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* The decision is here. This was totally expected…
#BREAKING Illinois Supreme Court strikes down plan aimed as rescuing 2 of Chicago's underfunded pensions
— WGN TV News (@WGNNews) March 24, 2016
* Press release…
Affirming a lower court ruling, the Illinois Supreme Court today struck down Public Act 98-0641, legislation that cut the modest pensions of retired City of Chicago employees and required active employees to pay more only to receive a diminished benefit when they retire.
The successful challenge was brought by several active and retired City of Chicago employees and their four unions—the American Federation of State, County and Municipal Employees (AFSCME) Council 31, the Chicago Teachers Union, the Illinois Nurses Association and Teamsters Local 700.
The four unions issued this joint statement:
“Today’s ruling strengthens the promise of dignity in retirement for those who serve our communities, and reinforces the Illinois Constitution, our state’s highest law.
“Politicians caused the pension debt by failing to set aside adequate contributions, in effect borrowing from future retirees to avoid raising revenue or cutting spending instead. At the same time, city workers such as librarians and truck drivers, school social workers and nurses were faithfully paying their share. They earned, contributed to and counted on a modest pension—just $32,000 on average—instead of Social Security, for which city employees are not eligible.
“Like last year’s decision that prevented pension cuts to teachers, state employees and university employees in state pension systems, this ruling makes clear again that the politicians who ran up the debt cannot run out on the bill or dump the burden on public-service workers and retirees instead.
“It’s long past time for elected officials to stop trying to end-run the constitution and shirk their duty. Pension funding challenges require funding solutions that must be constitutional and fair to all. Our unions are committed to working with anyone of good faith toward that goal.”
* Background from the opinion…
Defendants argued that the Act does not diminish or impair benefits because it results in a “net benefit” for the Funds’ participants and will save the Funds from an otherwise inevitable insolvency. The City additionally maintained that any payment of benefits owed prior to the Act was not the obligation of any government entity but, rather, was the obligation solely of the Funds themselves, and that under the Pension Code “participants’ benefits [were] limited to sums on hand in the funds.” Therefore, under the Act, the pension funds will be saved from insolvency and put on a path to full actuarial funding, making the Funds’ participants “better off” than without the Act. Additionally, defendants argued that the modification of benefits under the Act is permissible as the product of a bargained-for exchange between the City and the labor unions.
* From the opinion…
These modifications to pension benefits unquestionably diminish the value of the retirement annuities the members of MEABF and LABF were promised when they joined the pension system. Accordingly, based on the plain language of the Act, these annuity reducing provisions contravene the pension protection clause’s absolute prohibition against diminishment of pension benefits, and exceed the General Assembly’s authority
In other words, the various ideas floated by Gov. Rauner and others to change pension benefits going forward for current employees ain’t gonna hold up.
* More…
Defendants argue that the Act provides an offsetting benefit to members because it rescues the Funds from insolvency and guarantees that the pensions will be paid, by imposing an enhanced statutory funding obligation on the City, by moving to a new method of actuarial based funding, and by providing statutory enforcement mechanisms. Distilled to its essence, defendants’ argument is that the Act’s new promise of financial stability offsets the diminishment of benefits, thereby conferring a benefit when viewed as a whole.
The argument starts from the flawed premise that the provisions of the Act that enhance the City’s funding obligation or change the method of funding to fully fund the pensions are “benefits” entitled to constitutional protection. This notion conflicts with settled precedent. As we explained in Kanerva, the benefits protected by the pension protection clause include those benefits that are “attendant to membership in the State’s retirement systems” (2014 IL 115811, ¶ 41), including “subsidized health care, disability and life insurance coverage, eligibility to receive a retirement annuity and survivor benefits.” Id. ¶ 39. Legislative funding choices, however, remain outside the protections of article XIII, section 5, as consistently explained by this court over the past 40 years […]
Thus, consistent with Lindberg, McNamee and Sklodowski, passing a funding statute that aims to provide full funding by increasing the multiplier used to determine the City’s contribution, or by changing the method of funding to an actuarially based funding requirement to ensure the Funds reach 90% funding by 2055 and beyond does not create a “benefit” protected by the pension protection clause.
* Oof…
The City’s contention [that the funding provisions in the Act must be regarded as a “benefit” because they replace an illusory set of unfunded statutory promises], if adopted by this court, would be inconsistent with the plain meaning of the pension protection clause, would undermine our holding in Heaton, and would lead to an absurd and unjust result. Rather, as we have explained, the Illinois Constitution mandates that members of the Funds have “a legally enforceable right to receive the benefits they have been promised”—not merely to receive whatever happens to remain in the Funds. […]
To put it simply, in 10 years, the members of the Funds will be no less entitled to the benefits they were promised. Thus, the “guaranty” that the benefits due will be paid is merely an offer to do something already constitutionally mandated by the pension protection clause. Since participants already enjoy that legal protection, we reject the notion that the promise of solvency can be “netted” against the unconstitutional diminishment of benefits.
This thing is air tight.
* Support for the reform by union leaders makes no difference, either…
In this case, it is undisputed that the unions were not acting as authorized agents within a collective bargaining process. Thus, we need not resolve whether the vote taken by union representatives as expressed in the Brandon affidavit bound members of the Funds in a collective bargaining process. Rather, we agree with the trial court that “these negotiations were no different than legislative advocacy on behalf of any interest group supporting collective interests to a lawmaking body.” The individual members of the Funds have done nothing that could be said to have unequivocally assented to the new terms or to have “bargained away” their constitutional rights. Accordingly, nothing in the legislative process that led to the enactment of the Act constituted a waiver of the Funds members’ constitutional rights under the pension protection clause.
