Thursday, February 28, 2013

Constitutional Issues Concerning Senate Bill 1, Pt. B

The following excerpts are from an eight-page memorandum that “discusses the provisions of SB 0001 and the constitutional deficiencies in that bill that most directly concern members of the Illinois Retired Teachers Association. Accordingly, [the] memorandum is not intended to be an exhaustive analysis of every constitutional deficiency in SB 0001 or similar legislation, and [it is] not [an analysis of] constitutional challenges to SB 0001 or similar legislation that could be advanced by currently serving public employees” (Excerpts are from a Memorandum entitled “Constitutional Issues Concerning Legislative Pension Reform Proposals” by Gino L. DiVito, John M. Fitzgerald, and Katherine M. O’Brien of Tabet, DiVito & Rothstein LLC to Illinois Retired Teachers Association Executive Director James Bachman, February 26, 2013) (1)…


“SB 0001… constitutes a unilateral attempt to modify public employees’ employment agreements with the State, even with respect to those employees who have already retired… A unilateral reduction of pension rights is unconstitutional, even if coupled with an equally unilateral benefit that the [Illinois] General Assembly imagines retired and active public employees might theoretically find desirable. Accordingly, SB 0001 and other legislation that similarly seeks to unilaterally modify the pension rights of retired public employees would fail constitutional scrutiny (4)…

“Part B attempts to extract a pretense of agreement from individual public employees and retirees to the reduction of their vested pension rights. The consent envisioned in Part B, however, is just as fictitious and legally invalid as that envisioned in Part A.
“Because Part B forces a retiree to choose between pension rights and health care coverage, it rests upon an assumption that the State has an unlimited right to exclude a public employee or retiree from participation in a health insurance program. In many cases, however, retired teachers have a vested contractual right to participate in a health plan by virtue of collective bargaining agreements between their unions and their school districts. As the Illinois Appellate Court has recognized, if a collective bargaining agreement between a teacher’s union and a school district promises health benefits to teachers in retirement for a term that extends beyond the agreement’s duration, the teachers who retired under that agreement have a vested right to the promised health benefits. Haake v. Board of Education for Township High School Glenbard District 87, 399 Ill. App. 3d 121, 132-34, 137-39 (2010) (6)…
“Vested contractual rights to health benefits in retirement cannot be taken away as a penalty for refusing to surrender vested pension rights. Accordingly, retired teachers who have vested rights to health coverage under their collective bargaining agreements could raise particularly strong legal challenges to SB 0001 or other legislation that would eliminate their health coverage as a consequence of their refusal to surrender their vested pension rights.
“Moreover, an ‘agreement’ extracted from a retiree on the threat of losing his or her health coverage would hardly be the sort of voluntary undertaking that is necessary for a valid contractual modification. As the Illinois Appellate Court has explained, ‘[I]t is well settled that a contract, once made, must be performed according to its terms and that any modification of those terms must be made by mutual assent and for consideration’ (7)…
“More fundamentally, Part B of SB 0001 and similar legislation effectively are mechanisms for circumventing the Pension Protection Clause. As explained in Kraus v. Board of Trustees of Police Pension Fund of the Village of Niles, 72Ill. App. 3d 833, 849 (1979), legislation ‘which has an incidental effect on the pensions which employees would ultimately receive, is not prohibited’ if it is ‘directed toward another aim.’ Conversely, because Part B is directed specifically toward penalizing pension annuitants, it is an impermissible end-run around the Pension Protection Clause. Similar end-runs around the Pension Protection Clause are equally impermissible” (8).

Commentary on SB 1, Pt. B (Revised)

Senate President John Cullerton’s SB 0001, Pt. B is an attempt to circumvent the “Pension Clause” by giving retirees and public employees a “choice” (or new consideration) to impair their own contract for a precarious state guarantee. John Stevens, Legal Consultant for the “We Are One” Labor Coalition, stated “To take away the Cost-of-Living Adjustment [COLA] for [current and future] retirees is not a free and fair choice.”

Though perhaps most contracts have an element of duress, where one side has something the other has no legal right to, Illinois legislators will be breaching a contract by forcing public employees to make a choice to diminish their originally-vested and paid-for guarantee. Legislators will be attempting to break an enforceable contractual promise, one that is bilateral and emphasizes an agreement between the State of Illinois and its retired and current public employees as to their future rights and benefits.

