Tuesday, January 26, 2016

Another Illinois Pension Deal?





“Speaking to reporters after his speech, Cullerton said he and Rauner had spoken Monday morning and smoothed out their differences on pension reform legislation, and that bill is now being drafted. ‘I think we have an agreement,’ Cullerton said. ‘There are some tweaks to be made by the lawyers, and then the question’s going to be, ‘How do we pass it?’

“‘All these pension bills in the past that have passed have been very bipartisan and controversial, so we expect that the unions will probably not be supportive. So, that will make it more difficult to pass, but we’re going to be on the same page,’ Cullerton said.

“The plan reportedly focuses on giving state employees a choice. For instance, an employee who wants to keep the 3 percent, compounded cost-of-living raises payable in retirement would have to accept a lower pensionable salary. On the other hand, the employee could take the higher salary while working but get smaller cost-of-living raises while in retirement.

“Backers of the Cullerton plan say it could save Illinois — which has unfunded pension liabilities of more than $111 billion — about $1 billion annually. However, even supporters acknowledge such a plan likely would face a court challenge if passed.

“The Illinois Supreme Court last year threw out a 2013 pension reform effort, saying it violated the pension protection clause of the state constitution that says membership in a public pension system is a contractual relationship, ‘the benefits of which shall not be diminished or impaired.’

“Cullerton said he doesn’t expect opposition to the plan from Madigan, D-Chicago. He described Madigan as ‘not reluctant to take on pension reform.’
“‘The problem is going to be many of our members are probably going to say, ‘Well, that’s OK; that’s pension reform. But what about the rest of the budget? What about all the other issues?’

“Cullerton said the pension bill he and Rauner are working on does not include diminishing collective bargaining for state employees. ‘That’s not part of the deal,’ the Senate president said”
(Cullerton: Rauner on board for pension reform, Madigan support expected; GOP skeptical of school fund plan).


Commentary: 

1979, Kraus v. Board of Trustees… Police Pension Fund, Niles:

Law existing at the time of “vesting” is incorporated into an employee’s agreement… Pension benefits commence at the time employee contributions begin… The IL General Assembly cannot modify benefits: “The Clause protects pension benefit rights as an enforceable contractual relationship that is subject to modification [only] through contract principles [In other words, the teachers' unions would have to agree with a diminishment to their pensions already guaranteed by the IL Constitution].” Moreover, this case also “clarified that pension benefit rights were 'contractual' in nature under the Clause... [T]he court [also] rejected the notion that the General Assembly somehow retained a 'reserved power' to modify and reduce pension benefits because neither the Clause's text nor drafting history supported that view” (Eric M. Madiar).

“…The General Assembly may find itself in crisis, but it is a crisis which other public pension systems managed to avoid and, as reflected in the SEC order, it is a crisis for which the General Assembly itself is largely responsible.

“Moreover, no possible claim can be made that no less drastic measures were available when balancing pension obligations with other State expenditures became problematic. One alternative, identified at the hearing on Public Act 98-599, would have been to adopt a new schedule for amortizing the unfunded liabilities. The General Assembly could also have sought additional tax revenue. While it did pass a temporary income tax increase, it allowed the increased rate to lapse to a lower rate even as pension funding was being debated and litigated.

“That the State did not select the least drastic means of addressing its financial difficulties is reinforced by the legislative history. As noted earlier in this opinion, the chief sponsor of the legislation stated candidly that other alternatives were available. Public Act 98-599 was in no sense a last resort. Rather, it was an expedient to break a political stalemate.

“The United States Supreme Court has made clear that the United States Constitution ‘bar[s] Government from forcing some people alone to bear public burdens which, in all fairness and justice, should be borne by the public as a whole [citations].’ (Internal quotation marks omitted.) United States v. Winstar Corp., 518 U.S. 839, 883 (1996).

“Through Public Act 98-599, however, the General Assembly addressed the financial challenges facing our State by doing just that. It made no effort to distribute the burdens evenly among Illinoisans. It did not even attempt to distribute the burdens evenly among those with whom it has contractual relationships…” (ILLINOIS PENSION REFORM LITIGATION (Doris Heaton et al., Appellees, v. Pat Quinn, Governor, State of Illinois, et al., Appellants) Opinion filed May 8, 2015).


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