Air. Tight.
* And the whole statute is declared void…
The parties do not dispute the circuit court’s conclusion, and we agree with the circuit court’s assessment that the Act is unenforceable in its entirety.
*** UPDATE *** The Sun-Times has the mayor’s next moves…
(T)he mayor will have no choice but to find a way to pay the added costs… he’ll try to negotiate work-rule changes, lower break-in pay for new employees, another round of health care reforms, and other cost-saving concessions, and dedicate those savings to pensions, City Hall sources said.
The remaining shortfall could come from raising the telephone tax. Chicago is legally authorized to raise its telephone tax to the highest rate charged by any municipality in the state. That means there’s room to grow.
More property tax increases are unlikely, considering the fact that Emanuel just raised property taxes by $588 million for police and fire pensions and school construction and has promised to raise them by another $170 million for teacher pensions, whether or not the state does its part to help a nearly bankrupt Chicago Public School System.
posted by Rich Miller
Thursday, Mar 24, 16 @ 9:12 am
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=Our unions are committed to working with anyone of good faith toward that goal.=
As long as the only means to achieve that goal is raising taxes - we ain’t giving up any of our benefits.
Comment by Anon Thursday, Mar 24, 16 @ 9:15 am
No doubt that this is the proper ruling.
Supreme Court is doing its job. Lets get a budget.
Comment by AlfondoGonz Thursday, Mar 24, 16 @ 9:16 am
Tier II next?
Comment by Now What? Thursday, Mar 24, 16 @ 9:18 am
Hello Governor, GA legislative leaders, are you listening?
Comment by Tough Guy Thursday, Mar 24, 16 @ 9:19 am
There is/was a real reason why that pesky constitution has the Pension Clause in it.
There absolutely needs to be a way to figure out (read: pay into the pensions what is owed) what to do, and a way to figure out what needs to be done going forward.
It also needs to be Constititional.
The constitution isn’t a guideline, it’s the basis of our government in Illinois.
Optional is over.
Comment by Oswego Willy Thursday, Mar 24, 16 @ 9:20 am
How long before the backers of this (failed as expected) pension cut proposal issue a press release saying they have more brilliant ideas on how to gouge the retirees? Late afternoon?
Comment by Roadiepig Thursday, Mar 24, 16 @ 9:20 am
There we go. Back on the politicians. I only wish there was a true way to hold politicians responsible for their poor short-sighted decisions. Wow, wait, that just sounded a bit Raunerite didn’t it. Oh well, as Rich says “they aren’t wrong”. But I hope somebody learns a lesson.
Comment by Honeybear Thursday, Mar 24, 16 @ 9:20 am
Not much dignity in retirement if it is inevitable that the pension fund is insolvent.
Comment by In a Minute Thursday, Mar 24, 16 @ 9:21 am
http://illinoiscourts.gov/Opinions/SupremeCourt/2016/Summaries/119618s.pdf
Link to opinion.
Comment by Tsavo Thursday, Mar 24, 16 @ 9:22 am
“Shall not be diminished” is really, really clear language. Watching lawyers try to get creative about how to define what it means to be diminished is amazing.
Left out from this is the discussion of how much the city would owe if it suddenly had to start paying social security payroll taxes because of a terrible pension plan.
Comment by Anon Thursday, Mar 24, 16 @ 9:22 am
Here’s a better idea- pay what is owed. Stop trying to skirt past the constitution and demonizing government workers for your past intentional underpayments to the system .
Comment by Roadiepig Thursday, Mar 24, 16 @ 9:23 am
Politicians will now have less money for the true functions of government, education, public safety and help for the less fortunate so they can provide for the employees. As GM and the rest of the private sector figured out decades ago, defined benefit pension plans are not sustainable because of longer life expectancies, chronic underfunding and overly generous benefits for some. The ostriches in Springfield feel otherwise and will continue to kick this can down the road and not vote on Senator Cullerton’s bill.
Comment by Lucky Pierre Thursday, Mar 24, 16 @ 9:23 am
The pension protection clause does not guarantee
any particular method of funding, but, rather, guarantees the right to be paid.
Wow-that is brutally clear.
Comment by Tsavo Thursday, Mar 24, 16 @ 9:26 am
No one likes to have to pay the credit card bill when it comes due, especially when loaded with all that interest . The bills have been in the mail for years, yet the decision to ignore them was made over and over again. The credit card on pensions has to be paid and not by those in the system. There is no free lunch. How many more lawsuits and court decisions (and waste of taxpayer money on these attempts) are needed?
Comment by AnonymousOne Thursday, Mar 24, 16 @ 9:27 am
Remember this? TBT
http://www.dailyherald.com/article/20150407/news/150409036/
Now about that pension plan he was pushing Cullerton to move forward on BEFORE this ruling. Of course the prudent thing was to wait until this ruling. Ugh.
Comment by burbanite Thursday, Mar 24, 16 @ 9:29 am
States can’t currently take bankruptcy, but can a city?
Comment by Downstate Thursday, Mar 24, 16 @ 9:30 am
As wordslinger has said, Emanuel has little clout in the GA. Rauner is content letting Chicago Democrats dig themselves out of the hole they created via city tax increases and cuts.
That leaves Madigan as the one person capable of stepping up and offering Rauner something of value in exchange for additional aid to the city.
The question is, will he do so?
Comment by Anonymous Thursday, Mar 24, 16 @ 9:30 am
The City fought The Law, and like with The State, The Law won. That makes this a good morning in Illinois, and provides a(nother) clear signal to Rauner and John Cullerton and other politicians from Michael Madigan to Toni Preckwinkle that you cannot legally cut public-employee pension benefits and call it reform.
Comment by Independent Retiree/Lawyer/Journalist Thursday, Mar 24, 16 @ 9:31 am
Can Rauner now remove the big savings, from his pension cuts to employees, out of his Turnaround Agenda, and start looking at legal ways of dealing with the budget?
Comment by BBG Thursday, Mar 24, 16 @ 9:32 am
Why would anyone think it is moral or ethical to not meet the contractual legal and constitutional obligations made to citizens working as civil servants, serving the state?
What kind of precedent would be set if we allowed future legislatures to not pay its bills? There are no excuses. Governments set their own budgets, and raise money to pay for those budgets.
To all those people who are tired of politicians, why are you allowing politicians to blame the only people who are actually working in governments, or the unions protecting your fellow citizens from these politicians?
You are fools to believe that unions are the reason your taxes are being eyeballed for an increase. You are being played for ignorant rubes by desperate politicians when they pretend that pensions and employee costs are our state budget’s problems.
Our state budget problems will not be solved by breaking our contract laws, not paying our bills or demonizing citizens who are owed, or will be owed, money for their goods, contracts and services.
Demand that your legislator keep Illinois solvent and our bills paid. As one of the top richest US states, Illinois is able to pay its government debts without being deadbeats.
Comment by VanillaMan Thursday, Mar 24, 16 @ 9:33 am
“The taxpayers lost today because of Madigan and the constitution he controls.”
best, bvr
Comment by Anonymiss Thursday, Mar 24, 16 @ 9:34 am
Time for a vote on a constitutional amendment?
Comment by Downstate Thursday, Mar 24, 16 @ 9:35 am
I am relieved to have one branch of the Illinois government doing the job they are supposed to do. Basic tenet of personal responsibility: pay your debts. It’s something Rauner is acquainted with in his business experience.
Comment by Earnest Thursday, Mar 24, 16 @ 9:36 am
Understandable that city workers should expect to receive the pensions they were promised. But the decision ironically came out the same day that the census bureau released data that shows Cook County and Illinois population declining. A huge tax increase to fix the pension funding crisis, as the Supreme Court has all but demanded, will push Chicago into a tailspin downward.
Comment by Bored Chairman Thursday, Mar 24, 16 @ 9:36 am
Who’s to say that current government workers will not be paying 20% of their salaries to their pension funds?
Comment by Steve Thursday, Mar 24, 16 @ 9:37 am
Translation: Pay up!
Seriously, Rich is right; completely consistent with every ILSC pension decision since IFT (1975). The court rejected the veiled police powers argument, the we’re making it better argument, and the municipality isn’t responsible, just the fund argument. And reiterated the GA, not the court, must determine how to fund it within those constraints.
As far as the court is concerned, this is settled law.
I’ll read the entire decision to see if there are any nuances but this was totally expected. Time to cut spending or raise taxes.
Comment by RNUG Thursday, Mar 24, 16 @ 9:38 am
===I’ll read the entire decision to see if there are any nuances===
I didn’t see any, but have at it.
Comment by Rich Miller Thursday, Mar 24, 16 @ 9:39 am
@In a Minute, 9:21:
Read the words: ‘the Illinois Constitution mandates that members of the Funds have “a legally enforceable right to receive the benefits they have been promised”—not merely to receive whatever happens to remain in the Funds.’
It doesn’t matter if the Funds run out of money: the pensions still have to be paid.
Comment by UIC Guy Thursday, Mar 24, 16 @ 9:39 am
Rauner, from 2015:
“I don’t trust the Supreme Court to be rational in their decisions,” Rauner said. “I think they’re activist judges who want to be legislators.”
Sort of like his notion earlier this week that the “taxpayers lost” the two highest profile races.
Must be that those “taxpayer” voters are just one more part of the “corrupt system” that churns out these radical, juridical types.
Comment by Formerly Known as Frenchie M Thursday, Mar 24, 16 @ 9:39 am
== Not much dignity in retirement if it is inevitable that the pension fund is insolvent. ==
Doesn’t matter. If the fund is insolvent, the government entity must STILL pay the pensions when due out of current revenues.
Comment by RNUG Thursday, Mar 24, 16 @ 9:40 am
@Downstate 9:30
Cities can not go bankrupt without a specific state law authorizing it. Illinois does not have that, and Rahm says they don’t want that, it would raise the borrowing rate.
Comment by DuPage Thursday, Mar 24, 16 @ 9:41 am
They can’t kick the can down the road forever.
It’s time to change the Illinois constitution to allow a progressive income tax.
Comment by Chicago 20 Thursday, Mar 24, 16 @ 9:42 am
Downstate=== the money would still be owed
Comment by tobor Thursday, Mar 24, 16 @ 9:42 am
== States can’t currently take bankruptcy, but can a city? ==
Not in Illinois without explicit permission of the General Assembly.
Comment by RNUG Thursday, Mar 24, 16 @ 9:43 am
“This notion conflicts with settled precedent. As we explained in Kanerva…”
“as consistently explained by this court over the past 40 years…”
“Rather, as we have explained..”
