Chad Aldeman: First, can
you say why you are interested in pension reform, and what made this bill
important?
Daniel Biss:
I’m interested in pension reform because the first two years of my service in
the Illinois General Assembly were years that followed a very significant tax
increase and yet saw extremely deep cuts in discretionary spending to
areas of public service that I cared deeply about, the reasons that I entered
public service in the first place. The
size of our pension payments was so large that if we tried to address our
budget problems without looking at pensions, we would be signing ourselves up
for deep and never-ending impacts on the rest of state government. I just
couldn’t get to a place where that seemed acceptable. I sought out changes to
the pension system that ultimately strengthened and preserved it for those who
rely on it the most…
[“By far and away, the main reason the state’s contributions to its pension systems are increasing so much annually is the unrealistic, heavily back-loaded schedule the legislature set back in 1995 for repaying the debt the state owes to its pension systems. Of the $6.19 billion General Fund contribution to the five pension systems for FY2014, about $1.02 billion is attributable to the normal cost of the benefits being earned by current workers, while $5.17 billion constitutes debt repayment” (Analysis of FY2014 Illinois General Fund Budget from the Center for Tax and Budget Accountability). Furthermore, impairing a constitutional contract does not “strengthen and preserve it for those who rely on it the most”; breaking a contract with public employees will not address the revenue and debt problems in Illinois]…
[“By far and away, the main reason the state’s contributions to its pension systems are increasing so much annually is the unrealistic, heavily back-loaded schedule the legislature set back in 1995 for repaying the debt the state owes to its pension systems. Of the $6.19 billion General Fund contribution to the five pension systems for FY2014, about $1.02 billion is attributable to the normal cost of the benefits being earned by current workers, while $5.17 billion constitutes debt repayment” (Analysis of FY2014 Illinois General Fund Budget from the Center for Tax and Budget Accountability). Furthermore, impairing a constitutional contract does not “strengthen and preserve it for those who rely on it the most”; breaking a contract with public employees will not address the revenue and debt problems in Illinois]…
Aldeman: Am I reading
correctly that the changes apply to legislators? Was that a complicating factor
in the negotiations?
Biss: It
is true. Whatever the bill does for other
pension systems—for state employees, teachers, and state university
employees—the bill either replicates the same policy for legislators or asks
more of them.
[“Leaving the judges out of pension reform: ‘I would call this buying off the judges…’” (Ann Lousin, a professor at the John Marshall Law School in Chicago who helped draft the Illinois Constitution in 1970)]…
[“Leaving the judges out of pension reform: ‘I would call this buying off the judges…’” (Ann Lousin, a professor at the John Marshall Law School in Chicago who helped draft the Illinois Constitution in 1970)]…
Very few of us were prepared to do something like this to teachers, state workers, and university employees unless we were prepared to do it to ourselves as well.
[Approximately 80 percent of public employees have only one pension. How many pensions will the average Illinois legislator have?].
As an example, in 2010, Illinois created a new “Tier 2” of benefits for employees hired after January 1, 2011. It’s a relatively stingy plan. This bill didn’t change anything for those workers at all. The only exception is that the bill did have a cut for Tier 2 legislators. I just couldn’t look myself in the mirror and sponsor a bill that left me off the hook.
[Regarding Tier 2: Illinois legislators have failed to address the flaws in the newly-hired public employees’ pension plan. The “Tier 2” benefit structure for employees faces problems because the benefit is worth less than employees are paying for it. Tier 2 is a looming issue that must be resolved, but SB 1 will possibly create the same problem for the Teachers’ Retirement System (TRS) and, likely, the State Universities Retirement System (SURS)].
Aldeman: One
component of the bill is a gradual increase in the retirement age for current
employees. For example, if an employee is 46 years or older as of June 1, 2014,
they face no change, but if they’re between 45 and 46, their retirement age
will increase by 4 months. The law creates tiers like this, adding four months
to the retirement age a year until the employee is less than 32. Anyone 32 or
younger would have their retirement age increased by 60 months (5 years). What
was the rationale for creating this tiered system?
Biss: This
is probably one of the parts of the bill that feels the fairest to some people.
If you’re close to retirement, moving the retirement age is a lot to ask. If
someone is 59 and planning to retire at 60, changing their retirement age is
changing their life in a really extreme way. On the other hand, telling someone who’s younger, say 40, just
doesn’t seem as much to ask, particularly in a climate where other workers in
the private sector are retiring later.
[“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…” (Eric M. Madiar, Chief Legal Counsel to Illinois Senate President John J. Cullerton and Parliamentarian of the Illinois Senate)].
[“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…” (Eric M. Madiar, Chief Legal Counsel to Illinois Senate President John J. Cullerton and Parliamentarian of the Illinois Senate)].
