Glen,
Like you, I recognize that the threat to Illinois' public employee pensions is an existential one. We always must be vigilant when it comes to our pensions and the threat of pension theft. The ruling of the Illinois Supreme Court confirmed the language of the 1970 Constitution, known as the pension protection clause that prohibited any reduction or impairment of our retirement benefits. For the current period, I think that current retirees are therefore protected. I also think the Court extended this protection to all current employees. The pension protection clause covers them from the time they were hired and entered into the pension system. Do you agree?
-Fred
I
agree, Fred. Based upon several antedated court cases (that began with Kraus v. Board of Trustees of
the Police Pension Fund of the Village of Niles, 1979), law existing at
the time of “vesting” is incorporated into an employee’s agreement. Pension
benefits commence at the time employee contributions begin. The Illinois
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” (Eric M. Madiar, Is Welching
on Public Pension Promises an Option for Illinois, 2011).
The
Pension Protection Clause has safeguarded current employees’ pensions
consistently for 36 years since Kraus. Most recently, The Illinois Supreme
Court had ruled that Public Act 98-599 violated the Pension Protection Clause,
the Contracts Clause, and the Takings Clause of the Illinois Constitution on
May 8, 2015.
Moreover,
consider what Gino DiVito and John Fitzgerald (Tabet, DiVito & Rothstein,
LLC) stated in a Memorandum to Gov. Quinn on April 12, 2010:
“Vesting
of an employee’s rights in the system occurs either at the time the employee
entered the system or in 1971, when the Illinois Constitution became effective,
whichever is later.’ Carr v. Bd. of Trustees of Police Pension Fund of Peoria,
158 Ill. App. 3d 7, 8 (3d Dist. 1987); see also Schroeder v. Morton Grove
Police Pension Bd., 219 Ill. App. 3d 697, 700 (1st Dist. 1991); Hannigan v.
Hoffmeister, 240 Ill. App. 3d 1065, 1073 (1st Dist. 1992); Barber v. Bd. of
Trustees of Vill. of S. Barrington Police Pension Fund, 256 Ill. App. 3d 814,
820 (1st Dist. 1993 (same, quoting Carr, 158 Ill. App. 3d at 8)…
“Thus, a State employee’s pension rights are ‘governed by the actual terms of the Pension Code at the time the employee becomes a member of the pension system.’ Di Falco v. Bd. of Trustees of Firemen’s Pension Fund of Wood Dale Fire Protection Dist. No. 1, 122 Ill.2d 22, 26 (1988); see also McNamee v. State, 173 Ill.2d 433, 439 (1996); People ex rel. Sklodowski v. State, 182 Ill.2d 220, 229 (1998)…
“Thus, a State employee’s pension rights are ‘governed by the actual terms of the Pension Code at the time the employee becomes a member of the pension system.’ Di Falco v. Bd. of Trustees of Firemen’s Pension Fund of Wood Dale Fire Protection Dist. No. 1, 122 Ill.2d 22, 26 (1988); see also McNamee v. State, 173 Ill.2d 433, 439 (1996); People ex rel. Sklodowski v. State, 182 Ill.2d 220, 229 (1998)…
“Kraus
held that the Pension Protection Clause ‘prohibits legislative action which
directly diminishes the benefits to be received by those who became members of
the pension system prior to the enactment of the legislation, though they are
not yet eligible to retire.’ See Kraus, 72 Ill. App. 3d at 849… Kraus also
noted… that a State employee may agree, ‘for consideration, to accept a
reduction in benefits.’ Id. at 849... [Furthermore], an end run around the
Pension Protection Clause is directly prohibited by Kraus. As that decision
explains, the legislature cannot ‘directly’ diminish the pension rights of
current State employees, and legislative action that incidentally affects
pension rights is permissible only if it is ‘directed toward another aim.’ See
Kraus, 72 Ill. App. 3d at 849… [T]o directly diminish the pension rights of
current State employees… would therefore violate the Pension Protection
Clause…” (Memorandum by Gino L. DiVito and John Fitzgerald to the then Governor
of Illinois, Pat Quinn, May 5, 2010).