You get the feeling that the ISC is a bit tired of answering wordings of the same question over and over again?
Comment by Name Withheld Thursday, Mar 24, 16 @ 9:44 am
They mention the clear plain language…no outs. If Rauner attempts any retiree health care changes his imposed contract will be tossed too.
Comment by illinois manufacturer Thursday, Mar 24, 16 @ 9:45 am
== Time for a vote on a constitutional amendment? ==
Won’t change anything. The argument will just change to it being an issue of Contract Law. Prior to the Pension Clause, the courts ruled pretty much the same way. Outcome will be the same.
Comment by RNUG Thursday, Mar 24, 16 @ 9:46 am
Downstate- “Time for a vote on a constitutional amendment?”
What a crappy thing to say.
Comment by Austin Blvd Thursday, Mar 24, 16 @ 9:47 am
Twenty years when Illinois is broke and tier II employees are running the state a constitutional amendment will be on the ballot. The divide between benefits is so deep, I can’t imagine any tier II employees having sympathy for tier I. That is unless something is changed for tier II employees, but Illinois doesn’t have the money or political leadership to make it happen.
Comment by Almost the Weekend Thursday, Mar 24, 16 @ 9:47 am
Decisions are getting shorter. I almost feel that the next decision on a pension challenge will be one sentence…pay what you promised.
Comment by illinifan Thursday, Mar 24, 16 @ 9:48 am
To anyone with a reasonable amount of reading comprehension the ideas being discussed between Rauner and Cullerton are illegal. Unless one of the choices given to retirees is being able to keep their current benefits, those bills will never become law. There have been some thoughtful ideas discussed here over the last couple of years to get the Pension system back on sound footing but neither the Legislature nor the Governor have discussed any of them.
Looking at the Kanerva decision, I see the possibility of the state being successfully sued if the Governor significantly raises the retirees cost of their health insurance. That will be one to watch going forward.
Comment by The Dude Abides Thursday, Mar 24, 16 @ 9:49 am
For all the happy retired government workers out there today: are you sure you will not be hearing the phrase “the check is in the mail or we’ll send you the money when we get some? ” in the coming years. Just a reminder, who’s gong to force the city of Chicago to pay their “obligations” on time if they don’t have the money?
Comment by Steve Thursday, Mar 24, 16 @ 9:50 am
Despite all these ILSC rulings, Denial is more than just a river in Egypt. #PayYourBIlls
Comment by Diogenes in DuPage Thursday, Mar 24, 16 @ 9:52 am
“Steve” -
Why do you wish ill will on retired state employees who have earned their pension checks?
Could the same not be said about social security recipients?
Oh, that’s probably different, since you’ll be getting one of those checks.
Comment by Austin Blvd Thursday, Mar 24, 16 @ 9:55 am
Will the Speaker now stand with the Chicago laborers, public employees, and allies who so recently stood with him during the primary?
Or will he allow them to whither on the vine as the city struggles forward?
Comment by Anonymous Thursday, Mar 24, 16 @ 9:55 am
The talk about a constitutional amendment is just silly. Even if it happened, it would be meaningless because it couldn’t be applied retroactively to current employees or retirees. It could be applied solely to new hires. That is something that can be accomplished by statute already, as was done with Tier II.
Comment by Anonymous Thursday, Mar 24, 16 @ 9:56 am
It’s time to quit trying to do an end around on the Illinois Constitution. You owe this money and it is a Constitutional requirement. Raises taxes, put in a Progressive Income Tax, whatever. It’s time to get moving on this. The court will eventually force the state to do this and may raise it by court order. I’d suggest you not wait until it gets to that point.
Trying to go around this obligation just wastes time and money and we don’t have enough of both at the moment.
Comment by Chucktownian Thursday, Mar 24, 16 @ 9:57 am
== For all the happy retired government workers out there today: are you sure you will not be hearing the phrase “the check is in the mail or we’ll send you the money when we get some? ” in the coming years. ==
The bonds and pensions have to be paid ahead of everything else. That is also settled law.
Comment by RNUG Thursday, Mar 24, 16 @ 10:02 am
State ,Chicago, Cook near bankrupt…as Chicago will soon see when CPS files for Bankruptcy next year
Comment by vestdays Thursday, Mar 24, 16 @ 10:05 am
To those of you trying to frighten state retirees with talk of bankruptcy, I note that in city bankruptcies around the country, retirees tend to get amongst the best deals in the bankruptcy, even ahead of bond holders. So don’t try to terrorize us - we’ve already been through eight years of hell and that lame threat has no effect. You WILL pay us what we’re contractually owed.
Comment by RIJ Thursday, Mar 24, 16 @ 10:05 am
“Steve” a 20% member contribution rate is never gonna happen for two reasons. First, the notion of paying more for the same or less benefits has been shot down twice by the ILSC, including today. If you can find a way around that, which you won’t, Federal tax law prohibits raising contributions without increasing the benefits. Have a nice day.
Comment by Arthur Andersen Thursday, Mar 24, 16 @ 10:09 am
All of the tax increases needed to support this ruling are unsustainable. Residents will continue their exodus from the state. Expect chicago to see a detroit like collapse in population.
Comment by Anonymous Thursday, Mar 24, 16 @ 10:09 am
- vestdays -
None… None of those entities can file for backruptcy.
Either learn or label as snark so you arent seen as ignorant to fact.
