Monday, February 4, 2013

Illinois Pension Clause’s Convention Debates, Text and Historical Background (Eric M. Madiar)









“Key Conclusions Derived from the Pension Clause’s Convention Debates
In sum, the following conclusions regarding original intent may be drawn from the Pension Clause’s Convention debates:

·         The Pension Clause was prompted by concerns raised by state university employees over the underfunding of the university pension system and the lack of constitutional protection for mandatory retirement plans, and by firemen and police officers that municipalities would use their new ‘home rule’ authority to abandon their local pension plans.

·         A public employee’s participation in a public pension system creates an enforceable contractual relationship in the employment context. The drafters intended to provide constitutional protection to the pension benefit rights in place when an employee started employment and became a member of a pension system.

·         The Pension Clause serves as a bar against any unilateral legislative or governmental action to reduce or eliminate the pension benefit rights in place when an employee became a member of a pension system.

“The principal sponsors each offered examples of how the provision prohibited the legislature from altering the terms of an employee’s pension benefit rights after he or she entered service:

·         Delegate [Henry] Green illustrated this point by stating that if a retirement plan requires a starting employee to pay 5% of his or her salary each month and work until age 65 to receive a pension of $247 per month, then ‘that is in fact, is what [he] will get.’

·         Delegate Green, also stated the provision was prompted by and intended to prohibit the result allowed by the New Jersey Supreme Court in its Spina [1965] decision where the court upheld a statutory reduction in pension benefits because there was insufficient funds to pay benefits to both current and future retirees.

·         Delegate [Helen] Kinney similarly remarked that the proposal was intended ‘to guarantee that people will have the rights that were in force at the time they entered the agreement to become an employee, and as Mr. Green has said, if the benefits are $100 a month in 1971, they should be no less than $100 a month in 1990.’

·         Accordingly, the General Assembly could not under the Clause later require an employee to contribute a greater percentage of his salary to receive the same benefit, require him to work more years to receive the same benefit or pay the employee a lower pension if he or she met his or her contribution and service obligations.

·         The provision is intended to be enforceable in circuit court, including the ability to obtain judicial enforcement of pension benefit rights and benefit payments, even if a pension fund is broke or on the ‘verge of default or imminent bankruptcy.’

·         The Pension Clause was modeled after and is virtually identical to the New York Constitution’s [1938] provision.

·         Pension benefit increases are permissible under the Pension Clause, including automatic cost-of-living adjustments [COLA].

·         The drafters stated that it would be ‘fair’ for the legislature to condition a person’s initial entry into a pension system upon a contingency that would lower the person’s pension benefits under certain circumstances or at a future time…” (20-21).

“Concluding Observations Based on the Clause’s Text and Historical Background

…Several observations can be made from this historical review:

“First, prior to the [Pension] Clause’s adoption, nearly all public employees were members of mandatory pension plans that lacked constitutional protection as ‘contractual’ rights and could be adversely changed by the legislature at any time. These mandatory plans were also underfunded and no better funded than the State’s five pension systems today.

“Second, public employees believed constitutional protection was necessary because the State had historically failed to make its required contributions and because employees felt that the State would renege on its obligations should a fiscal crisis arise. Police and firemen were particularly concerned that municipalities would use their new ‘home rule’ powers to abandon their local pension systems. Accordingly, employee groups advocated for a constitutional provision that would not only protect pension benefit rights but also require the full funding of the pension system.

“Third, the drafters of the Clause were aware of the concerns raised and requests made by public employee groups, the State’s failure to properly fund the pension system, and the difference in legal protection afforded to persons participating in a mandatory and optional pension plan. These concerns, in turn, prompted the drafters to include the Clause in the new Constitution.

“Fourth, the drafters intended for the Clause to (1) protect pension benefit rights in all pension plans as ‘enforceable contractual rights’ as of when a public employee became a member of a pension system, and (2) bar the legislature from later unilaterally reducing those rights. In particular, the legislature could not require an employee to contribute a greater percentage of his or her salary to receive the same benefit, require him or her to work more years to receive the same benefit, or pay the employee a lower pension if he or she met his or her contribution and service obligations.

“Fifth, while the drafters did not intend for the Clause to require the funding of the pension system at any particular funding percentage [People ex rel. Illinois Federation of Teachers v. Lindberg (1975), McNamee v. State (1996), and People ex rel. Sklodowski v. State (1998) (pages 37-41)], they nonetheless intended to require that pension benefit payments be paid when those payments became due, even if a pension system were to default or be on the verge of default. Indeed, the drafters contemplated that an employee could enforce his or her right to benefit payments in court through a group action to compel payment.

“Sixth, the drafters based the Clause on an identical provision in the New York Constitution, and included the Clause, in part, to foreclose the circumstance that occurred in New Jersey Supreme Court’s decision in Spina where the court upheld a unilateral reduction in pension benefits.

“Seventh, the drafters were aware of the concerns raised by the Pension Laws Commission as to the significant limitation the Clause would place on legislative power. And, they rejected the Commission’s overtures to amend the Clause to allow the General Assembly to unilaterally change employee contribution rates, service conditions or other benefit terms.

“Eighth, voters ratified the Clause based on the premise that the provision protected public pension benefit rights from reductions and that public employees were granted a constitutional right to their ‘full pension benefits.’

“Finally, a plain language reading of the Pension Clause’s text makes clear that governmental entities may not reduce or eliminate a public employee’s pension payments and other membership entitlements once the employee becomes a pension system member. At the same time, the plain language also indicates that an employee’s pension payments and other membership entitlements are ‘contractual’ rights that may be presumably altered through mutual assent via contract principles. Further, the Clause’s prohibitory language against the diminishment or impairment of pension benefits is cast in absolute terms and lacks any exceptions…” (pages 25-26).

from IS WELCHING ON PUBLIC PENSION PROMISES AN OPTION FOR ILLINOIS?
AN ANALYSISOF ARTICLE XIII, SECTION 5 OF THE ILLINOIS CONSTITUTION by Eric M. Madiar, Chief Legal Counsel to Illinois Senate President John J. Cullerton and Parliamentarian of the Illinois Senate.

4 comments:

  1. Great post which leaves no doubt about the strength of our position. Comforting to have you arguing for what's right in the pension wars. Thanks, Glen.

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  2. I'm starting to feel better about this whole mess...not that I trust our current legislators one bit but that we have a strong legal leg on which to stand.

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  3. The big scare is what could happen to Detroit's pension system due to bankruptcy. I've read states cannot declare bankruptcy, so Detroit has nothing to with state pensions. The state has other options it has failed to exercise.

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    1. "The [Pension] Clause stands as a constitutional guarantee that pension recipients will receive their pension payments when due even if a pension fund defaults or is on the verge of default. Any state pension participant placed in such a position would have a cause of action in circuit court to enforce this guarantee and obtain payment directly from the State’s General Fund. A participant need not pursue payment before the Illinois Court of Claims and depend upon the largesse of the General Assembly" (Eric M. Madiar).

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