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Pension reform status update

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* From the We Are One Coalition…

Today, the Sangamon County Circuit Court decided it would take up first the motions filed by the We Are One Illinois coalition and other plaintiffs who argue that the Pension Protection Clause renders SB1 unconstitutional. At today’s status hearing, the Court stated its belief that the Plaintiffs’ motions, if granted, will resolve the question of whether SB1 is constitutional. The Court directed the Plaintiffs to file their replies in support of their motions by October 31 and set argument for November 20 at 1:30 p.m.

The following statement may be attributed to We Are One Illinois:

“As we have always maintained and the recent Kanerva decision confirms, the pension protection clause of the Illinois Constitution is absolute and without exception. There is no merit to the State’s purported justification for the unconstitutional diminishments and impairments that SB1 imposes. We are hopeful for a swift resolution in the plaintiffs’ favor, so that we can work with legislators willing to develop a fair—and legal—solution to our state’s challenges, together.”

…Adding… SJ-R…

“There are three motions pending saying that the reserve sovereign powers as alleged by the state is not a defense in this case,” said Springfield attorney Don Craven, who filed one of the multiple lawsuits attempting to have the pension reform law declared unconstitutional. “The court agreed to take those matters up first. If we are right, and the reserve sovereign powers doesn’t work, this case will be over.”

At least at the circuit court level. Both sides agree the matter will eventually be decided by the state Supreme Court.

posted by Rich Miller
Wednesday, Oct 8, 14 @ 5:09 pm

Comments

Expected, proper, and good for retirees.

Comment by facts are stubborn things Wednesday, Oct 8, 14 @ 5:15 pm
“We are hopeful for a swift resolution in the plaintiffs’ favor, so that we can work with legislators willing to develop a fair—and legal—solution to our state’s challenges, together.”

This time it will be without those already retired.

Comment by facts are stubborn things Wednesday, Oct 8, 14 @ 5:17 pm
Kudos to the Coalition for extending the Olive Branch.

Let us hope cooler heads prevail the second time around.

Comment by Yellow Dog Democrat Wednesday, Oct 8, 14 @ 5:29 pm
This time it will be without those already retire

If not they will be wasting everyone’s time once again. At least you offer consideration to actives. There is nothing they can offer to retirees that doesn’t constitute diminishment if they try anything like they did with SB1.

Oh wait I forgot- Rauner is just going to throw everyone active into a 401k equivalent.

Right…

Comment by Anonymous Wednesday, Oct 8, 14 @ 5:35 pm
(Anon at 5:35 was me.sorry)

Rauner’s campaign spin on this will be “another failure by Quinn” (even though Rauner said he would have vetoed SB1 because it didn’t go far enough)

Comment by Roadiepig Wednesday, Oct 8, 14 @ 5:39 pm
You have to pay your bills. What a concept.

Comment by wordslinger Wednesday, Oct 8, 14 @ 5:43 pm
Rauner’s campaign will be over by the time a court knocks down the Quinn-Madigan pension diminishment act.

Comment by Anon Wednesday, Oct 8, 14 @ 5:49 pm
Good luck on that 401K, Brucie.

Ain’t gonna happen — even if you manage the win.

Comment by Macbeth Wednesday, Oct 8, 14 @ 6:00 pm
SB 1 ‘ s death is slow but sure.If Bruce Rauner keeps his promise to law enforcement and corrections, he and his rich cronies will underwrite the pension liability for public safety. We just have to figure out how to meet our obligations to everyone else

Comment by truthteller Wednesday, Oct 8, 14 @ 6:03 pm
I wonder what Quinn and Rauner have to say about this development? They have said almost nothing about the pension issue in recent months. Do either of them have a plan if the courts declare SB1 unconstitutional? I would like to hear the plan if either has one.

Comment by Hit or Miss Wednesday, Oct 8, 14 @ 6:30 pm
“This time it will be without those already retired”

Won’t make a bit of difference just leaving the retirees out. The ISC has been consistent that the terms at time of hiring are what apply.

I’ve said all along the only legal pension reform is:

a) applying different rules to new hires, which was already done when Tier 2 was created

or

b) coming up with something that is perceived as so good the current employees / retirees will VOLUNTARILY give up some of their current pension rights in exchange for the new offering … basically the same contract modification logic Eric Madiar reached in his “Welshing” paper.

In terms of (b), right now the only thing I can think of that the employees / retirees MIGHT take and the State can possibly AFFORD would be to offer to change the AAI from a fixed 3% to a real, UNCAPPED, AAI percentage based on the federal cost of living (in effect a true COLA). But in that case, the State would be gambling inflation will Stay low and the retirees will be betting inflation is going to soar; the State might lose that bet and end up in worse shape than paying the current 3% AAI.

Comment by RNUG Wednesday, Oct 8, 14 @ 7:19 pm
I could be wrong, but I think this case is going to end with a wimper. Assuming the circuit court finds for the retirees and the decision as written is consistent with both previous cases and Kanerva, I’m guessing the ISC will take a pass on hearing an appeal.

Comment by RNUG Wednesday, Oct 8, 14 @ 7:21 pm
There is no plan “B” for Quinn until after the election. That’s the only play he can make.

Comment by Jack Handy Wednesday, Oct 8, 14 @ 7:37 pm
@ RNUG, 7:21: ==I’m guessing the ISC will take a pass on hearing an appeal==
You may well be right. But the idea worries me. If the ILSC rules decisively against SB1 then any future (and differently constituted) court would have to weight that opinion. (Stare Decisis, as the lawyers say.) Whereas if there is merely a lower court decision on the which ILSC did not rule, there would that much less of an argument against a future pension-cutting bill.

This is pessimistic. Is it all wrong? (I hope so!)

Comment by UIC Guy Wednesday, Oct 8, 14 @ 7:40 pm
The insurance decision said it all. To buy into the state’s contention is a pandora’s box the judges won’t open.

Comment by Liberty Wednesday, Oct 8, 14 @ 7:41 pm
- UIC Guy - Wednesday, Oct 8, 14 @ 7:40 pm:

I hear you, and even feel the same way. But when I read the Kanerva decision, I got the impression the ISC was really talking as much or more about SB-1 than Kanerva from the selective quotes that were included in the written record. In fact, I think I even commented that the Kanerva decision was most of what I would expect to be used in an SB-1 decision.

Comment by RNUG Wednesday, Oct 8, 14 @ 7:50 pm
Timing’s good for some lame duck quacking.

Comment by walker Wednesday, Oct 8, 14 @ 8:02 pm
RNUG right again. Kinerva was a thrust to the heart of both matters.

Comment by walker Wednesday, Oct 8, 14 @ 8:11 pm
RNUG, the problem with switching to a true COLA is how to cost it out. In order to generate the kind of “savings” or in reality reduced expected future State Contributions, the systems’ actuaries would have to assume an absurdly low future rate of inflation. That in turn would lower the assumed rate of return, which raises the unfunded liability. (Assumed rate is composed of x% real return on investments plus y% rate of inflation)

Inside baseball to be sure, but a problem that won’t go away.

Comment by Arthur Andersen Wednesday, Oct 8, 14 @ 8:29 pm
When a body meets a body coming through the rye……

Comment by Ghost Wednesday, Oct 8, 14 @ 9:01 pm
—
b) coming up with something that is perceived as so good the current employees / retirees will VOLUNTARILY give up some of their current pension rights in exchange for the new offering … basically the same contract modification logic Eric Madiar reached in his “Welshing” paper.
—

Which is why I’m mystified why the state isn’t offering genuine consideration. It’s not brain surgery — it’s really not.

Offer a reduction in working hours (37.5 to 30 — or whatever) short-term for a long-term reduction in benefits. Many current employees would gladly trade a short term benefit for a long-term cut.

Offer an increase in short-term pay for long term cuts.

This stuff will work — but no one — absolutely no one — is talking about offering short term benefits for a long term trade-off. It’s weird — very weird.

Comment by Macbeth Wednesday, Oct 8, 14 @ 9:09 pm
- Arthur Andersen - Wednesday, Oct 8, 14 @ 8:29 pm:

I agree. The whole cost calculation issue is why the State settled on a 3% AAI, because it was predictable.