Comment by Oswego Willy Thursday, Mar 24, 16 @ 10:10 am
The tax increases needed to support this ruling are not sustainable. Residents will continue their exodus from the state. Expect chicago to see a detroit like collapse in population, and Houston to surpass chicago the American’s 3rd largest city.
Comment by atsuishin Thursday, Mar 24, 16 @ 10:11 am
A lot of talk of bankruptcy. But would it help? The pension clause is in the STATE constitution: doesn’t it impose an obligation on the state to make sure that city workers get their pensions, not just on the city?
In other words: even if the state passed legislation allowing Chicago to go bankrupt (unlikely, given that vendors and bond-holders would also suffer), wouldn’t the obligation to pay the city pensions then just fall on the state?
Anyone know about this stuff?
Comment by UIC Guy Thursday, Mar 24, 16 @ 10:12 am
Here is an aspect of the opinion not yet mentioned. The city argued there was a statute (from 1945) that stated that the city was not responsible for paying the pensions, only the funds themselves. The ISC Ruling says that was superseded by the 1970 Constitution, no longer in effect, and the city is unequivocally on the hook to pay benefits if the funds run out. Like Rich said, airtight.
Comment by Andy S. Thursday, Mar 24, 16 @ 10:13 am
Full steam ahead, off the cliff.
Comment by A. Staller Thursday, Mar 24, 16 @ 10:19 am
=== Expect chicago to see a detroit like collapse in population, and Houston to surpass chicago the American’s 3rd largest city.===
Ugh.
Check the Chicago metro versus Houston metro numbers.
Get back to us, lol
Comment by Oswego Willy Thursday, Mar 24, 16 @ 10:19 am
What is annoying about all of these theatrics is that Chicago is a wealthy world city. The City can afford to pay these pensions as structured. The City can afford to fund its schools, too. Remember, even after recent increases, Chicago property taxes are still lower than those of surrounding suburbs. And there are other sources of funds in this world-class city.
No whining. Back to the brainstorm table. And if a few politicians have to find new jobs as a result of the subsequent upheavals, well, that’s a tragedy?
Comment by Cassandra Thursday, Mar 24, 16 @ 10:25 am
== State ,Chicago, Cook near bankrupt…as Chicago will soon see when CPS files for Bankruptcy next year ==
Those entities may be insolvent because they refuse to cut budgets or raise taxes, but under Illinois or federal law (in the case of the State itself), they aren’t allowed to declare bankruptcy and shed debts.
Comment by RNUG Thursday, Mar 24, 16 @ 10:26 am
Anonymous @ 9:56 am, nicely said. Now please pick a name!
Comment by Norseman Thursday, Mar 24, 16 @ 10:27 am
The Illinois Supreme Court can “guarantee” these pensions as loudly as they want. It doesn’t change the ultimate math that the funds will eventually run out of money, or that the massive and continual tax increases to pay them will result in an exodus of those required to keep the system alive.
A responsible court would allow practical modifications, in the same way the Congress modifies Social Security from time to time to keep it solvent.
Comment by Chicago taxpayer Thursday, Mar 24, 16 @ 10:35 am
== A responsible court would allow practical modifications, in the same way the Congress modifies Social Security from time to time to keep it solvent. ==
Although SS is like the state pensions in that the Feds have stolen the revenues that were supposed to go into the “lockbox”, SS was, from day 1, a combination retirement and welfare program. And it was never protected by a constitutional clause. Different law; different outcome.
However, state pensions may end up like SS in the sense that when they open the “lockbox” and find it empty, they will have to pay the benefits out of current (general) revenue just like the Feds plan to for SS.
Comment by RNUG Thursday, Mar 24, 16 @ 10:42 am
== It doesn’t change the ultimate math that the funds will eventually run out of money, ==
Tier II fixed the pension systems; you just have to wait thirty to forty years for it to work. Remember, the funds have been in this kind of shape since about 1910 … or, as this decision cites, about 1950.
Comment by RNUG Thursday, Mar 24, 16 @ 10:44 am
Lucky Pierre,
Defined benefit pensions in the private sector have a number of problems that do not occur in the public sector.
1. Governments cannot be undercut by competition from relatively new firms with no current pension obligations the way legacy firms have been.
2. Governments cannot be taken into bankruptcy by corporate thugs like Rauner or Romney in order to dump the obligations and then sell the “new” company at a profit thus “earning” fabulous wealth at the expense of the true wealth creators.
3. Social security is a defined benefit program, and if you are working class and have the misfortune of living into your 90’s, your investments will run out. At that point you will be damn glad that one component of your portfolio consisted of medicare and S.S.!
So yes, steel industry pensions lost their values in the 80′ and 90’s. This does not mean all defined benefit programs are losers!
4. Illinois public employees give up S.S. in exchange for their pensions. So this is the defined benefit portion of their portfolios — fair and square.
Note: this persistent pattern of generalizing from the corporate sector to ALL other sectors is at the root of most of our problems. It’s why middling intellects like BKR or Bloomberg, or Trump or Romney think they are geniuses. But oops: Government is not a business; schools and universities are not businesses; the military is not a business, etc.
Comment by Anonymous Thursday, Mar 24, 16 @ 10:48 am
And for the person complaining about Tier 2. Yes, it is a terrible deal. But you knew or should have known about it when you started the job. Passage of Tier 2 was a clear message that no one should consider public employment as anything but a temp job. I wish you well in finding something better.
Comment by Cold Thursday, Mar 24, 16 @ 10:51 am
At least there’s a new Ferris wheel at Navy Pier where I can watch the city burn. (I’m being overly dramatic, so calm down.)
