Tuesday, April 14, 2015

Governor Rauner’s (and the Civic Federation’s) “Hard Freeze” of Pension Benefits Would Give Current Teachers and State Employees Frostbite

“Governor Bruce Rauner’s recommended budget for fiscal year 2016 includes a new plan for reducing the State of Illinois’ massive pension costs. As discussed here, the plan could cut the State’s unfunded pension liability by approximately $25 billion and save $2.2 billion on pension contributions from general operating funds in FY2016, according to the budget proposal.

“Proposed legislation on the plan has not yet been filed and the actuarial analysis that was used to generate the savings estimates was not released with other budget material. However, the plan’s main features are described in the recommended budget.

“The key component of the proposal is a freeze on the State’s more generous level of benefits, which are available to employees hired before 2011. Under the new plan, these Tier 1 benefits would only be paid on service before July 1, 2015. For work after that date, benefits would be paid at the lower Tier 2 level.

“In pension terminology, this is known as a ‘hard freeze.’ A hard freeze is when an employer ends benefit accruals for existing employees in a pension plan. As a result, benefits paid under that plan do not increase with additional years on the job or salary increases. In contrast, a ‘soft freeze,’ such as the one that created Illinois’ Tier 2, only closes a plan to newly hired workers.

“A hard freeze immediately reduces an employer’s projected accrued pension liability. This liability consists of benefits earned by retired employees; benefits earned by existing employees based on their current salaries and years of service; and the effect of future salary increases on existing employees’ past service. (Many public retirement systems, but not the State’s under current law, also take into account a portion of future service in computing accrued liability.) A hard freeze does not affect benefits already earned by retirees and existing employees. It does eliminate future salary increases from the accrued liability calculation…”

For the entire article, click here.

Commentary (for the umpteenth time)

[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… Further, the Clause’s prohibitory language against the diminishment or impairment of pension benefits is cast in absolute terms and lacks any exceptions…” (Is Welching on Public Pension Promises an Option for Illinois?).  

To challenge the “Pension Clause” is to defy common understanding of its legal and moral principles and to believe that every word in the State and U.S. Constitutions might also be interpreted in an infinite, fabricated regression. 

We have before us “the validity of decades of judicial precedents” that provide “the binding nature of legislation establishing pension commitments to government employees(Defending and Protecting Public Employees’ Pensions against the Legislative Siege).  

If there is anything else we might examine regarding the “Pension Clause” and its relationship to a reality that reveals repeated attempts by the wealthy elite, their politicians and the media to steal constitutionally-guaranteed pension benefit rights, perhaps we should also dispute the relentless attacks on the very intelligibility of the English language by these liars and thieves. We know the “Pension Clause” is valid because it is understood to be a contractual right and guarantee that public employees have earned. 

Though incompetent, corrupt politicians and their wealthy benefactors continue to ignore legal and moral terminologies and court precedents, logical and ethical people understand the essential history and necessity of the “Pension Clause” and know what it also means to uphold the State and U.S. Constitutions. 

The promise to honor commitments and pay for the public employees’ pension is of “sufficient importance” to all citizens of Illinois. To pass any 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).

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 flawed 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.  

[T]he Illinois Supreme Court instructed, that ‘general language in a [judicial] opinion must not be ripped from its context to make a rule far broader than the factual circumstances which called forth the language.’ …In 1982, the Appellate Court in Kuhlmann v. Board of Trustees of the Police Fund of Maywood, again relied on Kraus [v. Board of Trustees of the Police Pension Fund of the Village of Niles, 1979] as well as Ziebell [v. Board of Trustees of the Police Pension Fund of the Village of Forest Park, 1979] to fashion the following rule regarding the Clause’s scope: [A]ny alteration of the pension system amounts to a modification of the existing contract between the State (or one of its agencies) and all members of the pension system, whether employees or retirees. A member is contractually protected against a reduction in benefits…” (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, former Chief Legal Counsel to Illinois Senate President John J. Cullerton and Parliamentarian of the Illinois Senate).