I have always felt
you need to protect those close to retirement [But not public retirees?]. In a bill I introduced a year ago, we had
somewhat crude bands. Those bands were larger than what emerged in the final
bill. The bigger bands worked ok, but they unfairly penalized people depending
on when their birthday fell in relationship to the bands. The Senate
Republicans came up with the idea we compromised on. It may be difficult to
write it out, but it’s phased in smoothly and doesn’t make someone say, “I
can’t believe I was born only two days late.” It’s less capricious and
arbitrary. We wanted to phase it in over a reasonable time period while
sheltering those who are close to retirement. However, part of the challenge
for a place like Illinois, because we
have so much debt, is that an unbelievably large portion of our liability is
associated with workers and retirees who are over the age of 60. In other words, the vast majority of our
unfunded liability is to retirees. What this means is that changing the
retirement age just can’t move the needle significantly enough on the cost
side.
We were asked, “How
can you possibly touch retirees?” but once you realize that two-thirds of our
liability is associated with people over the age of 60, it doesn’t seem plausible to make a significant fiscal change while
leaving retirees untouched.
[“The significance of any modification of the “Pension Clause” is “the extent to which [retirees] will be deprived of the benefit [they] reasonably expected; the extent to which [retirees] can be adequately compensated for the part of that benefit [COLA] 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… 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’” (Professor of Law, Emeritus, Claude D. Rohwer and Professor of Law, Emeritus, Anthony M. Skrocki, Contracts in a Nutshell)].
[“The significance of any modification of the “Pension Clause” is “the extent to which [retirees] will be deprived of the benefit [they] reasonably expected; the extent to which [retirees] can be adequately compensated for the part of that benefit [COLA] 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… 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’” (Professor of Law, Emeritus, Claude D. Rohwer and Professor of Law, Emeritus, Anthony M. Skrocki, Contracts in a Nutshell)].
Aldeman: There’s been
quite a bit of questioning about the legality of the changes. Article XIII,
Section 5 of the Illinois State Constitution says, “Membership in any pension
or retirement system of the State, any unit of local government or school
district, or any agency of instrumentality thereof, shall be an enforceable
contractual relationship, the benefits of which shall not be diminished or
impaired.” The last part, “shall not be diminished or impaired” has been seized
on as prohibiting changes like what’s in this bill. Can you explain the counter
argument for why these changes are legal?
Biss: There
are a number of different arguments. I would lay out two here. First, there is consideration given to the class of
affected individuals in this bill. It is consideration to the class rather
than an opportunity for each individual to renegotiate their contract. For
those still working, their annual contributions will be reduced by 1%.
[No consideration was given to public employees in Senate Bill 1: reducing the contribution rate for current teachers by one percent was not a consideration. It was not negotiated; furthermore, modification of contract principles for retirees was also without consent. “It 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” (Ross v. May Co., 377 Ill. App. 3d 387, 389 (2007)].
[No consideration was given to public employees in Senate Bill 1: reducing the contribution rate for current teachers by one percent was not a consideration. It was not negotiated; furthermore, modification of contract principles for retirees was also without consent. “It 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” (Ross v. May Co., 377 Ill. App. 3d 387, 389 (2007)].
For the entire class, there is a significant new right in the form of additional funding. The Supreme Court has said the Constitution has protected the right to a benefit, but we’re also creating a new right to fund the benefit properly and therefore guarantee its fiscal health and stability. We’re not only going to an actuarially funding schedule, we’re going above and beyond that. All of this is money going to the retirement system and therefore to the employees.
[Illinois legislators who challenge constitutional contracts can never be trusted. As a matter of fact, according to Representative Elaine Nekritz: “The so-called pension payment guarantee has wiggle room. If the state fails to make a pension payment, a retirement system could file action in the Illinois Supreme Court to compel the state to make the required payment. But if the state faces a crisis, it could simply vote to change what the required payment would be; [thus], effectively working around that guarantee”].
The second argument is simply one of balancing priorities.
The Constitution does include Article XIII, Section 5. But it’s a long
constitution and it includes other things too, such as a free public education
and health and welfare and safety. It’s
very clear that we’ve had to cut spending on things like public education in a
way and to an extent that imperils the quality of our services.