Comment by Jose Abreu's next homer Thursday, Mar 24, 16 @ 10:53 am
And for the commenters who complain that pension benefits are “unsustainable,” apparently you did not read the portions of Justice Theis’ opinion where she lays out all the warnings from actuaries throughout the years which were deliberately ignored.
Comment by Cold Thursday, Mar 24, 16 @ 10:56 am
The courts are repeatedly stating that they have no sympathy for those who have deliberately created this problem. It’s plain and simple deliberate theft and the thieves keep coming back for more loot. Courts say they won’t have any of it. Those who received free services over the years, courtesy of public employees have to pay back what they used. That means all of us.
Comment by AnonymousOne Thursday, Mar 24, 16 @ 10:58 am
OW - I’m not sure what your point about Chicago vs Houston is. The Census just released new numbers for counties and metro areas this morning. The Houston metro area grew at 2.4% in the year ending June 30, 2015 and is at 6.7 million. Chicago metro is overall at 9.5 million, but the Census recognizes that it has grown into other areas and has subdivisions accordingly. The main Chicago-Naperville-Arlington Heights metro division is at 7.3 million and declined by 0.1% over that same prior year. Houston metro will pass the Chicago metro division by the end of the decade if the current rates continue.
When the larger Chicago metro (which goes into Indiana and Wisconsin) is considered, it also declined about 0.1% in that year. The extended Chicago metro has a population of over 9.5 million so Houston metro isn’t passing that anytime soon. But in the core urban area, yes Houston will pass Chicago before too long.
Comment by muon Thursday, Mar 24, 16 @ 11:22 am
–As long as the only means to achieve that goal is raising taxes - we ain’t giving up any of our benefits.–
You haven’t been paying attention for a few years.
It is not within the power of unions to negotiate away an individual’s already earned contractual benefit.
Comment by wordslinger Thursday, Mar 24, 16 @ 11:29 am
I wonder if the city has looked at privatizing not just Midway, but O’Hare as well? The money has to come from somewhere.
Not much hope for the state, I’m afraid, unless they look at insourcing services in order to maximize the number of Tier 2 pensions system members contributing to the fund.
Comment by Angry Chicagoan Thursday, Mar 24, 16 @ 11:31 am
==RNUG==
However, state pensions may end up like SS in the sense that when they open the “lockbox” and find it empty, they will have to pay the benefits out of current (general) revenue just like the Feds plan to for SS. ==
But, with the other ruling about appropriations being needed, could they then refuse to pay ? This ruling confirms my dental benefits are protected as a member of SERS…They’re not being paid now !
Comment by Anotheretiree Thursday, Mar 24, 16 @ 11:39 am
“Just a reminder, who’s gong to force the city of Chicago to pay their “obligations” on time if they don’t have the money?”
They must find the money. The bill will be paid.
Comment by Phoenix Thursday, Mar 24, 16 @ 12:16 pm
- muon -
That’s 6.7 million to 9.5 million.
Lots of people in between.
Houston metro isn’t close to Chicago metro. At all.
Media markets?
Chicago - 3
Houston - 10
Dallas-Ft. Worth (5) is larger than Houston.
That’s the rub.
Chicagoland is giant, it’s not Detroit, and Houston isn’t even Metro DFW…
Comment by Oswego Willy Thursday, Mar 24, 16 @ 12:29 pm
All transactions represent a transfer of risk between buyer and seller. The state constitution eliminated the risk to annuitants of a PBCG type of cram down in the event of failure. Therefore the value to annuitants of a “no-risk” pension relative to corporate DB plans should imply that state pensions are lower on average then private pensions (when adjusted for social security and level of employee contribution to the pension and SS). I ask this respectfully — Are state pensions lower on average?
Comment by A Watcher Thursday, Mar 24, 16 @ 12:46 pm
For those that think they can change the Illinois Constitution to get out of paying this debt, I am going to just leave this right here…
Article 1, Section 10 of the US Constitution
Powers Prohibited of States
No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts, or grant any Title of Nobility.
Basically, Federal law says that even if the State of Illinois changes the constitution, it will not be able to get out of the current pension debt obligation guaranteed by the existing Illinois Constitution.
Comment by benniefly2 Thursday, Mar 24, 16 @ 1:22 pm
Angry Chicagoan - Thursday, Mar 24, 16 @ 11:31 am:
I wonder if the city has looked at privatizing not just Midway, but O’Hare as well? The money has to come from somewhere.
Not much hope for the state, I’m afraid, unless they look at insourcing services in order to maximize the number of Tier 2 pensions system members contributing to the fund. .
Massive cuts in service and layoffs will be coming to CPS and the state.
Comment by Tone Thursday, Mar 24, 16 @ 1:28 pm
Illinois is such a wealthy state, especially Chicago and northern IL. Look at pension liability vs. the State’s GDP. Increase taxes by a few points on income above 1 million and you can handle these liabilities. This is a classic case of the rich and certain politicians over the years trying to divert attention and blame to public servants, teachers, feelow taxpayers.
Comment by TD Thursday, Mar 24, 16 @ 1:30 pm
===Residents will continue their exodus from the state.
Except Cook County saw a small increase from 2010-2014. The “exodus” is in the small rural counties. It’s been fascinating to watch everyone claim doom and gloom in Chicago & Cook County while ignoring the horrible shape our rural communities are in.
==Expect chicago to see a detroit like collapse in population.
