Thursday, January 12, 2017

"Once an individual begins work and becomes a member of a public retirement system, any subsequent changes to the Pension Code that would diminish the benefits conferred by membership in the retirement system cannot be applied to that individual" -Illinois Supreme Court

“…The pension protection clause clearly states: ‘[m]embership in any pension or retirement system of the State *** shall be an enforceable contractual relationship, the benefits of which shall not be diminished or impaired.’ (Emphasis added.) Ill. Const. 1970, art. XIII, §5. This clause has been construed by our court on numerous occasions, most recently in Kanerva v. Weems, 2014 IL 115811. We held in that case that the clause means precisely what it says: ‘if something qualifies as a benefit of the enforceable contractual relationship resulting from membership in one of the State’s pension or retirement systems, it cannot be diminished or impaired.’ Id.¶ 38.

“This construction of article XIII, section 5, was not a break from prior law. To the contrary, it was a reaffirmation of principles articulated by this court and the appellate court on numerous occasions since the 1970 Constitution took effect. Under article XIII, section 5, members of pension plans subject to its provisions have a legally enforceable right to receive the benefits they have been promised. People ex rel. Sklodowski v. State, 182 Ill. 2d 220, 229-32 (1998); McNamee v. State, 173 Ill. 2d 433, 444-46 (1996). 

“The protections afforded to such benefits by article XIII, section 5 attach once an individual first embarks upon employment in a position covered by a public retirement system, not when the employee ultimately retires. See Di Falco v. Board of Trustees of the Firemen’s Pension Fund of the Wood Dale Fire Protection District No. One, 122 Ill. 2d 22, 26 (1988). 

“Accordingly, once an individual begins work and becomes a member of a public retirement system, any subsequent changes to the Pension Code that would diminish the benefits conferred by membership in the retirement system cannot be applied to that individual. Buddell v. Board of Trustees, State University Retirement System, 118 Ill. 2d 99, 105-06 (1987) (pension protection clause barred statutory change in Pension Code which prevented current pension system member from purchasing service credit for time spent in military); Felt v. Board of Trustees of the Judges Retirement System, 107 Ill. 2d 158, 162-63 (1985) (amendment to Pension Code adversely affecting base salary used to compute annuity impermissibly reduced retirement benefits of existing retirement system members in violation of pension protection clause); Kraus v. Board of Trustees of the Police Pension Fund, 72 Ill. App. 3d 833, 844-48 (1979) (change in Pension Code’s method of computing a police officer’s pensionable salary in a way that would reduce the amount of the pension could not, under the pension protection clause, be applied to persons who were members of the retirement system prior to the amendment’s effective date); Miller v. Retirement Board of Policemen’s Annuity & Benefit Fund, 329 Ill. App. 3d 589 (2001) (amendments to Pension Code which reduced benefits of existing retirement system members with respect to eligibility for automatic annual increases unconstitutional under pension protection clause); Schroeder v. Morton Grove Police Pension Board, 219 Ill. App. 3d 697 (1991) (finding invalid, as violation of pension protection clause, amendment to Pension Code reducing pension benefits based on receipt of workers’ compensation benefits)… 

“As this opinion has previously observed, our economy is and has always been subject to fluctuations, sometimes very extreme fluctuations. Throughout the past century, market forces have periodically placed significant pressures on public pension systems. The repercussions of underfunding those pension systems in such an environment have been well-documented and were well-known when the General Assembly enacted the provisions of the Pension Code which Public Act 98-599 now seeks to change.

“The General Assembly had available to it all the information it needed to estimate the long-term costs of those provisions, including the costs of annual annuity increases, and the provisions have operated as designed. The General Assembly understood that the provisions would be subject to the pension protection clause. In addition, the law was clear that the promised benefits would therefore have to be paid, and that the responsibility for providing the State’s share of the necessary funding fell squarely on the legislature’s shoulders. Accordingly, the funding problems which developed were entirely foreseeable.