The courts will likely find this “illusory promise [of health care]… grossly inadequate and accompanied by unfairness because the employer [the state] is using its superior bargaining position to take undue advantage of the employee and substantially impaired the employee’s exercise of free will” (250 Ill. App. 3d 423, 620 N.E.2d 1328, 1st Dist. 1993: footnote to Is Welching on Public Pension Promises an Option for Illinois? An Analysis of Article XIII, Section 5 of the Illinois Constitution by Eric M. Madiar, pg. 62).

It is a diminution of the public employees’ contract to receive less than what the original vested right and benefit guaranteed. A choice between the COLA and uncertain state-sponsored health care offers public employees and retirees no ethical and lawful alternatives except to consent to the General Assembly’s demands to make an illicit choice.

Consider that “A contract is a promise or set of promises for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty (Professor of Law, Emeritus, Claude D. Rohwer and Professor of Law, Emeritus, Anthony M. Skrocki, Contracts in a Nutshell). Based upon both past and current legislators’ dereliction of duty to pay for the public employees’ constitutionally-guaranteed pensions, a court of law could find that the Illinois General Assembly has been and will be currently in “violation of any standard of good faith and fair dealing.”

Any modification of the “Pension Clause” should be seen as “the result of a violation of fair dealing,” as an accommodation for “only” the General Assembly who have stolen money from the public pension systems for decades and are, thus, “avoiding a pre-existing duty rule” (Rohwer & Skrocki).

“The significance of any modification of the “Pension Clause” is “the extent to which [public employees] will be deprived of the benefit [they] reasonably expected; the extent to which [public employees] can be adequately compensated for the part of that benefit [COLA, for instance] of which [they] will be deprived; […and] the extent to which the behavior of the party [Illinois General Assembly] failing to perform or to offer to perform [or] comports with standards of good faith and fair dealing” (Rohwer & Skrocki).

The promise to honor commitments and pay for the public employees’ pension is of “sufficient importance” to all citizens of Illinois. To pass pension reform is “an unequivocal manifestation of intention not to perform… legal duties…under a contract… When there is a duty of immediate performance of a promise, failure to perform in full is a breach” (Rohwer & Skrocki).

Though many legislators would rather dispute one of the Bill of Rights contained in both the Illinois and U.S. Constitutions instead of addressing the “real causes” of the state's budget deficits (the pension ramp, the pension debt, and the state’s insufficient revenue), legislators should reexamine the concept of justice and what lawfulness demands: that people must keep their covenants with one another. In particular, no justice is accomplished when diminishing public employees' earned benefits and rights because of decades of legislators' irresponsibility, corruption and incompetence.

Let us not forget how the State of Illinois has arrived in this financial predicament. The state’s unfunded liability has increased to $96 billion (and it is increasing). Forty-six percent of that amount ($44.2 billion) is the result of legislators’ “diversion” of money (a polite euphemism for stealing) from the public pension systems to pay for other services without increasing taxes.

All citizens of the State of Illinois are vulnerable because of the fiscal morass caused primarily by past incompetent, unethical and negligent General Assemblies, but also because of today’s scheming Illinois legislators who are attempting to seize political opportunity via “pension reforms” that violate a contract.

There should not be any contract modification of the retirees’ and current public employees’ guaranteed, earned benefits. To respect a contractual promise as a legitimate right and moral concern is at stake for all retirees and public employees, as well as for every other citizen in Illinois. 

-Glen Brown

For more constitutional analyses, please also read:

“Defending and Protecting Public Employees’ Pensions against the Legislative Siege…” (excerpts from Eric M. Madiar) and “How Much Can States Change Existing Retirement Policy? In Defense of State Judicial Decisions Protecting Public Employees’ Pensions” by Douglas L. Greenfield and Susan G Lahne) (posted December 10, 2012)
Illinois Pension Clause’s Convention Debates, Text and Historical Background (excerpts from Eric M. Madiar) (posted February 4, 2013)
Illinois Pension Reform Is without Legal and Moral Justification (posted May 29, 2012)

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