The 2011-2013 League of Women Voters of Illinois (LWVIL) Pension Study
[All bracketed assertions are my commentary.]
SA: The Pension Clause is not meant to protect pensions (a right) at the cost of state services (a duty of the state). The framers of the 1970 Constitution rejected proposals for requiring full funding.
M: SA mis-characterizes the convention debates. Sponsors meant for Pension Clause to protect the employees’ pension rights as a contract and enforceable in court. While the framers rejected proposals for any required funding, contractual rights of employees to pensions would make funding those pensions an "expectation."
SA: Legislation does not "diminish or impair" pension benefits since it would ultimately save the systems from the underfunding issue. If Illinois were a corporation and could consider bankruptcy, pension funds would be considered a contract right, not a property right, and holders of contract rights are unsecured creditors.
M: The Pension Clause constitutes a guarantee that the State will pay 100% of all pension benefits, regardless of circumstances.
SA: Pension benefits should be treated the same as salaries and health benefits, which can be changed or modified. Of all state employees, only judges’ salaries are protected from reduction during their service.
M: Each of the State’s five pension codes has a similar provision of Obligations of the State. From 2011-2013 LWVIL Pension Study - Background 2: The payment of the required department contributions, all allowances, annuities, benefits granted under this Article, and all expenses of administration of the system are obligations of the State of Illinois to the extent specified in this Article.” The Pension Clause in itself puts pensions in a different category than salaries and health benefits.
[Pension rights are “earned.” There is no distinction between “earned” and “unearned” pension benefits… “The Clause protects pension benefit rights as an enforceable contractual relationship that is subject to modification through contract principles.”]
2. Kraus v. Board of Trustees, 72 Ill. App. 3d 833, 390 N.E.2d 1281 (1st Dist. 1979) (IL Appellate Court): A police officer went on disability due to an on-duty injury after 11 years of active service. When he entered the force, in 1956, an officer could retire after 20 combined years of active service and disability and could base retirement on the salary for his rank when he elected to retire. In 1973, before the officer met the 20-year requirement to retire, the legislature changed the Pension Code to give an officer a pension based on his salary at the time he went on disability. The police pension board thus based the officer’s retirement on his salary in 1967 rather than the salary for his rank in 1976 when he retired. The trial court reversed the police pension board. The Appellate Court agreed with the trial court and held that the amendment to the Pension Code (in 1973) could not apply to the officer because the Pension Clause “entitled [him] to receive the benefits under the relevant sections of the Pension Code as in effect at the time the constitutional provision became effective in 1971.” The court said pension rights became fixed when an employee entered the pension system or when the constitution became operative, whichever was later, but not at retirement.
[Law existing at the time of “vesting” is incorporated into employee’s agreement… Pension benefits commence at the time employee contributions begin… General Assembly cannot modify benefits. “The Clause protects pension benefit rights as an enforceable contractual relationship that is subject to modification through contract principles.”]
3. Felt v. Board of Trustees of Judges Retirement System, 107 Ill. 2d 158, 481 N.E.2d 698 (1985) (IL Supreme Court) involved a Pension Code provision which allowed judges to retire with a pension based on their salary on their last day of service. This was changed by the General Assembly effective in 1982 to a pension based on the average salary during the last year of service. Judges who entered service under the former provision and retired after 1982 said application of the Code change to them violated the Pension Clause and the Contracts Clause. The trial court agreed and so did the Supreme Court. The Illinois Attorney General (arguing for the validity of the legislature’s change) said that the legislature could modify pension benefits under its police power (that is, the power to act for the general health safety and welfare of the public). However, the Supreme Court said that the change caused substantial impairment for the judges’ benefits. Madiar emphasizes that the Supreme Court relied on Kraus (even though it is an Appellate Court decision) in its analysis of this case.
[…can’t diminish terms of contract with pension system… In this particular case, pension is based upon salary of last day of service or last year. “The Clause protects pension benefit rights as an enforceable contractual relationship that is subject to modification through contract principles.”]