Except that Chicago has a diversified economy and is actually growing the last four years. Detroit’s losses have also been going on at a fairly consistent losses, though the percentages have increased over time as the population declined. That’s a far different pattern than Chicago and Cook have shown. Detroit didn’t suddenly happen, it’s been happening since 1950.
Comment by ArchPundit Thursday, Mar 24, 16 @ 1:46 pm
===Not much hope for the state, I’m afraid, unless they look at insourcing services in order to maximize the number of Tier 2 pensions system members contributing to the fund. .
Or just reinstate the tax increase.
Comment by ArchPundit Thursday, Mar 24, 16 @ 1:47 pm
- Anotheretiree -
Different issue. Salaries are not constitutionally protected per se. You have to look to contract law and the IL SC just said (actually reaffirmed a long standing position) that payment of contracts can be subject to appropriation, depending on the language in the contract or state law.
Comment by RNUG Thursday, Mar 24, 16 @ 1:56 pm
Tone 1:28:
You seem to imply that the city has liquid assets (O’Hare, Midway) that could stave off the creditors but the state doesn’t. I would submit to you that the state has equal or greater assets, if it came to that.
Comment by Six Degrees of Separation Thursday, Mar 24, 16 @ 2:19 pm
Sorry, reference should be to Angry Chicagoan 11:31
Comment by Six Degrees of Separation Thursday, Mar 24, 16 @ 2:22 pm
Love the folks who say that with tax increases people will flee the state. They had no problem with all the services provided and low taxes courtesy of “diverted” aka stolen pension money from workers, did they? Time to pay the credit card, now with interest. Alot of interest.
Comment by Anonymous Thursday, Mar 24, 16 @ 2:26 pm
====Houston metro will pass the Chicago metro division by the end of the decade if the current rates continue.
A single year isn’t a trend. You have to have more than one point in time to have a trend.
The Chicago-Naperville-Arlington Heights increased about 1% from 2010 to 2015. That is much slower than the Houston area which increase at a higher rate and in absolute numbers, but if that is repeated over the next fiver years Houston would be at about 7.5 million in 2020 with Chicago around 9.6 million. Unless you try and break down the entire Chicago metro to be a smaller component to make some sort of argument that isn’t clear. I’m not sure of the point of saying Chicago is so big that it has to be broken down more ways so we should only look at one of the breakdowns.
It also assumes that the rate of growth in Houston will be the same in the next five years which will probably depend a lot on the oil industry.
Comment by ArchPundit Thursday, Mar 24, 16 @ 2:26 pm
OW, I used those same numbers, and I wasn’t the poster who you initially responded to. That was atsuishin at 10:11. However, that first post was about cities not metros, and on that score Houston began the decade about 600,000 smaller than Chicago. By 2014 it was 480,000 smaller and at that pace it should be about 300,000 smaller by 2020 and equal or larger by 2030.
Granted you did now respond to that post with a statement about cities, but instead deflected your response to metro areas. So I thought it worth going down the direction you took it. In my post I clearly drew a distinction between the full metro area and metro divisions since Houston hasn’t overtaken other smaller areas like Chicago has. I also noted that indeed if one only talks about the larger entity, then indeed Houston is nowhere close. But you failed to note that I focused on the more comparable metro divisions and in that case Chicago will soon fall behind. You also ignored my statement that even if we only could speak about the larger metro, then the rate differences were meaningful, with Houston at +2.4% and Chicago at -0.1%.
Comment by muon Thursday, Mar 24, 16 @ 2:28 pm
=Anonymous @ 2:26 pm=
Many people will undoubtedly flee the state. And the people left behind,like you, will have to pick up their “share”
Comment by Anonymous Thursday, Mar 24, 16 @ 2:46 pm
Although nothing in life is 100% guaranteed, a pension from the state of Illinois is very close to it. If our constitution is to mean anything, it can be no other way. What else would you want/expect from a constitutional promise?
I do not think there is any room left in the pension casket for more nails.
Comment by Anonymous Thursday, Mar 24, 16 @ 2:56 pm
Rhino ng some more about this decision and its’ shortness compared to the last two … this was the judicial speak equivalent of “didn’t you understand where we were going with Kanerva?$
If the next pension case is anything like this one, I can see a simple one page decision stating “we affirm the lower court date decision and have no further comment”.
Comment by RNUG Thursday, Mar 24, 16 @ 2:56 pm
Thinking … darn phone
Comment by RNUG Thursday, Mar 24, 16 @ 2:58 pm
It’s way more complicated, for the umpty-umpth time. Yes, politicians behaved irresponsibly. Democrats were in denial about the need to get to a progressive tax structure, however hard the road was.
But plenty of public sector unions misbehaved too. All these “we was robbed” claims ring at least 30, 40% hollow.
The money wasn’t “stolen.” Daley and Vallas and Madigan and Ryan and co didn’t put it in their pockets. It was -spent-. And plenty of it was spent (in Chicago especially, in terms of the CTU) in the 90s heydays on new schools, on teacher raises, on other public sector union raises, etc.
And most of the public unions (I’ll exempt AFSCME here, who seem to me to have been more on the ball earlier on and calling the alarm), certainly CTU’s leadership pre-Lewis, were *totally* fine with it. Anxious conversations around anonymous water coolers notwithstanding, very little of that seemed to translate into meaningful action. Lots of unions saw their pensions diverted into better working conditions and pay raises … raises that now get converted back into higher guaranteed pensions. Pretty cool trick, really. If you managed to get in under Tier I.