“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…

“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. Although it is undisputed that many vendors face delays in payment, the terms of their contracts are unchanged, and under the State Prompt Payment Act, vendors are actually entitled to additional compensation in the form of statutory interest if their bills are not paid within specified periods. 30 ILCS 540/3-2 (West 2012). In no sense is this comparable to the situation confronted by members of public retirement systems under Public Act 98-599, which, if allowed to take effect, would actually negate substantive terms of their contractual relationships and reduce the benefits due and payable to them in a real and absolute way…

“Given the history of article XIII, section 5, and the language that was ultimately adopted, we therefore have no possible basis for interpreting the provision to mean that its protections can be overridden if the General Assembly deems it appropriate (see id.), as it sometimes can be under the contracts clause. To confer such authority on the legislature through judicial fiat would require that we ignore the plain language of the constitution and rewrite it to include ‘restrictions and limitations that the drafters did not express and the citizens of Illinois did not approve.’ Kanerva v. Weems, 2014 IL 115811, ¶ 41. Indeed, accepting the State’s position that reducing retirement benefits is justified by economic circumstances would require that we allow the legislature to do the very thing the pension protection clause was designed to prevent it from doing. Article XIII, section 5, would be rendered a nullity…

“Article XIII, section 5, of the Illinois Constitution (Ill. Const. 1970, art. XIII, § 5) expressly provides that the benefits of membership in a public retirement system ‘shall not be diminished or impaired.’ Through this provision, the people of Illinois yielded none of their sovereign authority. They simply withheld an important part of it from the legislature because they believed, based on historical experience, that when it came to retirement benefits for public employees, the legislature could not be trusted with more. 

“As we discussed in Kanerva v. Weems, 2014 IL 115811, ¶ 45, and noted earlier in this opinion, delegates to the constitutional convention were ‘mindful that in the past, appropriations to cover state pension obligations had ‘been made a political football’ and ‘the party in power would just use the amount of the state contribution to help balance budgets,’ jeopardizing the resources available to meet the State’s obligations to participants in its pension systems in the future.’ 

“They understood that steps were necessary ‘in order to protect ‘public employees who are beginning to lose faith in the ability of the state and its political subdivisions to meet these benefit payments’ and to address the ‘insecurity on the part of the public employees [which] is really defeating the very purpose for which the retirement system was established ***.’” Id. ¶ 46 (quoting 4 Record of Proceedings 2925 (statements of Delegate Green)). 

“And they wanted to make certain ‘that irrespective of the financial condition of a municipality or even the state government, that those persons who have worked for often substandard wages over a long period of time could at least expect to live in some kind of dignity during their golden years ***.’ (Internal quotation marks omitted.) Id…

“The financial challenges facing state and local governments in Illinois are well known and significant. In ruling as we have today, we do not mean to minimize the gravity of the State’s problems or the magnitude of the difficulty facing our elected representatives. It is our obligation, however, just as it is theirs, to ensure that the law is followed. That is true at all times. It is especially important in times of crisis when, as this case demonstrates, even clear principles and long-standing precedent are threatened. Crisis is not an excuse to abandon the rule of law. It is a summons to defend it. How we respond is the measure of our commitment to the principles of justice we are sworn to uphold…

“Obliging the government to control itself is what we are called upon to do today. The Constitution of Illinois and the precedent of our court admit of only one conclusion: the annuity reduction provisions of Public Act 98-599 enacted by the legislature and signed into law by the Governor violate article XIII, section 5’s express prohibition against the diminishment of the benefits of membership in public retirement systems. The circuit court was therefore entirely correct when it declared those provisions void and unenforceable…” (In re PENSION REFORM LITIGATION (Doris Heaton et al., Appellees,v. Pat Quinn, Governor, State of Illinois, et al., Appellants), 2015 IL 118585).

1 comment:

  1. “…[A] contract right becomes vested when the employee has fulfilled all of the necessary qualifications and obligations for enjoyment of the right, [as in the case of retirees]. Lawrence, 152 Ill. App. 3d at 197-98 (quoting Kulins, 121 Ill. App. 3d at 525-27); see also Navlet v. Port of Seattle, 194 P.3d 221, 237 (Wash. 2008) (en banc)… Where all of the requisite specifications for the present or future enjoyment of a right have been achieved, the right is considered to be vested…” Black’s Law Dictionary 1699 (9th ed. 2009). (qtd. in Matthews v. CTA, 2016 IL 117638).