4. Buddell v. Bd. of Trustees, State University Retirement System, 118 Ill 2d. 99, 514 N.E.2d 184 (1987) (IL Supreme Court) involved a university employee who entered SURS in 1969. At that time, an employee could purchase service time for years spent in military service. In 1974, the 2011-2013 LWVIL Pension Study - Background 3 of the Pension Code was amended to require current employees to make that purchase of military service time by September of 1974. The employee attempted to purchase his military service years in 1983, and the retirement system denied his request. The trial court reversed. On appeal, the Supreme Court upheld the trial court and held that the employee was entitled to enforce his right to purchase the service credit according to the Pension Code as it was written when the Pension Clause became effective. The Supreme Court said “rights to exercise this option and make these additional payments are contractual rights by virtue of [the Pension Clause] and the legislature cannot divest plaintiff of these rights.” The Supreme Court found that Kraus was in accord with its holding here.
[The courts found that the State can’t diminish terms of contract with the pension systems… As stated, the Pension Code allows employees to purchase service credit for time in the military.]
5. People ex rel. Illinois Federation of Teachers v. Lindberg, 60 Ill. 2d 266, 268-70, 326 N.E.2d 749, 750-51 (1975) (IL Supreme Court): Members of the teachers’ pension systems and members of other systems filed a mandamus action as a class to require the State to pay amounts originally appropriated by the General Assembly to their retirement systems after the Governor exercised his item reduction veto power to reduce the appropriated amounts. They contended that the Pension Clause represented an enforceable, contractual right to have their respective pension systems funded in an actuarially sound manner and that the provisions of the Code were a binding obligation on the legislature that could not be "impaired." The plaintiffs asked the court to restore the original appropriation. The trial court dismissed the class action. The IL Supreme Court concluded that the drafters of the Constitution did “not establish the intent to constitutionally require a specific level of pension appropriations during a fiscal year.”
6. People ex rel. Sklodowski v. State of Illinois, 182 Ill. 2d 220, 695 N.E.2d 374 (1998) (IL Supreme Court) was filed by participants of the State’s five pension systems because of the State’s failure to make the pension contributions prescribed by Public Act 86-274, which committed the State to make additional pension contributions and pay the existing unfunded liabilities of each system over a 40-year period. Plaintiffs claimed that in enacting Public Act 86-274 as part of the Pension Code, the legislature made its funding schedule an enforceable contractual right under the Clause and that failure to follow that schedule impaired their contractual rights. They sought a writ of mandamus to force the IL comptroller and others to comply with the Act’s funding schedule. The Court dismissed the complaint because the requested relief would violate the separation of powers clause under the IL constitution. During the plaintiffs’ appeal, the legislature passed Public Act 88-593, repealing the earlier Act and establishing a less rigorous funding schedule. A motion to dismiss was denied and the Appellate Court revised the trial court’s decision. In its decision, the IL Supreme Court determined that (1) the Clause was included to eliminate the distinction in legal protections afforded to mandatory and optional pension plans prior to the 1970 Constitution; (2) the Clause “makes participation in a public pension plan an enforceable contractual relationship and also demands that the "benefits of that relationship” not be “diminished or impaired” and (3) the contractual relationship is governed by the actual terms of the Pension Code at the time the employee becomes a member of the pension system. However, the Court reversed the appellate court and reaffirmed that the Clause does not create a contractual basis to expect a particular level of funding, but rather a right that they would receive the money due them at retirement.
[A Vested Case Issue: an employee acquires a “vested” right when he or she enters the pension system. (See Lindberg ‘75/McNamee ‘96) “The Pension Clause does not create a contractual basis for participants to expect a particular level of funding.”]
This Pension Study can be found at http://www.lwvil.org/Pension_Study_Background.pdf
For a brief summary of antedated court cases that were challenges of the "Pension Clause":
Please also read Illinois pension reform is without legal and moral justification, an analysis: