Thursday, July 3, 2014

Illinois Supreme Court: State Can't Cut Subsidies for Retirees' Health Care Premiums (Kanerva v. Weems, 2014 IL 115811)

“The Illinois Supreme Court ruled [6 - 1] today [July 3, 2014] that subsidized health care premiums for retired state employees are protected under the Illinois Constitution, signaling potential trouble for an overhaul of pension benefits that’s also being challenged in court...

“In Thursday’s ruling, the justices argued ‘there is nothing in the text of the Constitution that warrants such a limitation.’

“‘We conclude that the state’s provision of health insurance premium subsidies for retirees is a benefit of membership in a pension or retirement system within the meaning (of the Constitution) and therefore the General Assembly was precluded from diminishing or impairing that benefit,’ justices wrote in their opinion…

“The same provision is at the heart of several lawsuits challenging broader pension changes lawmakers passed in December. That measure reduces costs-of-living increases and raises retirement ages, among other changes.”

…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).

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.

“This is a major victory for members of state retirement systems,” said John Fitzgerald, a partner at Chicago law firm Tabet DiVito & Rothstein LLC, who represents retired state teachers and school administrators. “I expect it will have a very significant effect on pending litigation” over the state's pension reform law. “It means that the Illinois Supreme Court is giving the pension protection clause the broad and liberal interpretation that the drafters intended.”

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