Nevertheless,
there will be another attempt, not long after the election, for a “modification
of contract principles.” Any attempt at modifications of the Pension Protection
Clause by the Illinois General Assembly should be seen for what it is: another
challenge by the current General Assembly and governor to steal money from the
public pension systems so they can avoid addressing the real causes of the
state's budget deficits: the pension ramp, the resultant pension debt, and the
state’s insufficient flow of revenue.
I
have written many times: contracts supported by consideration are often
one-sided, advantageous arrangements, especially a consideration from the
Illinois General Assembly that would be in exchange for reductions of
originally-vested benefits assured by the Illinois Constitution.
-Glen
Glen,
Once
again you have laid out the legal case as well as any legal scholar. I tend to
look at things politically. The ability of the state legislature to mount another
attack on public employee pensions involves political calculations. You
constantly remind us that the promise of a pension to the state’s workers is a
moral and legal obligation of the state. However, to most politicians in our
legislature pension obligations are neither a moral nor a legal problem for
them. They only consider political cost and benefit.
First,
I would say that there is the Quinn factor. The election of Bruce Rauner as
Governor can be directly tied to the decision of former Governor Pat Quinn to
make so-called pension reform his signature issue. It cost him his political
career. Even the most venal of legislators can figure that out.
Secondly,
pension theft has become, with the election of Bruce Rauner, a more partisan
issue. Some pension-theft Democrats have become born-again Progressives.
I
am willing to welcome that. I believe that for the immediate future, current
retirees can feel pretty secure that their pensions will be paid. I believe
that current employees can also feel secure, if slightly less so. As you point
out above, the argument for consideration and "a modification of contract
principles” will be pursued by the Governor and perhaps Senate President John
Cullerton.
We
can only hope - no demand - that the two state teacher unions and other public
employee unions stand firm and resist these attempts. If the past actions of
the current union leadership is a predictor of future performance I can
understand anyone’s skepticism.
Rank
and file union teachers must organize to prevent any deals that the leadership
makes that claims an exchange current benefits for something else. As you
correctly point out, no exchange of current benefits for consideration can
possibly be in the interest of current teachers.
My
biggest concern is for Tier 2 and future teachers. Who even pretends to
represent their interests?
-Fred
I
agree, Fred: “Rank and file union teachers must organize to prevent any deals
that the leadership makes that claims an exchange of current benefits for
something else.”
Although
retirees are not part of the collective bargaining process, active employees
are. The Illinois Supreme Court suggested that a consideration supported by
collective bargaining for current employees is a possibility. However, one
would think that a legitimate consideration means not taking away an already
existing constitutionally-guaranteed benefit!
The
Illinois General Assembly will probably be arguing for consideration based upon
Eric Madiar’s recent research. Here is a synopsis:
According to Madiar, “…Aside from the Senate
President’s contractual proposal, the Illinois Supreme Court’s Chicago Pension Reform decision strongly
indicates that pension benefits may also be modified by public sector labor
unions acting as authorized agents within the collective bargaining process for
their members under Illinois law.
“The court found that the legislation at issue
violated the Pension Clause because the labor unions ‘were not acting as
authorized agents within the collective bargaining process.’ To support this
proposition, the court referenced two New York court decisions cited by the
City of Chicago.
“In these decisions, the New York Court of
Appeals held that duly designated labor unions could bind their members to the
terms of collective bargaining agreements that waived the constitutional
protections the members enjoyed under the New York Constitution’s pension
clause. As another New York court succinctly explained, the purpose of its
pension clause ‘was merely to insure that pension and retirement benefits would
not be subject to the whim of the Legislature or the caprice of the employer.’
The court continued that:
“‘Whereas unilateral action by the employer or
the Legislature may not impair such benefits, the parties are not prevented
from negotiating a reduction. The Union
is free to waive any right of its members to certain benefits in exchange for
other consideration and the parties are free to negotiate less beneficial
terms for new employees hired after the agreement expires. As long as the
contractual benefits are not unilaterally diminished, there is no
constitutional violation.’
