Wednesday, February 13, 2013

Illinois Senate Bill 1: Just Another Form of Pension Cutting

SB 1Cullerton

A Response from the We Are One Labor Coalition of Illinois

SB 1/Part A would unilaterally reduce the pension benefits of current workers and retirees in four of the five state retirement systems. Because of this, it is extremely likely that this portion of the bill will be found unconstitutional if challenged by litigation… SB1/Part B also falls far short of passing constitutional muster.

SB 1/Part A would make it impossible for retirees to keep up with rising cost-of-living in retirement. The bill freezes COLAs for current or future retirees until 2017, leaving retirees vulnerable to inflation. On top of this, the bill freezes COLAs until a retiree reaches age 67. Lastly, the bill caps COLAs to the first $25,000 in benefits for those without Social Security and $20,000 for those aligned with Social Security. In effect, the COLA caps alone would cut a retiree’s purchasing power between 28% and 31% after twenty years in retirement. All the while, senior citizens – as major consumers of health care services – are one of the most at-risk demographic groups subject to inflationary pressures.

SB 1/Part A raises employee contributions by an additional 2% of salary. Combined with other benefit cuts, this further balances Illinois’ pension debt on the workers who did not cause the problem and paid into the pension systems every paycheck.

SB 1/Part A contains a funding guarantee requiring Illinois to make its pension payments; however, this guarantee can be suspended if a court finds it significantly imperils other funding priorities – health, safety, or welfare. With that exception in place, the guarantee lacks teeth and, further, does not give employees a separate right to civil action.

If SB 1/Part A is found unconstitutional, SB 1/Part B would go into effect if Part B survives constitutional review. SB 1/Part B offers workers and retirees a coercive “choice” which also fails to pass the constitutionality test: Retirees must choose between (1) a COLA that would reduce a pension’s value by one-third twenty years into retirement or (2) elimination of access to health insurance in retirement. Active employees must choose between (1) the diminished COLA or (2) elimination of access to health insurance AND a pension freeze at current salary level.

Both parts would be exempt from collective bargaining, denying rights to Illinois workers.

At the same time that the state failed to meet its pension obligations, it repeatedly extended tax breaks to big corporations, allowing them to evade paying their fair share. Closing corporate tax loopholes must be a part of any solution to the pension crisis.

The truth is that in order to meet its constitutional obligations to participants in state-funded pension plans, the state must either raise more revenue or decimate vital health, safety, and education programs. We believe it should close corporate tax giveaways rather than do harm to those citizens who rely on the state for vital services. Inviting a legal challenge from our coalition will lead to “several years” of budget uncertainty, doing little to address Standard & Poor’s concerns as expressed in its recent downgrade of Illinois bond rating. Further, if litigation overturns SB 1, Illinois will have kicked the can down the road and further jeopardized its fiscal situation and the solvency of its pension systems. It may even owe back payments to the pension systems. -- We Are One Labor Coalition of Illinois

Commentary on SB 1, Pt. B

Senate President John Cullerton’s SB 1, 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.” How is it legal and ethical then to create a bill and know that Part A is unconstitutional but hope Part B will be legitimate?

Though perhaps most contracts have an element of duress, where one side has something the other has no legal right to (health care), 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] used 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, it could be found in a court of law 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). In other words, state legislators were dishonest. “[They] had a duty to perform [and] didn’t perform [for decades] and, therefore, [they have] breached [their] contract [with public employees]” (Rohwer & Skrocki).

“Because there is already a contract relationship in existence which imposes a duty of good faith upon the parties, there is an issue of whether [this General Assembly will be] acting in bad faith [once again] in extracting a [coerced] consent to [a] modification [or impairment of a contract]... 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… [To repeat,] when there is a duty of immediate performance of a promise, failure to perform in full is a breach” (Rohwer & Skrocki). Consider Sosnowski’s recent resolution.

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’s not forget this essential understanding on how the state has arrived in this financial predicament. The state’s unfunded liability has increased to $96 billion (or more). Forty-six percent of that figure ($44.2 billion) is the result of legislators diverting (stealing) money from the public pension systems to pay for other services without increasing taxes. All citizens of the State of Illinois are in this fiscal morass primarily because of scheming Illinois legislators.

Today’s calamity is not the result of a financial problem that was unforeseen at the time of the Illinois Constitutional Convention of 1970 either. To reiterate, the unfunded liability is a consequence of legislative negligence, dishonesty and ineptitude. There should not be any consideration (or contract modification) of the public employees’ guaranteed, earned benefits. To respect a contractual promise as a legitimate right and moral concern is at stake for public employees and every other citizen in this state. Illinois pension reform is without legal and moral justification.

-Glen Brown


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