[“… [T]here are those among us who want to abandon] the fundamental principle that the rules of the game for contracting parties are not to be changed midstream… This is especially hard to comprehend when public employees have diligently and faithfully paid their contributions while their government employers have failed to pay their required share. Indeed, for decades, states have treated pension systems as a credit card to pay for government services and avoid tax increases or service cuts (p. 194)... For lawmakers, it is simply politically more palatable to unilaterally cut pension benefits for public employees and retirees than to raise taxes, cut services, or both…” (Eric M. Madiar (2012). Public Pension Benefits under Siege: Does State Law Facilitate or Block Recent Efforts to Cut the Pension Benefits of Public Servants? ABA Journal of Labor & Employment Law, V. 27, no. 2, 179-194. Retrieved December 7, 2012 (Defending and Protecting Public Employees’ Pensions against the Legislative Siege)].
[“… [T]here are those among us who want to abandon] the fundamental principle that the rules of the game for contracting parties are not to be changed midstream… This is especially hard to comprehend when public employees have diligently and faithfully paid their contributions while their government employers have failed to pay their required share. Indeed, for decades, states have treated pension systems as a credit card to pay for government services and avoid tax increases or service cuts (p. 194)... For lawmakers, it is simply politically more palatable to unilaterally cut pension benefits for public employees and retirees than to raise taxes, cut services, or both…” (Eric M. Madiar (2012). Public Pension Benefits under Siege: Does State Law Facilitate or Block Recent Efforts to Cut the Pension Benefits of Public Servants? ABA Journal of Labor & Employment Law, V. 27, no. 2, 179-194. Retrieved December 7, 2012 (Defending and Protecting Public Employees’ Pensions against the Legislative Siege)].
My expectation would
be that the courts decline to rule narrowly but will recognize that this was an
attempt to balance between different priorities, all of which are important,
some of which are statutorily and others which are constitutionally protected. Though it was a difficult and painful
struggle internally, I felt like the public harm from doing nothing at all was
unacceptable to the people of Illinois. I hope the courts will weigh that
seriously and carefully as they make a determination...
[“…One thing we cannot do [Daniel Biss]… is ignore the Constitution of Illinois… No principle of law permits us to suspend constitutional requirements for economic reasons, no matter how compelling those reasons may seem…” (from Ann B. Jorgensen et al., Appellees, v. Rod R. Blagojevich, Governor, et al., Appellants).]
[“…One thing we cannot do [Daniel Biss]… is ignore the Constitution of Illinois… No principle of law permits us to suspend constitutional requirements for economic reasons, no matter how compelling those reasons may seem…” (from Ann B. Jorgensen et al., Appellees, v. Rod R. Blagojevich, Governor, et al., Appellants).]
“[Any] attempt to denigrate the validity of decades of
judicial precedents about the binding nature of legislation establishing
pension commitments to government employees and to motivate state courts to
overturn long-settled premises about these commitments would impose its own,
unjustifiable costs. The states and their instrumentalities have promised
pension benefits to their employees; those employees have relied on those
long-standing promises; and as a result the citizens of the states have
benefited from the services provided by those employees. [In short,] there is
no sound public policy reason to conclude that these promises – based on the
reasonable expectations of the contracting parties – should not be fully
protected by the laws prohibiting or limiting the impairment of contracts”
(Greenfield, Douglas L., Lahne, Susan G. (2012). How Much Can States Change Existing Retirement Policy? In Defense of State
Judicial Decisions Protecting Public Employees’ Pensions. National Council
of State Legislatures Legislative Summit).
“[The Pension Protection Clause was approved by the Constitutional Convention and ratified by the people of Illinois. Over the years, the Illinois Supreme Court has had several occasions to interpret the Pension Protection Clause. The Illinois Supreme Court’s decisions have been consistent: ‘[T]his court has consistently invalidated amendments to the Pension Code where the result is to diminish benefits.’ McNamee v. State, 173 Ill. 2d 433, 445 (1996). That is because, under the Pension Protection Clause, the ‘contractual relationship’ between a retirement system member and the State of Illinois is ‘governed by the actual terms of the Pension Code at the time the employee becomes a member of the pension system.’ McNamee, 173 Ill. 2d at 439.
“[In a strikingly similar context, the Illinois Supreme Court also has warned: ‘No principle of law permits us to suspend constitutional requirements for economic reasons, no matter how compelling those reasons may seem.’” (Jorgensen v. Blagojevich, 211 Ill. 2d 286, 316 (2004) (from the 12-page legal document recently filed by the law firm of Tabet, DiVito & Rothstein on behalf of the plaintiffs named from the IRTA and IASA)].
[Your oath of office, Senator Biss: “Each prospective holder of a State office or other State position created by this Constitution, before taking office, shall take and subscribe to the following oath or affirmation: ‘I do solemnly swear (affirm) that I will support the Constitution of the United States, and the Constitution of the State of Illinois, and that I will faithfully discharge the duties of the office of…to the best of my ability’” (The Constitution of the State of Illinois, Article XIII—Oath or Affirmation of Office, Section 3)].
-Glen Brown
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