All the IL taxpayers have been robbed, in the end. And plenty of Tier Iers seem to me to have been in on the con.
Comment by ZC Thursday, Mar 24, 16 @ 3:02 pm
- muon -
Explain the annexing being done in Houston as part and parcel of their growth.
Thanks.
Comment by Oswego Willy Thursday, Mar 24, 16 @ 3:02 pm
In response to A Watcher, as regards Tier 1 pensions, the answer is that Illinois state pensions are almost certainly more generous than those in the private sector, even if you take into account that for most state employees the state is not paying into Social Security. But this means little. Every reputable study has shown that the average total compensation package of state and local government employees, including specifically in Illinois, is less than in the private sector when you control for differences in education and experience. So state employees get higher retirement contributions but lower salaries, and overall get less.
Comment by Andy S. Thursday, Mar 24, 16 @ 3:05 pm
- muon -
http://www.governing.com/topics/urban/gov-houston-urban-revival.html
Comment by Oswego Willy Thursday, Mar 24, 16 @ 3:07 pm
OW - I’ve moved my comments on growth over to comments on the post on Our Sorry State, as that seems more appropriate than this thread on pensions. I go into some more detail as why I think the best comparison is the one I laid out initially.
Comment by muon Thursday, Mar 24, 16 @ 3:25 pm
Andy - so on a NPV basis employment and retirement within the state pensions is at worst equal to private sector but with lower end financial risk. That risk return equation is therefore out of whack. And I say this a person whose spouse is an active teacher with time in both CTPF and TRS — I’m not sure many annuitants recognize the economic value of the reduced risk and its true cost to taxpayers. That reduced risk awareness (or lack of concern) lead exactly to what ZC said above — annuitants didn’t need to scream about underfunding or the trade off between current compensation and pension funding. No one looks after oneself like oneself until you incentivize me not to.
Comment by A Watcher Thursday, Mar 24, 16 @ 4:18 pm
-ZC-
All the unions were concerned about the underfunding from the beginning. Go review the list of plaintiffs in IFT (1975). They were told that had no legal basis to force proper pension funding.
Comment by RNUG Thursday, Mar 24, 16 @ 4:23 pm
If things get real bad in Illinois, maybe the feds can start giving us more federal money instead of sending federal revenue collected in Illinois to other states… we rank 3rd from the bottom in return of federal tax dollars.
http://www.theatlantic.com/business/archive/2014/05/which-states-are-givers-and-which-are-takers/361668/
Comment by Liberty Thursday, Mar 24, 16 @ 4:34 pm
Lot of talk about the pension fund and its funding. The suggestion being if the funding dries up the fund dies and with it the pensions. Not so, what happens next is pensions paid out of the general revenue fund. The Court as avoided linking the fund and funding. Not their domain. They are simply saying pay the pensions undiminished.
Comment by river rat Thursday, Mar 24, 16 @ 4:44 pm
I’ve been to 3 retirement workshops over 6 years and the question re: funding always came up. The answer was always the benefits are paid by the income earned by investments. As mentioned earlier, the pensions have been underfunded since at least 1950. Checks have always gone out. Someone mentioned earlier about the pension funds running out in 20 years. I’m at the younger end of retirees and I expect to be deceased within 20 years.
Comment by Emily Booth Thursday, Mar 24, 16 @ 5:51 pm
=Tier Iers seem to me to have been in on the con.=
It seems to me that you are blaming the victims.
Comment by Enviro Thursday, Mar 24, 16 @ 6:59 pm
“Tier Iers seem to me to have been in on the con.”
The leadership and employees of Enron had a good run as well, at least until their fuzzy math and greed collapsed the entire organization.
Comment by Anonymous Thursday, Mar 24, 16 @ 7:13 pm
“Tier Iers seem to me to have been in on the con.”
FWIW, the people in Tier 1 weren’t in on the so-called con. They were concerned enough about it to make it an issue at the 1970 Con-Con and actually get the Pension Clause proposed … and subsequently approved. I’ll concede it was part of a whole bunch of issues, all bundled together, in one “take or leave it” package. But a lot of those other changes would not have passed on their own either. The only real individual items were legislative makeup, election process and the income tax. But the public, for better or worse, decided there was more good than bad in the whole thing and approved it.
The pension systems would have been fine if the State had properly funded their portion of it. Every study says that.
And again, the employees were concerned about the underfunding that again started as early as 1974; they sued over it. See IFT. Once the IL SC ruled the GA could fund the pensions any way the GA wanted to, that was the effective end of any legal way to force pension funding. The employees did try the political process. It somewhat worked in that some changes were made, which also included new contributions for new / expanded benefits. And eventually resulted in enough attention we got the Edgar Ramp fix, such as it was.
Comment by RNUG Thursday, Mar 24, 16 @ 7:25 pm
When I took a 50% pay cut to go back into public service, a big part of it was the pension.
If they now want to retroactively renegotiate the pension then I want to renegotiate the salary they paid all those years. If they will double my pay for the years worked, I’ll be open to giving back on the pension part.
Comment by titan Thursday, Mar 24, 16 @ 7:32 pm
VanillaMan 9:33am +1
Comment by Runaground Agenda Thursday, Mar 24, 16 @ 7:39 pm
=== Time for a vote on a constitutional amendment? ===
Hey, let’s give Downstate a break. I’m sure he was calling for an amendment to repeal the flat tax clause … right?
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