  1. I REPEAT FOR THE UMPTEENTH TIME, the just and stress free route is liberating the pensions from the state and suing the state for all owed going back to 1941. Otherwise this will go on forever and eventually wearing done and disabling all educational systems and loosing the most brilliant educators. Liberation of our pensions is the right and heroic way. Having ANYTHING to do with the corruption of politicians is a disgusting thought. Right minded people should not even be associated with such evil, criminal. avarice stuffed creatures. We should not want in any way to even, to have anything to do with any of them. They are Hell Bound.

    1. Dear Peter:

      "People ex rel. Illinois Federation of Teachers v. Lindberg, 60 Ill. 2d 266, 268-70, 326 N.E.2d 749, 750-51 (1975) (IL Supreme Court): Members of the teachers’ pension systems and members of other systems filed a mandamus action as a class to require the State to pay amounts originally appropriated by the General Assembly to their retirement systems after the Governor exercised his item reduction veto power to reduce the appropriated amounts. They contended that the Pension Clause represented an enforceable, contractual right to have their respective pension systems funded in an actuarially sound manner and that the provisions of the Code were a binding obligation on the legislature that could not be 'impaired.' The plaintiffs asked the court to restore the original appropriation. The trial court dismissed the class action. The IL Supreme Court concluded that the drafters of the Constitution did 'not establish the intent to constitutionally require a specific level of pension appropriations during a fiscal year'" (Eric M. Madiar).

  2. Gov. Rauner:

    The defined-benefit pension plan is less expensive for taxpayers than Social Security – This is the primary reason why previous legislators had negotiated for Illinois teachers to not pay into Social Security.

    Moreover, public employees (teachers) are not currently eligible for Social Security. Most likely, school districts (taxpayers) would pay for the 6.2% employer portion of Social Security taxes for teachers in your so-called "lower level" Tier II.

  3. In Florida, the billionaire CEO whose corporation was found guilty of the greatest fraud in Medicare history was elected governor, In Illinois, Rauner was elected based on millions in advertising and media payouts. Something in me wants to say that we deserve whatever they dish out to the people in their states. Then I realize that we should not all be punished for the propaganda, ideology, graft and corruption spewed by these sociopath governors. We do not all deserve this.
    So, what can we do about it?
    Fight them every inch of the way. If we fight, we might lose. If we don't fight, we have already lost.

  4. from the Chicago Tribune:

    "Under Rauner's proposal, veteran employees would be allowed to keep all retirement benefits they have earned up to the end of June. After that, everyone would be moved into the Tier 2 plan, with the exception of workers who opt to transfer their retirement benefits into a 401k-style retirement account similar to those now common in private industry.

    "Jean-Pierre Aubry, an expert on public pension plans at Boston College, termed the benefit cuts of Tier 2 'pretty draconian,' opening the door to future problems he said would be without precedent in the U.S. 'There's a lot of things in Illinois that are different from the rest of the country,' said Aubry, assistant director of state and local research at the college's Center for Retirement Research.

    "Central to questions about Tier 2 is a federal tax provision sometimes referred to as the Safe Harbor rule. In short, it requires public pension plans to offer retirement benefits at least as good as the minimum workers would get if they were covered by Social Security.

    "Failing that, federal law requires public workers to join Social Security and pay a 6.2 percent tax to the national retirement system. Their employers would also have to kick in another 6.2 percent, costing taxpayers more money. Most public employees and employers in Illinois currently do not pay Social Security taxes.

    "Teacher retirement system experts say Tier 2 benefits currently meet the Safe Harbor test but will begin to fall out of compliance by 2027. The reason, they say, is that Tier 2 includes both a limit on benefits and inflation adjustments much tighter than those adopted by Social Security — leaving retirement benefits for some workers at risk of falling below what they could qualify for under the federal system..."