Comment by RNUG Wednesday, Oct 8, 14 @ 9:25 pm
“Which is why I’m mystified why the state isn’t offering genuine consideration.”

Since the retirement systems are all different, it would be difficult to come up with consideration which could apply to all. Reduction in hours would not be feasible for salaried employees, such as TRS members, whose contracts are as varied as the 900 or so school districts in which they work.

Comment by Jeanne Dough Wednesday, Oct 8, 14 @ 9:40 pm
RNUG, as of yesterday, the breakeven inflation rate between ordinary Treasury bonds and TIPS that are indexed to the CPI was just slightly over 2% at the 30-year horizon. Based on this, at the current time, there is no way I would voluntarily agree to accept even full CPI indexing of my pension in return for giving up a fixed 3% annual increase. You would have to be extremely risk-averse, or extremely uninformed, to do so.

The ultimate irony in all this is that when this issue was being debated in the late 1980’s, state employees and the unions representing them were begging for the state to offer full CPI indexing of pensions (as occurs with Social Security), but at that time inflation was running well above 3% per year and the state refused, thinking it would save money. Well, it looks like the state guessed wrong, as have I, on numerous occasions, when making investment decisions. I have never gotten a do-over, and neither should the State of Illinois.

Comment by Andrew S. Wednesday, Oct 8, 14 @ 9:41 pm
Everybody knew the right answer a long, long time ago (i.e., can’t diminish pension). But we’re still hearing, litigating, delaying, lollygagging. We are Illinois.

Comment by Soccertease Wednesday, Oct 8, 14 @ 9:41 pm
As much as the AAI is blamed as the cause of all the problems and is considered excessive, the 3% is less than the average over 39 years cost of living for social security, which comes to over 4%. 3% is a good deal, particularly for budgeting purposes.

http://www.ssa.gov/oact/cola/colaseries.html

Comment by Geronimo Wednesday, Oct 8, 14 @ 9:45 pm
What I am hearing is that madigan etc. think SB1 will be ruled unconstitutional and that they are already moving on to the cost shift. Either way they will have to pay the past bills but can shift the annual cost to the local employer. That an some form of SB 16 seem to be getting serious consideration.

Comment by JS Mill Wednesday, Oct 8, 14 @ 9:50 pm
@- RNUG - Wednesday, Oct 8, 14 @ 7:19 pm:

I was saying that in terms of the unions negotiating a legal solution. That negotiations will be without the retirees. We have nothing to exchange for.

Comment by facts are stubborn things Wednesday, Oct 8, 14 @ 9:53 pm
- facts are stubborn things - Wednesday, Oct 8, 14 @ 9:53 pm:

I don’t believe the union can negotiate a change to the pension terms. The way I see it (and I think the ISC also sees it based on my reading of various cases), that is an individual contract between the employee and the State based on State employment, NOT union membership. All it would take would be one employee who didn’t like the new terms to sue and the deal would be history …

The best the union could do is propose a framework within which the State could offer an option to each employee.

Comment by RNUG Wednesday, Oct 8, 14 @ 10:09 pm
—
The best the union could do is propose a framework within which the State could offer an option to each employee.
—

Then do it — offer a variety of considerations. Trade X for Y. A list for state employees, a list for teachers, etc.

I don’t understand why this is difficult. I mean, I understand that the state doesn’t want to *give* anything. I get that.

But what if the state had a list. If you’re a X, you get X, Y, Z. If you choose none of the above, your pension stays the same. But if you choose one, your pension will be adjusted by -X%.

Is there no one willing to do this?

Comment by Macbeth Wednesday, Oct 8, 14 @ 10:18 pm
RNUG-

You are 100% right!

