “loophole”. And they did, by changing to make the health insurance available for a partially subsidized premium if you had 8 years in and “premium free” if you had 20 years of service.
The interesting point of that is the new rules were NOT retroactive on the already retired.
Comment by RNUG Friday, Jan 11, 13 @ 4:40 pm
Huggybunny
To your point I have researched the various plans that offer the healthcare benefit and could find nothing to refute that it is indeed a benefit. A commentator stated that SERS indicated that it was not guaranteed, I could not find this in ANY of their literature or info. I did find plenty of mentions that it was a benefit and on fact could find nothing reflecting any changes even in the wake of the bill passed in May 2012. To that end my sister, a SURS annuitant is still waiting, 8 months now, to find out what her monthly premiums will be. Pretty sloppy for a state that is reputedly losing $17 million per day. BTW that figure, oft quoted is pure BS. Is that the amount they would be saving if they cut everyone’s pension? How do they know? The sad fact is that this is pure PR crap. Remember the pensions are squeezing out money for education and old people! Hey, retirees are old people and almost half are educators! Cut those pensions that will help us find and retain more teachers in Illinois. I can’t even listen to Governor Dufus anymore he has become part of the problem and not the solution.
Comment by Old and In the Way Friday, Jan 11, 13 @ 4:50 pm
The question is not whether health insurance is a “benefit.” The question is whether it is a benefit that comes from membership in a pension system.
The answer is pretty clearly no. None of the state pension systems operate health insurance plans. The group insurance plan isn’t part of the Pension Code. In the pension systems that provide health insurance, the Pension Code explicitly says they’re not pension benefits.
Comment by George Monday, Jan 14, 13 @ 1:00 pm