“In short, New York court decisions indicate that
duly authorized unions may collectively bargain over and waive the protected
pension benefit rights of their members in exchange for consideration.
“Whether Illinois courts will reach the same
broad conclusion as New York courts with respect to Illinois public sector
labor unions under our Pension Clause remains to be seen. Mayor Rahm Emanuel of
Chicago, however, has expressed interest in not waiting long to find out.
“Shortly after the Illinois
Supreme Court issued its decision, Mayor Emanuel stated that he intends to
restart negotiations with the City’s labor unions to forge a pension reform
agreement through collective bargaining given ‘the opening’ provided by the
decision.
“If a new accord with labor
unions cannot be reached, then Mayor’s office may pursue ‘work rule changes,
lower break-in pay for new employees, another round of health care reforms,
and other cost-saving concessions and dedicate those savings to pensions.’
“It is important to note
that as this Article went to press the Illinois Supreme Court issued its
decision in Matthews v. Chicago Transit
Authority. In that decision, the court further confirmed that ordinary
contract principles may be used to modify the existing pension benefits of
current employees, and that public sector labor unions have the authority to
modify the existing pension benefits of its active members through the
collective bargaining process.
“The Matthews decision appears to provide a clear path for the use of
the collective bargaining process as a contractual means to modify the pension
benefits of current public employees who belong to unions…” (Eric M. Madiar, Illinois Public Pensions: Where To
From Here?, 33 Ill. Pub. Employee Labor Report (Winter/Spring
2016). This will be another argument for the Illinois Supreme Court to
consider.
And
to answer your question: “Who even pretends to represent [Tier II and future
teachers’] interests?” No one is currently talking about the injustice.
According to Bob
Lyons, TRS Trustee, “the financial inequities of the Tier II funding and
benefit structure must be fixed. Current law requires Tier II members to
pay 9.4 percent of their salary and that subsidizes both Tier I and Tier II
benefits. The Tier II contribution is
50 percent higher than the benefit’s value, which is 6 percent of their pay.
“In 20 years, when Tier II members are a significant majority in TRS, the subsidy they pay will cause a reduction in the state’s annual contribution. Eventually, the state will not owe any annual contribution to TRS because the members will be paying the entire cost. This is fundamentally unfair to Tier II members.”
Moreover,
as stated by Dick Ingram, TRS Executive Director: “Tier II is the pension
benefit structure created by the General Assembly in 2010 for anyone who had
not contributed to TRS or another Illinois public pension system before January
1, 2011. Tier II is designed to help solve the financial problems faced by TRS
and the other systems by reducing pension benefits for these new members. Lower
pensions mean reduced long term costs for the state.
“If Tier
II is left alone, it will accomplish its mission. The $61.6 billon TRS unfunded
liability will shrink over several decades and eventually be eliminated because
the state will pay less to the ever-growing number of Tier II members. In fact,
at some point in the future, we estimate that Tier II members actually will
help create a surplus of funds for TRS that effectively could eliminate the
need for any state government contribution to the System.
“But the
core of Tier II – the reduced benefits structure – is a problem the Teacher
Recruiting and Retention Task Force will review. The benefit structure is
unfair to all Tier II members. Right now, a Tier I member’s pension costs
roughly 20 percent of an active member’s salary. Because of the benefit
reductions in Tier II, a Tier II member’s pension is worth just 7 percent of an
active member’s salary. However, by law, active Tier II members of TRS, like
[Ingram], pay the same 9.4 percent salary contribution to the System that
active Tier I members pay.
“What all
this means is that Tier II members are paying the entire cost of their pensions
plus an extra 2.4 percent to TRS. That extra 2.4 percent subsidizes the
pensions of Tier I members” (Topics and Report,
Teachers Retirement System of the State of Illinois, winter 2015).
-Glen
Thanks for the update.
ReplyDeleteThanks guys!
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