Comment by constitution Wednesday, Oct 8, 14 @ 10:18 pm
- Macbeth - Wednesday, Oct 8, 14 @ 10:18 pm:

To date, I suspect it has been a combination of these items:

1) some people were still hoping, against logic, to negate the pension debt

2) the political will did not exist to take actions that might be misconstrued as giving state employees yet another perk

3) the people in charge didn’t even think of it

4) they thought of it and the math doesn’t work

I actually think the biggest challenge will be getting the math to work. If the deal isn’t good for the employee, they probably won’t take it. But if you make it that good, it is probably bad for the State. The devil is in the details.

Which means if the State can’t reduce it’s future pension costs by making a favorable, the only other choice is to dump as much future cost as possible. Which is why I suspect -JS Mill- at 9:50 is correct about the cost shift (TRS & part of SURS) being back on the table.

Comment by RNUG Wednesday, Oct 8, 14 @ 11:07 pm
I concur with RNUG that the ruling at the circuit court level could be the end of all hearings on the issue. The Supreme Court has already done the heavy lifting in asserting the primacy of the pension clause through its Kanerva ruling. I don’t think the District Court would bother with hearing an appeal in light of the Kanerva ruling.

Consider that the Kanerva ruling is a major point being cited by the plaintiffs in the motion to throw out the State’s defense. Thus clearing the way for a summary judgment. So courts hearing any future litigation involving efforts to diminish pension benefits would have to consider Kanerva and the import of Kanerva in the circuit court’s SB 1 ruling. For the sake easing the stress level of retirees and many State employees, and to minimize the legal costs to the plaintiffs, I hope Belz puts the stake in the heart of this law on Nov. 20th or shortly thereafter.

Comment by Norseman Wednesday, Oct 8, 14 @ 11:10 pm
- facts are stubborn things - Wednesday, Oct 8, 14 @ 5:17 pm:

“We are hopeful for a swift resolution in the plaintiffs’ favor, so that we can work with legislators willing to develop a fair—and legal—solution to our state’s challenges, together.”

This time it will be without those already retired.

That also includes those who aren’t.

Comment by anoy Thursday, Oct 9, 14 @ 12:10 am
Thank you and I would be that employee.
- RNUG - Wednesday, Oct 8, 14 @ 10:09 pm:

- facts are stubborn things - Wednesday, Oct 8, 14 @ 9:53 pm:

I don’t believe the union can negotiate a change to the pension terms. The way I see it (and I think the ISC also sees it based on my reading of various cases), that is an individual contract between the employee and the State based on State employment, NOT union membership. All it would take would be one employee who didn’t like the new terms to sue and the deal would be history …

The best the union could do is propose a framework within which the State could offer an option to each employee.

Comment by anoy Thursday, Oct 9, 14 @ 12:15 am
Changing the current annual pension increase from flat 3% to a true COLA (tied to inflation) will make absolutely no difference in the long run. Historical inflation in the U.S. has run at about 3% for the past 90 years. Some years more, some less. But, on average, it all balances out.

As an example, look at Social Security increases which are tied to inflation (CPI-W, I think). Annual automatic adjustments to SS started in the mid 70s. Some years there is no increase, in others as high as 14%. Why create a convoluted mess like this?

Comment by Late to the Party Thursday, Oct 9, 14 @ 6:42 am
==Which is why I’m mystified why the state isn’t offering genuine consideration. It’s not brain surgery — it’s really not.==

Actually, it is. The $100 billion deficit is the present value of what the state owes current and future retirees for services already performed, minus the value of assets in the funds. The only way to reduce that value in exchange for genuine consideration is to offer the employees something that is worth less than $100 billion but which the employees value more, so that they would be happy to make the exchange. If you have any of these magic beans, I’m sure the state would be happy to have them. But the usual expectation is that the retirees are going to want something that is just about the same value as what they are giving up, which means offering genuine consideration won’t save the state anything.

Comment by Anon. Thursday, Oct 9, 14 @ 3:40 pm
Judge Belz asked plaintiffs to say what could be constitutional and remain if the bill is declared unconstitutional nthe only thing is the 2% reduction in what present teachers pay. Wouldn’t it be a lesson to the political pension thieves if the whole law is thrown out except for the 2% reduction. It might teach them to not pass laws which they know are illegal and unconstitutional.

Comment by Anon2 Tuesday, Oct 28, 14 @ 11:54 am